Institutional Money Floods Senior Housing As Demand Booms, Banks Stay Away

Major institutional investors and sovereign wealth funds are filling in the gap left by banks to fund an increasing need to house America’s aging population.

With banks still gun-shy about commercial real estate lending, they have also been largely out of financing construction for senior housing despite a construction deficit and rising rents, developers and investors said this month at Bisnow’s Atlanta healthcare and senior housing summit.

In their place, sovereign wealth funds and insurance companies are making deals with developers, Galerie Living CEO Tim Gary said. 

“It’s not a lack of the banks wanting to do it. They just can’t seem to get it to pencil so they can check the box,” Gary said. “We just received over a billion dollars in funding for projects up the East Coast, and it’s not from banks. [It’s] the larger capital funding groups who have the money, and they only have to make a 4% return.”

Panelists said the senior housing industry is facing an explosion in demand as the baby boomer generation — those born between 1946 and 1964 — advances further into their golden years. Over the next decade, the 80-plus population in the U.S. will grow by 36% to 19 million people, the largest age cohort of any U.S. generation, according to a 2025 JLL senior housing report that cites U.S. Department of Health and Human Services data.

With that has been a spike in senior housing demand. Occupancy jumped to 88% at the end of last year, up from 80% in the second quarter of 2021, amid the pandemic, when many avoided moving into the facilities, according to JLL. 

“Outside of select major West Coast cities, most markets have fully recovered to their prepandemic occupancy levels, with average occupancy across secondary markets near all-time highs,” JLL said in the report.

At the same time, construction of new facilities has slowed to a 16-year low, hampered by increased costs, interest rates and difficult financing. That has helped to fuel a jump in senior housing rents — they rose nearly 5% annually last year and are up more than 20% since 2019 — that is catching investors' eyes. 

According to a JLL survey of more than 75 CRE investors, 78% said they planned to increase their exposure to senior housing this year, up from 24% last year. Assisted living is the most sought-after investment, with 50% of buyers looking to allocate dollars to the subsector, compared to 22% last year. 

“The big institutional investors, they’re now more active in buying existing properties because they can buy well below replacement costs,” Isakson Living President Andy Isakson said onstage at the Atlanta Marriott Marquis. “Institutional investors and most all investors are easily looking at a 10-year cycle. So you're buying today, and you're selling in 10 years. You're selling right in the middle of the baby boomer peak. So it's a great time to invest.”

Complicating the supply issue is the need to price senior housing to retirees, since so many live on a fixed income, panelists said. Escalating labor costs, especially for skilled caregivers, present a long-term math problem for the operation of the facilities. 

Gary said that this is necessitating developers to build bigger. He said Galerie is attempting to partner with healthcare systems and retailers to build senior care facilities on their campuses.

“If you’re building 200 affordable beds, you really need 1,000 [total], and to build the 1,000 and fill that up, we really need a large retailer, a large healthcare system, a large pharmaceutical medical practice right there on campus,” he said. “All of a sudden, that turns into a multihundred-million-dollar campus.”

Galerie Living was in talks with Walmart to develop a string of facilities next to stores that would have provided health and ghost kitchen services for affordable senior housing units, Gary said. But the plans stalled when Walmart shut down its health center operations last year, he added.

Walmart didn't respond to Bisnow's request for comment as of press time. 

“I think the solution on that side is to not just be senior housing. It's going to be affordable [housing], working with our retailers, our health care systems and creating a combined product. Because standalone, it's very, very difficult,” Gary said. 

The Benoit Group Development Director Marissa Phipps said her firm has four affordable communities under construction. Tariffs and labor costs are putting restraints on Benoit’s ability to pencil in affordable units, but she said developers are making the numbers work through federal and local tax incentives.

She also said Benoit relies on working with Atlanta Housing and nonprofits that own land to acquire it at discounts, which can be used to lower rents on the finished product.

“Anytime you're lowering the rent, you're going to have something to replace that,” Phipps said. “Those are the types of scenarios and structuring that's needed to do affordable housing. It can be done. It just takes a lot of creativity and everybody being on board.”