May 14, 2015, Jeff Shaw, Seniors Housing Business - The seniors housing industry is extremely active on the development front so far in 2015, with no signs of slowing down. Nationally, there are 12,000 units of independent living - over four times last year's pace - and 20,000 units of assisted living currently under construction, according to a March report from Marcus & Millichap.
There will be more than $127 billion of construction over the next five years in the seniors housing sector in the G20 nations, according to a report from Boston-based data firm Lux Research.
"That's a lot of buzz around our little industry," says Ken Segarnick, chief corporate officer of New Jersey-based seniors housing operator Brandywine Senior Living.
Segarnick made the comment during a panel he hosted at the Assisted Living Federation of America 2015 Senior Living Executive Conference May 4 in Tampa, Fla. The panel was titled "Why is everyone developing today?"
The panelists included Chuck Herman, president of seniors housing and post-acute for Health Care REIT; Stephanie Handelson, president and COO of Benchmark Senior Living; and Ed Kenny, president and CEO of LCS.
The hot development market is being driven by extremely high demand in many of the target areas for growth, panelists said.
"We're still in a relative supply-demand balance in today's market," says Herman.
Today's developers and lenders have a greater understanding of the seniors housing industry than they did in the 1990s, says Herman. "The sophistication we see in the industry is so much higher than 20 years ago. The lenders and investors are much more savvy."
Kenny echoed the sentiment, saying that modern capital structures force lenders, investors and developers to all have "skin in the game" and a vested interest in making each seniors housing project a success. "It's critical that be maintained."
Kenny did offer a word of warning, that if too much capital were to flood the sector, then the common interests would "start to erode."
Record-high acquisition prices have made development a much safer bet, according to Handelson. "I find acquisitions are more risky," she said, adding that a purchased property may require massive changes to fit in with its new owner. This could include wholesale staff changes, renovations, finding executive directors that understand the corporate culture, and other time-consuming and expensive problems.
Although the markets aren't overheating in general, Handelson does warn that some smaller markets could become overbuilt, with income and demographics not strong enough to fill new communities.
"In most of the markets we're in, there's enough density that I welcome the competition," says Handelson. "New York, for example, has such a high barrier to entry that I don't think they'll ever have enough supply."
Kenny suggested that Texas and Florida pose the highest risk of becoming overdeveloped, while Handelson said the pace of new development was outstripping demand growth in central Michigan.
During this growth spurt, owners and operators must keep standards high for both operations and marketing, urged Segarnick. Filling a demand means nothing if the communities don't meet the expectations of the future residents.
"You can't just build it and expect people to come."