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Is Declining Occupancy Affecting the Senior Housing Market?

Chris Finlay, CEO of Lloyd Jones LLC, shares his view on trends in elderly housing investment, the firm’s strategy and future plans. He also predicts how technology will impact the sector.

by Beata Lorincz

Lloyd Jones LLC is a real estate investment, development and management firm that specializes in multifamily and senior housing throughout Florida, Texas and the Southeast. The company focuses on independent living and age-restricted facilities (ILFs), as opposed to communities that include a medical component, such as assisted living facilities (ALFs) and memory care (MC).

According to the National Investment Center for Seniors Housing & Care (NIC), senior housing occupancy in the U.S. averaged 87.9 percent in the second quarter of 2018, representing an eight-year low. Multi-Housing News reached out to Lloyd Jones CEO Chris Finlay for further insight on the senior housing market.

What do you look for in a senior community?

Finlay: Ideally, for existing assets, we look for properties 10 to 20 years old that we can acquire at substantially below replacement value, then improve or redevelop them so that they are competitive with new product. Unfortunately, very few of these opportunities exist. Consequently, our focus is on ground-up development, where we can create an active senior community designed specifically to our specifications—and to the expectations of our residents.

What are the latest trends in senior housing?

Finlay: More and more seniors are renting by choice. They are looking for lifestyle flexibility as well as freedom from taxes and household/yard maintenance. And they like being around like-minded friends, in a socially active and healthy-lifestyle-focused environment.

What are the greatest challenges in owning senior communities?

Finlay: Getting too attached to your residents. Our senior residents are wonderful. They are great to work with and so appreciative of the opportunities our communities provide.

Research shows that senior housing occupancy hit an eight-year low of 87.9 percent in the second quarter of 2018. What can you tell us about this drop? How does this impact the sector?

Finlay: Fifty-five-and-over occupancy is over 95 percent and ILFs are at 92 percent. ALFs/MC are overbuilt in nearly all major markets. We just got back from a seniors conference and our strategy was absolutely confirmed. This is where they’ve headed and will be staying for a long time and thanks to technology, many seniors may never have to go to an ALF/MC or skilled nursing facility (SNF).

What are your predictions for the senior housing market going forward?

Finlay: I see less demand for assisted living and memory care. With all the technology advances, seniors can avoid institutional facilities and stay independent for much longer.

Which are the most active multifamily markets at the moment?

Finlay: Jacksonville and Daytona are two of the hottest markets in Florida. We also like Houston and Fort Worth, Texas.

What are your predictions for the market?

Finlay: I think we have a few more years in this cycle, but demographics will continue to be positive for our industry for a very long time.

What can you tell us about the company’s strategy going forward?

Finlay: We are not planning to expand to any new markets. Our strategy is to focus on 55-and-over independent senior living, which is still doing very well.

 

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Disruption in Senior Housing

The senior housing industry is in the midst of a big disruption.  Occupancy in assisted living hit a record low in the first quarter of 2018 – and continues to fall. There could be numerous reasons for this, including a bad flu season, but I think there’s something bigger going on.

At a recent conference I attended, one of the speakers addressed this subject.   He suggested that two major influencers are driving the disruption.

  1. Labor shortage. A labor shortage is anticipated for high-intensity facilities such as assisted living, memory care, skilled nursing facilities. The average wage for a CNA (certified nursing assistant) is currently $11 per hour.  Soon, the speaker projects,  it will be $15. This will cause an 8% drop in NOI which translates to a 27% decline in asset value!  Or, more likely, rents will rise, and such facilities will become even less affordable.
  2. Technology. And this is where it gets cool! Technology is focusing on aging-in-place, allowing seniors to avoid institutional facilities longer. The speaker shared that aging-in-place technology will become a $7 trillion economy. Venture capital is investing 10:1 on technology versus operational improvements.

So how does this affect you and me?

It means we can age in place almost anywhere.  The secret is in choosing the place. If we live long enough, each of us will need assistance at some point, (although most of us refuse to admit it).  But technology will allow us to live wherever we choose with on-demand assistance as necessary.

Even today, technology is available to get us what we need, when we need it: a voice activated communications system connected with family or emergency-response team;  a sensor to monitor activities and detect irregularities;  a wrist band connected to an AI platform that alerts the doctor if anything is out of kilter;  apps to remind us to take our pills; apps to call a ride; apps to order meals; apps to request assistance with dressing or bathing; apps for help hanging pictures or rearranging furniture.

And that’s today.  Just wait until that $7 trillion investment is realized!

I project the future of senior housing will be focused on the independent-living model with limited services – which will be offered a-la-carte.  Technology will replace the need for personal assistance. We will not need (nor can most of us afford) the full staff that comes with assisted-living facilities. With this exciting new technology, we will remain independent much longer as we age in place.

