The record-breaking number of deals occurring in the senior housing industry, and the accompanying increase in housing facility construction in the space, are lately fueling concerns over the possible formation of a senior housing asset bubble. Nevertheless, most analysts still believe that the industry’s strong fundamentals warrant the kind of activity currently taking place. While the market’s fundamentals remain strong, and interest rates remain low, senior housing providers and others pursuing capital acquisitions, joint ventures, sales and leasebacks, and debt refinancing should contact Cambridge Realty Capital to learn more about the many financing options our firm offers.
Factors Currently Driving Senior Housing Deals
Because the senior housing industry weathered the recession well, particularly when compared to other real estate classes, the market continues to attract new investors. As a result, the market is experiencing an increase in competition and larger sale prices for senior housing assets. Many industry participants also believe that advances in new technology will help generate even greater gains. For example, more communities are adopting innovative methods to automatically alert staff whenever a resident is in trouble or otherwise needs help. Other technologies make it simpler for residents to communicate with each other and their families. New and better technologies also make it easier for communities to control expenses and target their marketing efforts more simply and effectively. These technologies help communities operate more efficiently, while also boosting occupancy and the company’s bottom line. This in turn contributes to an increased demand for senior housing assets and helps drive further industry deals.
Senior Housing’s Core Fundamentals Continue to Remain Strong
While deal-making in the industry continues, so too do the fundamentals of the space. As a result, most analysts reject the notion that an asset bubble is forming in the senior housing market. In addition to the aforementioned reasons, the primary driver of growth in senior housing is an increase in demand for the services they provide. This demand is being fueled by rapid demographic changes that the country will continue to experience in the coming decades. Each day, approximately 10,000 baby boomers retire. As the nation’s population continues to get older, demand for senior housing services will continue to grow. Despite the rise in senior housing construction, most analysts still believe that demand will continue to outpace supply, and such will be the case for the foreseeable future. For these reasons, the consensus among industry watchers is that, because the industry’s growth is rooted in an indisputable demographic trend that is widely projected to continue, worry over a senior housing market bubble is unwarranted.