In the past, senior living investors lacked access to concrete supply and demand information on their local markets. They were forced to base their investment decisions on national aggregate data. Consequently, they sought higher returns because the lack of reliable, local market data heightened their sense of risk and made it more challenging to identify investment opportunities in healthy markets.
But all of this changed last summer via a new online database called the NIC Market Area Profiles (MAP), the industry's first significant accumulation of seniors housing data for the nation's top 30 metropolitan statistical areas (MSAs).
Developed by the National Investment Center for the Seniors Housing & Care Industries — a nonprofit organization that provides original research, business and financial intelligence for the senior living industry — MAP generates quarterly reports of local market information such as occupancy rates, pricing, supply, demand, demographics, market share analysis and time series data to help investment professionals evaluate trends.
This information is available on all of the major senior living property types, including independent living, assisted living, dementia, skilled nursing and continuing care retirement communities (CCRCs).
What's the Payoff?
While it doesn't replace the need for comprehensive market feasibility studies, MAP data enables investors to compare facilities in their local markets. And for those looking to expand into new parts of the country, the service ranks metro areas by data and extrapolates that data to provide penetration levels, or levels of saturation.
For example, the MAP service enables investors such as the California Public Employees' Retirement System (CalPERS), one of the largest institutional investors in real estate, to target markets for future investment and monitor the performance of properties in their existing portfolios. Julie Rost, CalPERS investment officer, expects the new database to help managers achieve their desired returns for a particular fund.
Interpreting the Data
Preliminary MAP findings from the first quarter of 2004 showed that Kansas City had the highest overall penetration rate (20.3%) among the top 30 MSAs, but ranked third lowest in occupancy at 91.6% (see chart).
What does this mean for investors? Simply put, investors may want to watch out for high penetration rates because they may negatively impact occupancies. Very low penetration rates can mean that the market has not been educated about the available products, and very high rates can mean the market is nearing saturation. However, this tool cannot be used in isolation.
The data also allows investors to find additional growth opportunities. In fact, another preliminary finding indicates that future demand appears to be quite large if supply is spaced properly. Demographic growth in the 75+ household group will increase an average of 1.3% over the next five years. The larger opportunity is in attracting more of the households within this group who choose to live in the various senior living property types. The large difference between lower and upper quartile penetration rates suggests that this is indeed possible.
Raising the Bar
Many other commercial real estate-based sectors have had access to online databases and other investment tools for quite some time, but historically that hasn't been the case for the seniors housing and care industry. This new service has put the sector on the same footing as office, industrial, retail and multifamily properties.
Before its official release, the data service went through almost two years of review and extensive testing by the MAP task force, a team of debt and equity investors and operators who led pilot tests in five MSAs.
Using MAP, senior living investors and investment professionals who are looking to make their mark in the burgeoning seniors housing and care industry can now access a resource to help them better understand the operational differences among the different settings. Over time, MAP is expected to increase investors' confidence in their ability to effectively measure investment risks and rewards, potentially providing greater access to capital at a lower cost for operators.
Robert G. Kramer is president of the National Investment Center for the Seniors Housing & Care Industries. For more information, visit www.NIC.org.
Top 5 MSAs Compared by Overall Penetration Rate and Overall Occupancy Ranking
| MSA | Penetration Rate* | Occupancy Rate | Rank** |
|---|---|---|---|
| 1. Kansas City | 20.3% | 91.6% | 27 |
| 2. Dallas | 19.2% | 91.0% | 28 |
| 3. Portland | 19.1% | 93.1% | 23 |
| 4. Minneapolis | 18.3% | 96.1% | 8 |
| 5. Chicago | 16.4% | 90.6% | 29 |
| * The penetration rate is calculated as total units of all seniors housing and care property types in a local market divided by the total population over 75 years of age in that market. | |||
| ** Ranking is according to occupancy within the top 30 MSAs. | |||
| Source: NIC MAP | |||