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Senior Housing Developers Facing Their Biggest Challenge: Creating Homes For The Middle Class

Every day, about 10,000 American baby boomers hit their 65th birthdays, a demographic shift that naturally draws the attention of developers and investors eager to provide housing for growing sectors. But according to experts at Bisnow’s Feb. 27 Chicago Senior Living event, too often builders focus on creating senior housing for the affluent, and middle class seniors may increasingly find themselves shut out of decent housing options at one of the most vulnerable times in their lives.

Chicago Housing Authority Chief Development Officer Ann McKenzie, CA Senior Living Vice President Andrew Agins, Condor Partners partner Michael McLean, Walker & Dunlop Managing Director Mark Myers and RSM Senior Manager Scott Helberg.

“I’ve lately seen a lot of top-of-the-market product,” Legat Architects Director of Commercial Architecture Kurt Volkman said.

A glance at the number of completions shows a senior housing boom that only recently began tailing off in many markets. Developers in the top 31 markets completed more than 21,000 senior housing units in 2018, according to the National Investment Center for Seniors Housing & Care. The overall number of new units shrank to about 16,000 in 2019.

That level of activity is not nearly enough to meet the need for middle-income seniors, those that can’t afford the new luxury communities, or qualify for the Medicaid benefits that pay for needed care.

The NIC estimates the number of middle-income seniors in the U.S. will grow from 7.94 million in 2014 to 14.4 million by 2029. Of that latter group, more than half will not have the financial means to afford senior housing.

“It’s an unlimited demand pool if you create the right product,” NIC Chief Economist Beth Burnham Mace said.   

But the senior sector frequently has high barriers to entry, and getting over those obstacles can be costly, forcing developers to focus on affluent homes, panelists at the event said. And even if a developer creates a Class-A senior community, it can mean leaving money on the table, as the expected returns can’t match a luxury apartment community geared toward younger adults.

CA Senior Living Vice President Andrew Agins said responsible senior housing developers must provide residents with medical care, ensure tight security and staff buildings with experts on caring for the elderly at several stages of life, among many other expenses.

“You have huge built-in costs on the operations side,” he said.


That means senior housing is rarely the best option on a given site, Condor Partners partner Michael McLean said.

He pointed to Condor’s Trulee Evanston, its first senior housing development, which the company will begin construction on this month. The nine-story development will provide residents with hotel-like amenities, and a luxurious, active lifestyle, but it will also cost around $75M, about $20M more than the cost of a similar multifamily complex.   

The company remains committed to creating a senior community, and that is the wish of municipal authorities as well, but the costs associated with such projects would lead many other developers to make a different choice if they could, according to McLean.

“Why not do an apartment building on the site, rather than senior housing?”

Agins said there are groups, such as the real estate investment trust Welltower, that are beginning to jump into the middle class space.

In 2019, Toledo, Ohio-based Welltower spent $343M to buy a portfolio of 32 senior communities by Clover Management where residents pay about $1K per month. The new partnership between the two firms will help Clover expand its middle-market development, according to Senior Housing News.  

That is an encouraging sign, but the growing gap between supply and demand for middle-market senior housing is so wide it is going to take much more effort, and not just from developers, Walker & Dunlop Managing Director Mark Myers said. Governments may need to step up and make senior housing developments more cost-effective for builders by providing HOME funds, tax credits and other funding streams.

“It’s going to take a lot of creativity and flexibility.”