Location and operation are the two components in the formula for success in the Senior Housing Industry. Location, location, location historically has been the by-word for real estate. However, in Senior Housing, operation is as critically important as location. Providers expanding their portfolios and financing providers investing in the space must consider the importance of both sides of the formula.
The growing demographic demand for senior housing options has brought an influx of new investors in the market. An inexperienced new provider being unaware of the complexities of the operation require lenders and financiers to closely examine the operations side of the business. Attractive capital is drawing new investors into acquisitions of Assisted Living, Memory Care, Community Care Residential and Skilled Nursing Facilities. All demand expert operational management to assure financial success and insure quality of care for residents.
Many new investors are taking advantage of the opportunity, including pension funds, private equity players with plans for new development and multifamily investors who are entering the business for the first time after specializing in other property types. New institutional money has become available. Competition and the resulting lower return on investment in other forms of real estate have brought many investors into senior housing. Commercial Banks that looked unfavorably at senior housing investment during the recession are becoming active. Because of the explosion of the demand for senior housing, the banks are becoming more knowledgeable in the intricacies of the operation. They demand and look closely at the historical financials of the operation and examine the experience and qualifications of the operator.
Developers in the Senior Housing market can build an outstanding building architecturally in the right location, but they must join with a historically experienced operational partner for the development to be successful. From a developer’s perspective, it is much more an operational deal than a real estate deal. Likewise from the investor’s perspective it is much more an operational deal than a real estate deal.
According to the experts, Senior Housing is a hybrid business. Both components of the formula, Location and Operation are essential for financial success and quality of care for the residents. A successful facility speaks for itself. It’s much more an operating business than a real estate business.