This blog post is one of a series excerpted from Aaron Quach’s white paper on rental housing, available at the link above. For other posts in the series, click here.

The vast majority of institutional real estate portfolios are invested in the rental housing sector in some form. The rental housing sector is unique in that it fulfills the basic human need for shelter and therefore benefits from a certain inelasticity of demand not found in most other property sectors.

The rental housing sector is comprised of several different housing types serving various segments of the market, including market-rate multi-family apartments, rent-regulated multi-family apartments (“affordable housing”), manufactured housing communities, single-family rental homes, student housing accommodations, and senior housing facilities.

This blog post will detail issues for institutional investors regarding senior housing. Other blog posts will examine the additional sectors as well as implementation issues faced by all of the housing types categorized under the rental housing sector.

Senior housing refers to specialized residential accommodations designed to house older adults, typically aged 55 or older. These residences often include additional amenities or services tailored for seniors, including accessible living spaces, dining services, transportation assistance, housekeeping, medical monitoring, and recreational activities. Today’s residential and care options for seniors combine a rental component similar to multi-family apartments, a hospitality and operating component similar to hotels, and a service and medical component, according to AEW. Because of this, senior housing facilities require specialized operating expertise to successfully manage the potential risks and challenges inherent in the operations of the sector.

The demographics of the prime senior housing renter cohort—defined as those aged 55 and older—has increased substantially with the aging of the Baby Boomer generation and is expected to hit 114.4 million in 2035. The population of U.S. seniors aged 80 or older—just 10.8 million in 2012 and 11.5 million in 2017—has increased to 13.1 million in 2022 and is expected to increase to 22.9 million in 2035, according to the U.S. Census Bureau. While the demographic trends clearly support growth in the senior housing sector, other factors are also expected to impact fundamentals in the sector, including labor availability and costs as well as seniors opting to age in place or with their loved ones, rather than in senior housing facilities.

The housing options vary based on the level of self-sufficiency and care needed, commonly referred to as acuity. Here is a summary of the various senior housing sub-types, arranged from highest acuity to lowest acuity. It is worth noting that some senior housing facilities offer a mix of these services, allowing residents to age in place at the same facility as their needs change:

• Skilled Nursing Facilities: Skilled nursing facilities offer the highest level of care. Residents are either categorized as long-stay residents, often seniors between 75 and 95 years old with multiple conditions who typically stay over one year through the end of life; and short-stay residents, patients who enter facilities following a hospital stay and typically stay less than 30 days.
• Memory Care Facilities: Residents in memory care facilities suffer from memory-related issues, including Alzheimer’s. These facilities feature a higher ratio of staffing and other amenities designed to improve the quality of life for residents. The median age of renters is 80+ years, and the average length of stay is one to two years.
• Assisted Living Facilities: These facilities become necessary when a resident is no longer capable of performing all the activities of daily living—such as eating, bathing, dressing, maintaining good hygiene, and toileting—often as a result of dementia or an event such as a fall or a stroke, and can no longer live alone. Assisted living residents tend to be over 80 years of age, and their typical length of stay is one to two years.
• Independent Living Facilities: While units are designed similarly to a traditional apartment complex, independent living facilities have common areas that include a kitchen and dining room that may offer up to three meals per day. Residents who live in an independent living community must be physically and mentally capable of performing all the activities of daily living. Independent living residents tend to be over 75 years of age, and their typical length of stay is three to four years.
• Senior Apartments: Senior apartments include active adult properties, affordable apartments, and other properties that serve the senior population but do not provide direct patient care at the property. These properties tend to be limited to renters that are 55+ years of age or older, and the average length of stay of these renters is five or more years. While senior housing is predominantly needs-driven, senior apartments are entirely a discretionary decision for renters.

Institutional investors looking to invest in senior housing properties may consider a limited number of dedicated closed-end fund series exclusively focused on senior housing properties across the acuity spectrum, but primarily focused on lower acuity segments such as independent living and assisted living.

There are also several health care-focused closed-end funds that target investments across senior housing facilities, medical office buildings, and life sciences buildings. Finally, diversified funds across the risk spectrum and in both open- and closed-end formats offer limited exposure to senior housing, with holdings typically focused on the lower end of the acuity spectrum.