It's not exactly the bursting of the dot-com bubble, but the seniors housing business is suffering from the excesses of the 1990s. Fueled by an influx of investment from Wall Street, there was rampant overbuilding of housing for retirees and the elderly in the late 1990s. Now comes the hangover.

According to an annual report by the Washington, D.C.-based American Seniors Housing Association (ASHA), there are just 150 seniors housing properties (21,495 units) under construction in 2002. That's down by 35% from 2001. Now, investors have little appetite for this property type, says David Schless, president of ASHA.

“Generally speaking, there are no major sources of construction capital for seniors housing,” he says. “If a company has a solid, proven track record, then it may be available. However, if you're starting up a seniors housing company, you would find a difficult capital situation.”

Dan Storer, managing director of Cleveland-based Key Healthcare Finance, says that his firm is willing to finance the construction of certain types of seniors housing properties, such as independent living facilities and continuing care retirement communities, which offer a variety of living arrangements and services. These products were not overbuilt during the late 1990s, he says.

Storer estimates that Key will fund about $160 million in seniors housing construction loans this year. In 1998, the height of the assisted living boom, the company originated approximately $480 million in such loans.

The overall pace of seniors housing construction has been in a steady decline since 1999, when 591 properties — about 400 of which were assisted living facilities — were under construction. This year, about 44 assisted living communities are under construction.

Schless predicts the slowdown in construction will continue at least for another year.