Clarion Tees Up Billions As Latest Asset Manager To Bet On Baby Boomer Senior Housing Demand

After more than 40 years buying real estate, Clarion Partners bought its first senior living property this month. The New York-based investment firm plans to spend up to $1B annually on senior housing acquisitions for the next several years.

Private capital is pouring into senior housing, where availability is already tight and a wave of aging baby boomers is expected to propel demand for the next decade. The renewed interest in the sector is pushing the top and bottom of the market further apart as investors scoop up top-tier properties and aging assets face a reckoning. 

“We think that we can close on a billion dollars a year in seniors housing gross asset value,” Clarion Head of Healthcare Julie Robinson told Bisnow. “We really want to build up a best-in-class portfolio.”

Clarion, which manages some $73B in assets, is the latest private capital source to jump into senior housing as demographic and development trends position the sector for what Walker & Dunlop brokers and analysts described in a report this month as an overwhelmingly positive environment poised to deliver exceptional results. 

The population of U.S. adults over 80 years old is projected to grow at least through 2035, thanks to the bubble of births from the postwar baby boom. At the same time, new development starts have dried up in the postpandemic era, leaving the inventory growth rate below 2% for the last three years, Walker & Dunlop reports. 

Sectorwide occupancy climbed above 90% in the third quarter for the first time since 2019, up 2 percentage points from the prior quarter. Active adult communities had a 92% occupancy rate, independent living was at 90%, and assisted living was at 87%, according to the National Investment Center for Seniors Housing & Care, an industry trade group. 

The secular tailwinds haven’t gone unnoticed by investors. The $18.7B in trailing 12-month senior housing sales marks a three-year high, and the total has climbed for each of the last six quarters, according to data provided by MSCI. 

“Everyone is really aware of the aging baby boomer population and the demand that's drafting off of that going forward,” Robinson said. 

Kevin Guisti, a senior managing director at Walker & Dunlop focused on senior living, said private equity investors continue picking up assets and more REITs are coming to the negotiating table as buyers. But he is also working with new market entrants who like the investment story offered by senior living assets. 

“You have the buyers out there where these look like good assets in their mind, but also capital is available for the acquisition,” Guisti said. “There's a few deals I'm working on now with new entries to the group — it's private-equity-backed, home-healthcare-adjacent-type companies that are viewing the sector as in a good spot right now.”

Investment is pooling around the highest-quality assets, fueling a bifurcation that has been growing across commercial real estate, especially driven by the flight to quality in office space, but also evident in the industrial, hospitality and retail sectors.  

The high end of the senior housing market is the same segment Clarion plans to target, and it is one where demand already outstrips supply. Investors see the wave of upper-middle-class baby boomers on the cusp of needing a senior living solution as an inevitable tailwind that will help drive values higher. 

“It’s such a high-conviction sector [for Clarion],” Robinson said. “It's really that aging population, it’s the additional affluence that we've seen in that population, plus their adult children, it's the fact that this sector has such price inelasticity because there's very few options.”

Clarion’s first purchase was the Sancerre at Atlee Station in Mechanicsville, Virginia. The 103-unit property was completed in 2023 and reached 90% occupancy within a year of opening. The investment firm partnered with the current operator, a NexCore Group subsidiary called Experience Senior Living, to continue managing the amenity-rich, hospitality-driven property. 

The purchase of Sancerre is something of a blueprint for what Clarion is looking to do across the country, Robinson said. The firm plans to acquire recently completed properties and keep or find a high-quality management team with a proven track record. It isn’t planning to manage the properties in-house, in part because the senior housing space is so specialized with already established brands, she said. 

The investment firm is bidding on several properties and looking at others, Robinson said, declining to disclose the purchase price of the Virginia development.

Private capital's focus on top-tier assets is unlikely to change in the near term, Guisti said. Large developments serving multiple levels of assisted living needs are especially popular, and rising sales volume has put some upward pressure on pricing.

Returns on high-quality properties have been more reliable than their aging competitors, and operators see more room to expand lease rates at well-appointed properties as an increasing number of affluent customers enter a system that is already short beds. 

Robinson said Clarion would consider middle-market investments if it could find an operator that offered the quality and level of care that could attract a more affluent customer base. 

But Guisti said he has yet to see a private operator find success in the segment.

“In the private industry, I've heard it for years: cracking the middle-market code. It doesn't seem like there's a solution out there, because the cost is the cost, and the care is the care,” Guisti said.

Listings for top-tier assets can attract a dozen bids or more, but the other end of the market is languishing as lease rates stagnate and qualified staff flock to the buildings with modern amenities and finishes, according to the Walker & Dunlop report. Owners in the middle market and below are having trouble stabilizing balance sheets or refinancing debt. 

“Those assets, when it's really not a good situation, it’s just been kind of a fire sale,” Guisti said, adding that the property is usually converted to a different use.

But those trades are a small minority of overall volume, with most properties coming to market today boasting strong fundamentals and a compelling rent growth story, he said. 

Robinson, who joined Clarion last October after nearly two decades specializing in healthcare real estate, said that the limited inventory of existing, quality senior living options had given Clarion an untapped market to match quality care with quality space. 

She likened a successful senior living facility to a college dorm, with a focus on communal spaces, dining areas and more amenities than traditional rentals. Despite the age gap, there is also overlap in the hobbies of the occupants.  

A fully stocked bar is among the amenities at Sancerre. 

“If you ask any resident what's their favorite activity in the community, they will say ‘happy hour,’” Robinson said.