A real estate strategy can be a cornerstone of a well-diversified portfolio, offering opportunities for income, appreciation, and tax benefits. Understanding the various structures within private real estate is crucial to matching the right strategy with the right investment need.
In this four-part series, we will explore different types of private real estate strategies, starting with the 1031 Delaware statutory trust (DST). This article explores how a 1031 exchange via a DST can meet the needs of several investor profiles. Keep in mind that each investor’s tax situation is different and they should consult their tax advisor.
Financial professionals are constantly seeking opportunities that offer sustainable growth and diversification. One real estate sector deserving of attention is senior housing. With an aging population and favorable market dynamics, we believe senior housing presents a unique opportunity as a sector that is poised for robust and sustained growth over the coming decades. This blog discusses why.
Research shows, the senior housing market is on the cusp of a remarkable expansion driven by demographic trends. The Baby Boomer generation, one of the largest cohorts in history, is aging. According to a 2024 Senior Housing Market Report produced by NIC MAP Vision LLC, by 2025, the first Baby Boomers will turn 80, a key age for entering senior housing. The population of individuals aged 80 and over is projected to grow substantially over the next 25 years1, creating an unprecedented demand for senior housing facilities.
One of the most compelling aspects of the senior housing market we see is the current supply constraints. High interest rates and limited capital availability have driven construction starts to near historical lows.1 We believe that this limited supply, combined with surging demand, creates a favorable environment for both new development and existing senior housing properties. For investors, this can mean notable opportunities for capital appreciation and income generation.
Source: 2024 NIC MAP Data; Powered by NIC MAP Vision; Census Bureau
The above chart illustrates the supply/demand imbalance, showing that to maintain 90 percent senior housing occupancy by 2030, the industry needs to develop at nearly twice its historical maximum pace. At the current development pace, a large gap in supply will emerge, creating a $275 billion investment opportunity by 2030. We believe this gap underscores the pressing need for new capital in the sector, offering a generational opportunity for investors.
The fundamentals of the senior housing market have shown remarkable resilience and strength, rebounding well post-pandemic. Occupancy levels are nearing pre-pandemic numbers, and absorption rates - a measure of how fast space is absorbed in a market - have reached historic highs1. In 2023, the absorption rate doubled any pre-pandemic period, indicating a robust demand for senior housing. This trend continued into the first quarter of 2024, with absorption rates up 40 percent year-over-year1.
As highlighted above, an important factor contributing to the attractiveness of senior housing is favorable supply-demand dynamics. Over the past decade, the supply of senior housing often outpaced demand. However, this trend has reversed since 2022, with demand now outstripping supply. The growth of the 80+ population has begun to materially exceed the growth of senior housing inventory, creating a gap that we anticipate will likely lead to increased occupancy, rent growth and higher returns for investors.1
Senior housing is also experiencing expanding profit margins. As inflation trends downward and rents continue to rise, operating expenses are moderating, leading to improved margins.1 The normalization of labor markets has further enhanced operational efficiency and service quality, contributing to the sector's financial health. Publicly traded senior housing REITs have reported slowing expense growth and accelerating margin expansion, reflecting the sector's positive outlook.1
Another favorable aspect of the senior housing sector we see is the growing affordability and wealth of the senior population. The financial health of the 65+ and 75+ households has improved greatly, with net worth and income increasing at rates higher than senior housing rents.1 We believe this trend suggests that affordability will increase, further driving demand for senior housing. The wealthiest cohorts of 75+ households are projected to grow faster than the overall 75+ population, supporting the expansion of the private pay senior housing market.1
We believe that senior housing offers a unique strategy with strong market fundamentals, favorable supply-demand dynamics, expanding profit margins, and durable demand. We anticipate that projected growth of the 80+ population, combined with limited supply, will create a powerful case for senior housing as a long-term CRE strategy.
12024 NIC MAP Vision LLC; Senior Housing Market Report