But aging-in-place doesn’t mean staying in your four-bedroom colonial with stairs, narrow doorways, and slippery bathtubs.  Forward-thinking baby boomers are eschewing their large family homesteads that require constant up-keep and high taxes for luxury apartment living.  Here, they can age in place, but in a place with more amenities, more fitness activities, more social involvement, and more companionship.  And that socialization is very important.  Studies show that social isolation increases the risk of death by 30%;  some show it as high as 60%!

Assisted living and memory care facilities, of course, will still be needed, but they will have a much higher cost and be even less affordable to the average senior.  That said, senior housing still ranks as the most attractive property class for investment according to a recent survey of commercial real estate owners, managers, developers, and lenders.

So, we will age, in place, independently, and wherever we want. And I suspect most of us will choose an independent-living community surrounded by like-minded, active, involved friends – and cool technology!


Christopher Finlay  is Chairman/CEO of Lloyd Jones, a real estate investment firm that specializes in the multifamily and senior housing sectors. Based in Miami, the firm acquires, develops, improves, and operates multifamily and senior housing communities in growth markets throughout Texas, Florida, and the Southeast.  The firm’s investment partners include institutions, family offices, and individual accredited investors.

 

 

 

 

What Does 2015 Tell Us About 2016?

In reviewing 2015, I am reminded of the issues that dominated multifamily investment discussion.

Let’s start with the funds. Blackstone Group LP, the world’s biggest alternative-asset manager, has collected $15.8 billion for its global real estate fund. As of June, 2015, it was overseeing $93 billion in real estate assets. Goldman Sachs is oversubscribed for its $5.3 billion real estate fund. (bloomberg.com/news.)
What does this mean? These are smart people – and they have chosen real estate as their investment class. We all know that real estate provides a stable diversification to the volatility of the equity markets, and it has outperformed those markets for many, many years. But the enormity of these funds is concrete affirmation of its global favor.

Then consider the Millennials: 25 million classic apartment renters are still living at home. And it will be a while before they can afford—or want –to purchase a home: student debt; flexibility to move for job opportunities; later marriages and children, etc. And recently FHA has ruled that potential home buyers who carry student debt will have to include that debt (even deferred) in their debt-to-income calculations. So it will be even harder to qualify for a mortgage. They (25 million) will need rental housing. That’s a lot of apartments.

And the Baby Boomers (born between mid-40s and mid-60s) are also looking to rent. There will be 76 million baby boomers retiring en masse in coming years. Some reports anticipate that in the next fifteen years, renters 65 and older will grow in number to 12.2 million. (Gloria Stilwell, Bloomberg News) Other reports suggest that Boomers may be slower to downsize as the housing bubble peaks, but add that this situation is temporary. Boomers currently occupy 32 million homes, but as circumstances inevitably change, “their actions will reverberate through the housing market.” (Kenneth Harney, Washington Report to Miami Herald. 12/6/15.) That’s even more demand for rental apartments.

That brings us to the housing bubble. With the rise in housing prices, the “US housing market across the board is moving toward rent territory,” Ken Johnson, Ph.D. Especially in Dallas, Houston, and Denver, in terms of wealth creation, data suggest renting as opposed to buying.

Finally – senior housing: It’s not your grandma’s “old folks” home. No more rocking chairs; no more flowered wallpaper, antique credenzas and calico curtains; no reference to “retirees.” By federal law, 55 is the minimum age for “senior housing,” but who at 55 wants to be considered “senior”? (My wife has refused senior discounts because “It sounds so old.”)

Our Baby Boomer renters want a continuation of their active and social lifestyles –but without the headaches. They want modern, show-house furnishings, designer finishes. They want a carefree, luxury lifestyle. They want rental apartments.

Put these all together, and the future of multifamily investment is very exciting. We are going to be busy. The problem is that everybody is jumping on the bandwagon, and there are some crazy deals going down. Good investments are out there, but they are really hard to find. That’s why Lloyd Jones Capital has “boots on the ground” in each of our markets. Not just any boots, but highly experienced VPs, teamed with regional property managers. They scout the area for off-market opportunities.

For 2016, multifamily will continue as the darling of the real estate investment industry. But we must be careful. I predict a cap rate compression unlike anything we have seen before. And that will create other issues. (But I’ll discuss those in another message.)

In the meantime, we aggressively look for solid B and C properties in B and B+ neighborhoods, properties with steady cash flow that show opportunity for improvement. It takes hours and hours of looking and a lot of hard work, but we at Lloyd Jones Capital are very proud of our work ethic and the success it brought us in 2015. And we expect 2016 to be even better.

 

Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real-estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, manages and improves multifamily real estate on behalf of its institutional partners, private investors and its own principals. Headquartered in Miami, the firm has operations throughout Texas, Florida and the Southeast. For more information visit: lloydjones.wpengine.com.