Senior Housing 2013: Win, Lose, Draw?

My predictions for senior housing in 2013.

1. Market Growth - In mid to late 2013 we will see a significant increase in inventory, particularly in the area of memory care. Most of those communities will fill as fast or faster than projected, but there will be some failures. It is likely many of the failures will not become public until 2014, when operators and their investors run out of cash.

2. Occupancy - Occupancy will be a mixed bag, there will be some excellent operators, in superb markets that see spectacular results (I recently met with an operator who opened two assisted living communities that were more than 80% occupied after two months). Overall though, the market will continue to struggle with occupancy for three reasons:

A. The economy will continue to be a challenge both in terms of home sales and investment revenues.

B. The natural bias against senior housing will continue to work against us, something that can and will change over time with a radical rethinking of how we do senior housing.

C. Though there continues to be a lack of innovative thinking in how to make senior housing attractive to the 90% who are staying home, this is not true in the world of “aging in place”. Every week there are articles about new ways of keeping seniors at home. We are seeing smarter ways of providing service and better technology. We are even seeing traditional senior housing companies jumping on the “age in place” bandwagon.

3. Fools Rush In - A dozen or so times a year, I am contacted by a developer or land owner who has a senior project they are trying to get off the ground. In most cases they have entitlements and a positive market study. What they are lacking though is an experienced operator who is also willing to invest money in the project.

It is not really my business model, so I don’t do any serious due diligence, but it is often fairly easy to spot the really good projects and the really bad ones with about a 50/50 split between the two.

Because there is a lot of capital looking to go into senior housing we will begin to see more of the marginal projects and perhaps even a few of the really terrible projects get funded with unhappy results.

4. REIT’s Becoming Developers - There is a lot of REIT money looking to invest in senior housing. The traditional model has been for the REIT’s get involved in stabilized properties representing low levels of risk to their investors. There are just not enough properties available so we will see more REIT’s partnering with experienced developers to create new, from the ground-up, communities.

What is your take on the senior housing market for 2013?

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