Reimagining Retirement Housing
No one wants to live in God’s waiting room
I’ve been spending time thinking about elderly care over the past couple of months. You can read the previous posts here. Across the board, from delivery of care to care coordination to senior housing facilities, opportunities exist. One clear opportunity that exists in the senior housing market. We’ve seen co-living companies like StarCity and Common grow and expand with venture and real estate dollars. The boomer community is a clear and untapped market to take this playbook and repeat.
The Problem
Senior housing facilities suck.
I’ve spent hours looking at senior homes online. They are filled with fluorescent lights, squeaky couches from the 80s and cold interiors.
Senior housing is insanely expensive.
Senior housing is expensive. The entrance and service fees are unaffordable for average Americans. The prices across various types of care are increasing.
You can see here that the cost per unit has continued to increase:
Historical Rent Change by Housing Type
There is a senior housing shortage that will continue to grow.
According to CBRE, we’re seeing 30-year lows in senior housing growth. The Q2 2018 y-o-y growth rate of 2.7% is below the annual growth rate of 4.0%. The senior population is growing rapidly: from 2016 to 2025 the US population aged 75+ will increase by 39% from 20.6M to 28.6M. This will generate significant demand for senior housing facilities, unmet by the current growth rate.
Senior housing inventory growth rate is at an all-time low
Mapping the Senior Housing Market
The Market
Today, there are approximately 23,350 professionally managed senior housing communities, totaling 3M beds nationally. This represents a projected $469.2 Billion based on the Senior Care Acquisition Report and NIC MAP’s industry projections. This is up 100% from $228.8 Billion in 2009. The largest portion of this market comes from Independent Living (43%), which is the area that I’m interested in building in. From CBRE’s Senior Housing Report, key market facts include:
- The market is highly fragmented.
- The top 50 senior housing providers control 32% of the supply.
- The average size of the top 50 providers is 10,900 units per provider
- Only three providers in the top 10 are public.
Segmenting the Market
There are five categories of senior housing, with the level and cost of care increasing as you go from left to right in the table below.
Senior apartment are the most popular type of senior-specific housing. Their common benefits are dining halls, social calendars and transportation.
The Case for Investing in Independent Living Facilities
- Stabilized occupancy is likely. Historically, stabilized occupancy for independent living communities has not dipped below 90% since 2013, and in fact has grown from 90 to 92%. According to research from NIC, “newly constructed senior housing achieves 90% occupancy between 27 months and 30 months”, and the first ~24% is achieved in the first three months of opening, indicating the efficacy of pre-leasing.
- Occupancy rates are highly competitive compared to other real estate options. Compared to office or hotel occupancy, senior housing is competitive. The WeWork failure is in part due to their insufficient occupancy rate. This concern is less relevant as it relates to senior housing.
- Senior Housing Properties Outperform the broader National Property Index since 2003. Over the past seven years, senior housing has outperformed the NPI in total and income returns. This is due to the fact that senior housing continues to see rent growth.
Senior Housing Properties Outperform the broader NPI. Over the past seven years, senior housing has outperformed the NPI in total and income returns. This is due to the fact that senior housing continues to see rent growth.
The Vision: Housing as a Service
Build high quality, community-focused, and affordable independent living facilities. Boomers have worked decades to retire and we should give them the experience they deserve. Provide the 55–75 boomer market who are active and can live independently with housing as a service.We can create community-oriented space with beautiful design, activities, and non-medical care as additional services.
There are two models within startups that I’ve seen.
Starcity Model — identify vacant commercial buildings, change them to group use or senior home housing use, and densify the floorplan to accommodate more independent living units.
Common Model — they take on operating agreements where the owner buys the property for them and they engage on a 5–10 year lease. The owner receives rent every month, and the operator keeps the upside.
Next Steps
- Figure out who to target and what they really want. Seniors prefer to age in their homes. Understanding who the core target audience is (likely its 75+ not boomers)
- Get a better understanding of capex and opex costs. Research operating and capital expenses for public senior housing facilities at Brookdale Senior Housing, Five Star Senior Living, and Capital Senior Living Corporation.
- Find co-founders. I’d like to find a co-founder with real estate development experience to work with me.
- Develop a point of view on buying versus leasing. What is the path of least resistance? buying land or leasing? This will differ depending on where I choose to build. I have a list of cities where there is a large population of people over 55. Start to get prices of land by working with brokers.
- Assess the master lease vs operating model to figure out which would be better here.
- I spoke with Brad over at Common, and they did a small consumer study and found that seniors don’t want to share kitchens. They want private kitchens and shared bathrooms. Understanding who the target audience is and what they want will be critical.
- Investors will want to understand where is the rent premium, why invest with me other than tried and true senior operator. There are people developing senior housing who have track records and data. Being able to answer this question will be important to partnering.
Thank you to Oliver Davis Urman, Brad at Common, Adam at CBRE for writing this report on senior care housing.
