Seniors Housing Business

FEB-MAR 2018

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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www.seniorshousingbusiness.com 47 February-March 2018 n Seniors Housing Business NIC: Overbuilding issue varies widely from market to market Seniors housing develop- ers have already built too much in the top markets. That is perhaps the big- gest reason lenders have become more cautious as they vet construction loan applications. "In some, but not all metropolitan area mar- kets, supply has outpaced demand," says Beth Burn- ham Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC). Developers completed 18,500 units of seniors housing in 2017, according to NIC data covering the largest 31 seniors housing markets. That's up from 17,100 units the year before and more than twice the 6,700 units completed in 2011. At the same time, the occupancy rate for assisted and independent living fell to 88.8 percent in the fourth quarter, down from 89.5 percent the year before. It's also consider- ably lower than the high point of 90.2 percent occupancy in the fourth quarter of 2014. New properties are now taking a little longer to lease up, especially in the largest seniors housing markets, where developers have built most of their new apartments. "The stabilization period for projects is creeping up," says Joe Munhall, senior vice president and director of syndicated credit at Lancaster Pollard, based in Columbus, Ohio. It's not uncommon for a property to now take a few extra weeks or months to lease up. Even so, experts remain confident in their seniors housing investments. "The outlook remains pretty bullish," says Trace Wilson, director at PGIM Real Estate Finance. So far, relatively few seniors housing projects have run into serious trouble. "We haven't had anything outright fail yet," says Christopher Fenton, managing director of seniors housing for in the Lenox, Mass., office of Berkadia. The inventory of seniors housing has increased as much as 20 percent since late 2014 in certain markets, such as Atlanta and parts of Texas. But many major metros have been left out of the construction boom. San Jose has seen an increase of only 3 percent in its stock of senior living properties since late 2014. On average, the inventory in the largest 31 mar- kets increased 9 percent during the same period. "The building that has taken place in our industry has been tremendously concentrated in five or six cities," says Aron Will, vice chairman and co-head of national senior hous- ing debt and structured finance in the Hous- ton office of CBRE Capital Markets. Now that the lenders have become more cautious, even these overbuilt markets are likely to regain their footing before too long, according to Will. "Because of the lending constraints in those markets, I think they will be fine," he says. "Had we kept going at the clip we had been going in 2016, they might be suffering lasting damage." Developers are also looking further afield for places to build. "We are seeing a migra- tion into secondary markets," says Richard Thomas, senior vice president in the seniors housing and healthcare finance group in the Atlanta office of Grandbridge Real Estate Capital. However, it may be more difficult to find data on the demand for seniors housing in these markets, says Thomas, as NIC does not provide data for many smaller cities and towns. "More grassroots effort is required to understand the competitive pressure." — Bendix Anderson Beth Burnham Mace NIC

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