Retirement Community Prices May Turn Up

Latest national survey shows firming rent and occupancy trends as community appeal to investors rises.

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Rental rates at high-end senior housing complexes firmed up last quarter. While results vary by market, the industry is encouraged by signs of stronger senior demand for housing units. Valuations of entire housing complexes also have been rising, supporting the view that weak conditions finally may be giving way to growth and, eventually, the addition of more new units.

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Since the housing bust began several years ago, many prospective residents of retirement communities have been unable to sell their homes. Proceeds from such home sales have been the dominant source of community entrance fees. Coming off a strong period of national expansion, many of the country's retirement communities were not able to fill their units and had to offer reduced-cost packages to attract new residents. Vacancy rates edged up, numerous complexes were sold to better-funded owners, and a small number of facilities went bankrupt.

Because new and expanded senior facilities can take many years to develop, the first sign of an industry recovery is expected to be reflected in higher rents for existing units. The National Investment Center for the Seniors Housing & Care Industry (NIC) collects detailed information on senior housing from 12,000 facilities providing independent living, assisted living, and nursing care units.

At the end of the second quarter, NIC recently reported, rental rates for seniors housing had risen 1.4 percent from the middle of 2010. That increase, while modest, was the industry's best year-over-year showing in five quarters, the organization said.

Occupancy rates stayed stable during the quarter at 88 percent, NIC added. Very little new construction is coming online, and the inventory of nursing-care units actually dipped slightly during the quarter. The prospects of tighter supplies of senior housing, coupled with demographic trends for large growth in senior populations, has sparked investor demand.

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According to data gathered by Real Data Analytics, more than 1,600 senior housing complexes were sold for about $24 billion during the first half of 2011. These sales involved nearly 150,000 senior housing units, or more than 5 percent of the industry's total units. This level of activity was seven times higher than in 2010, and was concentrated in facilities providing nursing care units and related medical services.

The largest 2011 buyer, Real Data said, was Ventas, a big real estate investment trust specializing in senior housing. It spent $10.5 billion on two deals, buying the assets of Nationwide Health and Atria Assisted Living. HCP, a large healthcare real estate investor, committed $6.7 billion to senior housing acquisitions, primarily through its purchase-leaseback of most of the real estate assets of HCR ManorCare from its owner, the Carlyle Group.

NIC's data, which involves consumer occupancy and pricing trends, is gathered for the nation's 100 largest markets. It provides more extensive reports on 31 big markets. Here are details from its second-quarter report on independent living units in these 31 markets.

Retirement Community Independent Living UnitsSecond Quarter, 2011Metro AreaOccupancyAvg. Monthly RentYear-over-Year Rent Change# of UnitsAtlanta, GA86.9%$2,844-0.1%7,300Baltimore, MD93.2%$2,7161.8%10,036Boston, MA90.2%$3,0082.8%10,200Chicago, IL86.6%$2,6721.1%24,567Cincinnati, OH84.6%$2,5462.4%5,775Cleveland, OH89.2%$2,4451.9%5,291Dallas, TX81.9%$2,4652.3%14,005Denver, CO86.7%$2,6862.3%7,599Detroit, MI89.0%$2,1002.6%12,483Houston, TX84.9%$2,5490.7%8,773Kansas City, MO87.7%$2,5732.9%8,687Las Vegas, NV86.2%$2,174-1.8%1,942Los Angeles, CA87.2%$3,1971.4%16,508Miami, FL85.3%$2,869-0.6%14,200Minneapolis, MN92.5%$1,6550.7%10,198New York, NY89.8%$3,3642.2%16,615Orlando, FL83.4%$2,4890.8%5,806Philadelphia, PA89.9%$2,8351.6%26,602Phoenix, AZ85.4%$2,5141.2%15,990Pittsburgh, PA90.1%$2,5371.3%6,302Portland, OR86.6%$2,3683.2%9,729Riverside, CA86.5%$2,5570.6%5,074Sacramento, CA86.5%$2,8771.2%3,530San Antonio, TX88.6%$2,6424.9%4,655San Diego, CA88.3%$3,3472.1%9,086San Francisco, CA91.3%$3,7133.9%7,123San Jose, CA91.4%$3,287-2.8%4,069Seattle, WA86.3%$2,8871.7%14,469St. Louis, MO88.6%$2,4421.5%8,464Tampa, FL83.9%$2,5432.9%11,479Washington, DC89.7%$2,6741.3%15,57931-Market Averages87.7%$2,7171.6%10,391 

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Twitter: @PhilMoeller