The senior housing sector took a hit over the past year as the coronavirus pandemic ravaged nursing homes and death tolls rose to unfathomable levels. But at this point, it's fair to say that the sector has entered its recovery phase. And real estate investors may want to consider adding senior housing REITs (real estate investment trusts) to their portfolios.
In fact, one healthcare REIT is already betting that senior housing will take off. Chicago-based Ventas (NYSE: VTR) is acquiring New Senior Investment Group (NYSE: SNR), which is known for its broad portfolio of senior housing properties. The deal is valued at $2.3 billion and includes $1.5 billion in New Senior debt.
The acquisition puts Ventas in a prime position to capitalize on a potential senior housing boom. New Senior operates 102 private-pay independent living communities and one continuing care retirement community across 36 states.
A smart gamble?
Senior housing was a tough business to be in during the pandemic, as coronavirus outbreaks were rampant in nursing homes and assisted living facilities. And now, it's still unclear as to what the financial fallout of the pandemic will look like for the senior housing sector.
For one thing, new regulations could come down the pike that make operating senior living centers more expensive. At the very least, we can expect to see added expenditures in the form of increased sanitation and personal protective equipment for personnel. Some senior housing centers may also need to rethink their layouts to better promote social distancing, keeping in mind that it's not just coronavirus older people are vulnerable to.
Furthermore, it's difficult to know just how many lawsuits will emerge once the dust settles a bit on the coronavirus outbreak. It's clear that many facilities mismanaged the health crisis, especially in its earliest stages, and financial settlements alone could cost the sector millions.
As such, senior housing is somewhat of a risky investment prospect right now. But that doesn't mean it's a bad one.
What does the future of senior housing look like?
Some families may shy away from senior living centers after witnessing, whether firsthand or via news stories, how coronavirus spread so rapidly through nursing homes and assisted living facilities. That could impact near-term demand.
But for the most part, the senior housing sector is poised to grow. From 2010 to 2020, the 65-and-older population increased by more than one-third in the U.S., according to the Census Bureau. And as baby boomers continue to age, they'll increasingly come to require care that their families may not be in a position to provide.
Furthermore, it's likely that in time, the public will stop seeing coronavirus itself as a threat, what with the widespread availability of vaccines, which could drive more older people to move to senior communities rather than continue aging in place.
In fact, occupancy rates for senior housing may have already bottomed out, according to data from the National Investment Center for Seniors Housing & Care (NIC), with move-in rates edging upward in May. And 49% of respondents in the 2021 outlook survey from Senior Housing News and Lument said they actually think senior housing occupancy rates will rebound to pre-pandemic levels as early as later this year.
The Millionacres bottom line
While the senior housing sector may face some challenges and undergo changes in a post-pandemic world, it's still a pretty solid bet for real estate investors based on national demographics alone. The fact that Ventas is getting in on the action makes a lot of sense, and it's a move investors may want to consider individually as well.