Senior Housing Development
The senior housing space is full of opportunities as demand for assisted living facilities for sale and other healthcare properties grow. Developing new properties has become a hot topic. Many want to know how much is occurring, where these facilities are being built and if too many are being built.
Though the long-term outlook of supply and demand remains bullish, hasty development from rookie players may cause short term occupancy issues.
Inexperience Clouds the Senior Housing Space
Experienced developers and operators know when to pass or take on an assisted living facility development project. However, developers who lack experience and are eager to turn a quick profit, have entered the senior housing space to build assisted living facilities and other healthcare properties. Even worsening this potential issue, most experienced operators currently have their project development pipeline as full as they can handle.
Most of the new developers in the space are receiving funding from smaller regional banks that also have little to no experience with senior housing, they are funding projects that more experienced banks choose to forgo.
The majority of these inexperienced developers expect today’s unprecedented cap rates to remain for the length of their short term holds, typically three to five years. Calculating your internal rate of return based upon today’s cap rates for an exit in three to five years is a rather large gamble in our opinion.
Hasty Builds Result in Subpar Products
With rapid inexperienced development, the senior housing space may bury itself with poorly designed facilities that are difficult to fill in certain markets. While this will most likely create short term occupancy issues, the long-term outlook remains favorable.
Though certain markets are beginning to become saturated with new facilities, because senior housing remains a need-driven asset class, demand will always grow, and these facilities will eventually fill.
One market segment we are seeing a lot of attention being given to is stand-alone memory care facilities, while these types of facilities typically do very well, an oversaturation of these beds will likely take even longer to absorb than conventional assisted living beds.
Once development levels out, we may see an increase in distressed assisted living properties. Seasoned operators will have an opportunity to acquire these facilities at pennies on the dollar and hopefully fill them as absorption rates grow.
In summary, while new product is definitely needed in senior housing, long term development holds will create the greatest returns and outcomes for the industry. The short term plays that are IRR driven may create the bulk of the development issues down the road.
The JCH Consulting Group for the Right Deal
Taking the time to research, plan and consult pays off when it comes to residential care homes for sale. The JCH Consulting Group is a senior living brokerage dedicated to finding viable facilities that serve their residents with proper care and remain profitable for operators.
Our team of experts can help you distinguish which deals to pass, which to take and what to do next, each step of the way.
Whether you are looking to put your retirement home for sale or buy assisted living facilities, the JCH Group provides an intelligent method to business in senior housing. To learn more about how our team can assist your next transaction or to receive a complimentary valuation of your property, contact one of our representatives.