At the last NIC in Dallas, I caught up with an owner/operator of mid-market seniors housing. He has successfully made the transition from owning and operating hotels to assisted living and memory care. We talked a bit about his hotel business and I found an interesting corollary to how I look at investing in the assisted living space.
There have been a lot of concerns about oversupply in seniors housing. Newly developed and opened properties take market share from competition and both REITs (particularly those in RIDEA deals) and operators struggle, at least in the short-run, until occupancy stabilizes again. I get asked this question a lot, “how are you looking at the over-supply concern?” I like the question because it provides a forum for talking about the mid-market, B to B+ quality properties that is generally ignored by other REITs. The beauty of investing in the mid-market seniors housing segment is
- you avoid the new construction pressures as the vast majority of new supply is A to A+ quality with all the bells and whistles, and
- if you invest primarily in secondary markets you further protect yourself from new construction risk.
In addition, the demand for quality seniors housing at the $3,500/month vs. $6,500/month (depending on the market) price point is huge and growing. There’s a recent housing study by Harvard that highlights the growing supply/demand disparity for lower-income seniors housing. So, to invest in a Ritz Carlton or Holiday Inn? There’s certainly a market for both. My recovering hotel investor friend in Dallas shared his experience, “I’d convert the hotel into a Holiday Inn; put out some coffee, juice, and bagels in the morning and you’re good.” Luckily for investors and residents who choose to live there, there are quality operators who have figured out the recipe for providing a great place to live and work at an affordable price.