The senior housing market is maturing and evolving despite recent setbacks caused by the pandemic. The market’s resilience and rapid growth has piqued interest from investors and developers alike. Since the age of the senior population exists outside of economic activity, senior housing will continue to be a recession-resistant investment.
Because the market doesn’t necessarily follow the ebbs and flows of commercial real estate, demand will only continue to grow. Plus, with 10,000 Baby Boomers turning 65 years old every day, the senior housing spike is not anticipated to slow down anytime in the near future.
Read ahead to learn what market shifts are driving the senior housing spike, the challenges investors and developers face, and how an entity management solution can address these issues.
What Factors are Driving Senior Housing Demand?
One of the primary drivers for senior housing demand is an aging population. By 2040, there are predicted to be more than 80 million people over the age of 65. Further, rising life expectancy rates in the United States call for an increased investment in infrastructure that can support longer lifespans. As such, the market (and demand) will continue to grow.
What Challenges Are Investors and Developers Facing?
As investors search for yield in an ultra-competitive landscape, some are turning to alternative asset classes, like senior housing, for portfolio diversification. In fact, 76% of investors expect to increase their exposure to senior living in the next year. But challenges, including rising operating and construction costs, slowed construction pipelines, and ongoing talent shortages, have created barriers for investors and developers entering this space.
Supply vs. Demand
Slowed Construction Pipelines
In most markets, construction activity slowed due to labor and material shortages related to the pandemic. Although construction in primary markets has since increased, activity in secondary markets is still behind. Construction in primary markets totaled about 8,204 new units of majority independent living and 9,648 new units of majority assisted living in the Q4 2021 — an uptick from 2020 and 2021 lows.
According to JLL, “Construction activity is highly concentrated in Sun Belt markets, reflecting an acceleration in migration patterns among those in the 55+ cohort.” For seniors living outside of the Sun Belt, this could mean even slower housing development timelines.
Rising Developmental Costs
Since the onset of the pandemic, senior housing development costs have skyrocketed due to commodity and supply chain challenges, rising interest rates, and increased construction costs. Additionally, higher labor expenses and robust demand for new construction projects have largely contributed to rising developmental costs.
In 2019, average total costs for senior housing development rose by 6.4%. Simultaneously, the average number of total revenue units per property decreased to 106, down from 128 in the previous year. As material and labor shortages continue, investors and developers can expect to encounter increasing costs for the unforeseen future.
The Creation of Multiple Entities and Government Regulations
For each senior housing project, separate entities must be created. The type(s) of entity and licensure requirements depend on the type of senior housing project (assisted living, independent living, 55+ communities, and so on).
Because of the various requirements, investors and developers (especially those entering the market for the first time) often face challenges with entity creation. The difficulties usually arise from not knowing what types of entities they need and where to start.
In addition to the licensing requirements, each state has regulations governing the standard of care required at senior housing facilities. This standard of care includes resident rights, admission agreements, resident funds, abuse prevention, mandatory resident services, and staff qualifications. Investors must be aware that these regulations can evolve with changes in state and federal government, so operators must stay up to date on changes to avoid liabilities.
How Can an Entity Management Solution Address These Challenges?
As the senior housing market spikes and investors and developers venture into the market, the investor, its counsel, and other advisors must consider the legalities of the investment. From ownership structures to licenses to insurances, a series of legal matters, deadlines, and documentation must be addressed.
An entity management software, like EntityKeeper, helps you manage entities, build and maintain complex ownership structures, and track filing deadlines in one secure platform. For investors juggling the many requirements and legal entities that accompany senior housing investment and development, a solution can simplify the process.