Amenities that create a more thoughtful community are a trend in nearly every commercial sector—and senior housing is no exception. Matt Booma, executive vice president of CA Senior Living, knows that in this market going beyond the essentials is key.
“We gear everything toward wellness—paint colors for the aging eyes, gyms focused on balance and agility, food tailored toward the senior palette,” Booma said.
He went on to list theaters, libraries, spas, outdoor bistros, happy hours, game rooms and rooms for entertaining relatives as amenities that are now trending in seniors housing.
CA Ventures launched its senior housing division in 2012. The company entered the sector with more than a decade of experience in student housing and apartment development experience. In some ways, that’s been an advantage.
“Senior housing communities haven’t really invested in technology. CA brings a big advantage to the sector as our student housing division has to constantly keep up with tech because it’s a huge concern for students. We see a great opportunity in senior housing to implement the latest technology,” Booma said.
One major difference between senior housing and other sectors is that it’s a hugely operational real estate class, Booma said. Incorporating technology could alleviate some of the stress associated with that issue. Booma’s keeping a close eye on wearables and tech that can help staff provide better care, quickly locate a resident in need of help or streamline the management process.
A new wave of seniors in need of housing?
For developers in senior housing, the wave of 76.5 million baby boomers heading toward retirement is tricky to anticipate. But the industry has time to figure it out; the average age of a senior housing resident is in the low 80s, and right now the oldest baby boomers are 70 years old. CBRE estimates that supply will outpace demand through 2024, with a period where the industry should be wary of overbuilding. In 2025, the market will shift, and there could be an onset of a significant supply shortage as baby boomers reach their 80th birthdays, according to a national report by CBRE released in June.
“A lot of where this industry is headed is dictated by the baby boomers,” said Booma. “This generation hasn’t settled for anything. They’ve strived for the best. We need to accommodate that.”
Seniors coming into facilities today are very different from the previous generation in that they live longer, are more active, have lower rates of disability, are more educated and have more money, according to AEW Capital Management research.
The design in new facilities reflects the generational change. Now it’s important to have large, common areas with high ceilings and modern finishes, and lots of programs focused on socializing and wellness. What the industry is seeing now in design is vastly different than it was a decade or two ago. Before, many facilities had low ceilings, small windows and kitchenettes. Much of the industry felt institutional because the design trends came out of skilled nursing. But today, residences feel more like home.
Last year, memory care facilities took center stage, but demand did not keep pace with the new supply, CBRE reported. The pace of inventory growth last year reached its highest level since 2009, and even with a record net absorption rate, it was not enough to even out the market. After seeing declines last year, the assisted living and memory care sectors saw occupancy rates decrease further to 89.7 percent and 88.1 percent in the first quarter of this year. Independent living had the highest occupancy level in the quarter at 92.2 percent.
Previously, developers were reluctant to build independent living facilities, but with occupancy now at pre-recession levels, they are eager to delivery this product type. Independent facilities have recorded the greatest growth in construction activity, about 21.1 percent, CBRE said.
Meanwhile construction in memory care and continuing care retirement communities decreased by 21 percent and 31.2 percent respectively. Developers, operators and construction companies are ready to move ahead with construction, but lender underwriting standards are reining them in. Lenders are becoming far stricter, while loan-to-cost ratios for the development financing are at 50 percent to 60 percent, with a large emphasis put on the operator’s experience and platform capabilities.
For now, Booma said, he’s focused on increasing the penetration rate.
“If we can raise that number from 6.3 percent then we’ll see growth in the industry,” he said.
Part of that growth depends on competition, and currently the sector is fragmented with no one firm or operator that truly dominates the market.
“When we get more competitors, we’ll see improvement in the product that’s being delivered,” Booma said. “Baby boomers won’t move into an obsolete or dated product. People want something new. So there is a huge opportunity now in redevelopment and new construction.”