With a wave of older Illinoisans aging into senior housing stock, the state, its developers and investors are taking action. 

Capital for acquisitions in senior housing is starting to become easier to come by, though development financing is still a tricky task, panelists said at Bisnow’s Chicago Senior Housing Conference, held at the Warwick Allerton Chicago on July 29. 

This year, Illinois unveiled a multisector plan to meet the needs of older adults and caregivers. Illinois' over-65 population is expected to grow 40% by 2035, hitting nearly 3 million people, or roughly one-fifth of all residents in the state. The plan includes a key initiative to expand affordable and accessible housing for older adults. 

Illinois Department on Aging Chief Planning Officer Michelle Hoersch acknowledged that figuring out how to house a growing number of seniors isn’t a problem that can be solved overnight. She said the 10-year blueprint will help define a direction for the long haul. 

“The demographic shift with respect to aging is profound. It's unprecedented,” Hoersch said. “It's a function of a variety of things, not the least of which is that people are living longer.”

The need for senior housing is anticipated to climb over the next several years. The population of adults 75 or older is expected to increase by more than 4 million by 2030, according to Census Bureau projections. An increase in the older population comes alongside an increase in older adults renting, with people aged 65 to 74 making up the fastest-growing cohort of renters, according to PwC. 

Citrine Investment Group CEO Lynn Jerath said as growth has stabilized in multifamily and other real estate sectors, senior housing has become more attractive on the equity side. But she cautioned that although there is a lot of capital in the space, solid fundamentals for each project are still important when making investment decisions. 

The sector can suffer if there is a rash of overbuilding or if capital floods in without guardrails, Jerath said. 

“If you've been in senior housing long enough, you know what happens when there's too much capital that's uninitiated into this sector,” Jerath said.

Jerath said that while multifamily projects are easier to replicate across different markets in the country, the viability of senior housing developments varies more on an individual basis, adding to the sector's complexity. 

Chuck Murphy, executive vice president at LCS, said capital is still quite discerning when evaluating opportunities and that the development world remains challenging. The acquisition side of the business is becoming frothier, he said. 

New development continues to pace at record lows, but in some markets, the cost to replace is an advantage compared to buying properties, Murphy said. Senior housing construction starts most recently peaked in late 2021 in primary markets and early 2022 in secondary markets. Those figures are now down 77% and 62%, respectively, from recent peak levels, according to a spring JLL senior housing report.

Murphy said he has also seen an evolution in the wants and needs of the newer generation of seniors who see senior housing as a choice instead of a necessity. 

“Ten to 15 years ago, we polled all of our residents, which we do regularly, and they all talked about safety and security,” Murphy said. “Fast-forward to the last five years, they talk about dining, they talk about experience, they talk about hospitality.”

Mather Chief Financial Officer Yousuf Hussain said his company has both developed and acquired senior living communities, each with a different investment thesis. Development is a longer-term process with more risk, where the company is looking for higher rates of return and protection against obsolescence from older assets in the portfolio.  

Hussain said the senior housing sector has seen an influx of equity post-pandemic, partially chasing high occupancy rates. This includes more private credit coming into the space.

“There's just a big appetite within the real estate market for senior living,” Hussain said. “It's a great story. Frankly, it's easier to underwrite today than multifamily, given the amount of supply that's out there with multifamily.”