The term “senior housing” is used in the real estate industry today to encompass several different types of housing for seniors. With the Baby Boomer generation, one of the largest United States history, advancing from working age to retirement age, the asset class has received a fair amount of investment, but will continue to be in demand for at least the next two decades.

Most types of housing are monthly rentals, with a wide range of prices based on the location of the property, amount of services provided, quality and quantity of amenities, and finishes in common areas and units. Service-oriented senior housing units can garner up to four times the rental rate of a traditional apartment on a square foot basis, while the expense ratio hovers around 60–65% of total income, rather than 35-40% which is common for traditional apartments.

Types of Senior Housing

Senior Apartments

Senior Apartments are similar to regular apartments, except that they are restricted to rent for adults over the age of 55. These apartments are designed to meet the needs of seniors by featuring a limited number of stairs, low pile carpet, grab bars, and other features to help seniors age in place safely. Senior apartments can relieve the burden of home ownership by eliminating any yard work or maintenance concerns while providing an immediate community of their peers.

Independent Living

Independent living (IL) communities offer everything senior apartments do but expand upon services and offerings. The apartments typically include full kitchens, while the IL resident also has access to full meal service in a community restaurant. On site staff run activities programs with full social calendars that help residents connect with others in the community. Many independent living communities have services and amenities that make retirement feel more like a resort-style vacation than everyday life. From book clubs and happy hours to personal concierge services and travel agents, today’s independent living communities are exciting and fun places to call home.

Assisted Living

Assisted living (AL) communities help seniors who may need some assistance with activities of daily living. Staff is available around-the-clock to help seniors get dressed, manage medication, provide escorts to meals, and encourage residents to enjoy retirement. Assisted living staff is customized to each resident. Many “senior housing” communities contain IL and AL units to allow the residents to age in place for a longer period of time and may include small memory care (MC) wings that provide specialized services for seniors living with Alzheimer’s disease or another form of dementia. Some assisted living communities are located within or near independent living communities.

Skilled Nursing

A nursing home, or a skilled nursing facility (SNF), provides extensive nursing care and assistance to seniors whose needs exceed what a typical assisted living community can provide. In these communities, a nursing staff is typically available 24 hours a day to care for residents. While many residents stay in a nursing home for long-term care, some come for short-term care and rehabilitation. Services offered in a nursing home include dining services, different rehabilitative therapies following an accident or illness, and some offer memory care services.

Continuing Care Retirement Community

A Continuing Care Retirement Community (CCRC) incorporates an upfront buy-in payment plus monthly service fees. The upfront cost can range from a few hundred thousand to a few million dollars, and then a few thousand dollars per month. This type of housing guarantees the senior resident a place to reside for the remainder of their life.

How Senior Housing is Underwritten

Lenders will underwrite a senior housing project like they would an apartment project, using an appropriately calculated Net Operating Income of the entire facility and constraining proceeds with a Debt Service Coverage Ratio (DSCR) or Loan to Value (LTV). Many multifamily lenders are not comfortable lending in the Senior Housing space. We’ve found that those that are require a sponsor and operator with the experience necessary to understand the costs associated with operating a senior housing facility, and the capital expenditure required to build or maintain quality facilities that tap into market demand.

If an investor has the experience to understand the asset, and has a quality deal under control, our team at StackSource can easily identify the capital sources in the market that are most appropriate for a deal, based on location, size, and financing scenario.

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