Archives for 2024

A new data analysis from the National Investment Center for Seniors Housing & Care suggests that the demand for senior housing increasingly exceeds the number of available units in the third quarter of 2024.

Senior housing occupancy for 31 primary data markets of NIC MAP Vision, a company that provides geospatial and market selection analytics for the senior housing and care sector and a subsidiary of the National Investment Center, increased 70 basis points from 85.8% in 2024 Q2 to 86.5% in Q3. Annual average rent growth was 4.2%, with annual absorption of 3.9%, annual inventory growth of 1.1%, and construction versus inventory of 3.5%.

It shouldn’t be a surprise. The fundamental story of how senior housing demand keeps outpacing supply has been true for years. And it keeps getting worse, creating in turn an affordability crisis.

The specifics differed by majority independent living (IL), majority assisted living (AL), and majority nursing care (NC). IL saw 87.9% occupancy, 4.% annual rent growth, 3.3% annual absorption, 1.1% annual inventory growth, and 3% construction versus inventory.

For AL, the figures were 85.1% occupancy, 4.4% annual rent growth, 4.5% annual absorption, 1.2% annual inventory growth, and 4.0% construction versus inventory.

As for NC, occupancy was 84.5%, 4.1% annual rent growth, 2.1% annual absorption, -0.5% annual inventory growth, and 0.2% construction versus inventory.

The transaction volume for the quarter was roughly $1.5 billion for IL and AL with a rolling four-quarter price per unit of $114,284, and $743.4 million in NC with a four-quarter price per unit of $82,196.

“As more Baby Boomers reach their 60s and 70s, demand for senior housing is expected to continue increasing and ultimately exceed pre-pandemic occupancy levels by the end of the year,” Lisa McCracken, NIC’s head of research and analytics, said in prepared remarks. She continued that increased demand plus the Fed’s recent interest rate cuts “are encouraging signals” that conditions for better growth could be ahead.

Senior housing affordability has been a problem for years. It will take significant growth in construction to reduce the pricing pressure.

At the same time, the conditions have created a desirable CRE asset type, Arick Morton, chief executive officer of NIC MAP Vision, told GlobeSt.com in August 2024.

“There’s a significant generational opportunity for investors in senior housing development and acquisition,” Morton said. “As the demand for senior housing grows, investing in this sector will result in substantial returns and long-term growth. It’s the early foreshocks of what is going to be a demographic earthquake over the next 25 years, as the boomers age.”

Source: “Senior Housing Demand Continues to Increase Faster Than Supply”

Four out of five of the nation’s 100 largest cities experienced month-over-month rent drops in September and the outlook for the future is more of the same, a new report from Apartment List predicts.

“We are likely to see continued price dips of increasing magnitude in the coming months, as property owners offer modest discounts to fill vacancies during a time of year when few renters are looking to move,” the report stated.

It found that year-over-year rent averages nationally have fallen to -0.7% — the 18th month it has been in negative territory. Median rent in September dipped 0.5% to $1,405. “The national median rent today is $10 per month cheaper than it was one year ago,” the report noted. Even so, it is 20% higher than it was in early 2021.

Other factors affecting the market are slumps in rent prices that are normal in fall and winter which have been steeper than usual, and the usual rent boosts in spring and summer have been weaker.

The well-documented problem of too many apartments coming on the market at this time has helped raise the national vacancy index to 6.7%, the highest since August 2020. Sun Belt metros like Austin, Raleigh, Jacksonville, Orlando, Phoenix and San Antonio are among the worst affected. The report predicted that supply would continue to outstrip demand into 2025.

However, markets in the Midwest and Northeast that have not seen an influx of new supply continue to see rent growth.

The report noted that the federal Consumer Price Index (CPI) is heavily influenced by changes in housing prices. Yet even though the cost of rent has been declining, shelter CPI remains elevated and contributes significantly to upward pressure on topline CPI.

“If you strip out shelter, the remainder of the CPI price basket increased by just 1.1% year-over-year, well below the Fed’s long-term 2% inflation target,” the report stated. Noting the Fed’s recent action to cut rates, the report said the Fed’s action indicated that elevated shelter CPI is no longer a blocker to rate cuts.

“As shelter inflation continues to trend down, it will help overall inflation continue to ease as well, but it will still take time for shelter CPI to fully metabolize the shock to market rents,” the report cautioned.

 

Source: “Rents Continue to Decline in Most Major Cities”

Although golf’s popularity in the U.S. has not returned to its zenith prior to the Great Financial Crisis, new findings from CBRE suggest that the sport’s growing appeal is proving to be a boon for hoteliers and golf resorts. The firm analyzed the performance of 20 resorts with an average of 625 rooms between 2019 and 2023, finding that revenues have expanded significantly since the onset of the pandemic.

Occupancy rates, average daily rates, and gross profits at golf resorts did not decline as sharply as they did for other hotels during the pandemic. CBRE attributes this difference to the isolated, low-density nature of the resorts and the outdoor aspect of the sport, which likely attracted individuals seeking healthy alternatives.

“Since 2020, golf has experienced a resurgence,” the report stated. In 2023, the National Golf Foundation (NGF) reported 26.6 million rounds of golf played on U.S. courses, a 9.5% increase from 2019. Of even greater significance is the 115% rise in off-course participation, which includes driving ranges, simulators, and par-3 courses during the same period.

Instead of cannibalizing revenues from golf resorts, simulators, driving ranges, and concepts like Topgolf are drawing millennials back to the fairway. In 2023, total participation reached 45 million, representing a compound annual growth rate of 36% since 2019.

From 2019 to 2023, golf revenue per available room at the sampled resorts increased by 42%, outpacing the 27.7% rise in total operating revenue. On a per-occupied-room basis, golf revenue surged by 50.1%, compared to just a 35% increase in total revenue. In 2020 alone, golf revenue more than doubled on a per-occupied-room basis, despite the pandemic’s challenges, while total hotel revenue saw a modest 12.5% growth. This sharp rise reflects the growing proportion of golf enthusiasts among hotel guests and an uptick in local participation.

Looking ahead, CBRE said golf courses are poised to benefit from heightened demand. However, the industry will continue to face challenges such as limited new course development due to high construction costs, lack of available debt, and environmental factors. Despite these hurdles, the growing and diverse pool of new players signals a promising future for the sport.

Source: “Golf Resurgence Boosts Revenues for Resorts, Hotels”

The office market may have hit its bottom following a series of stressed property sales at discounted rates during the past quarter, which have set a new pricing benchmark, according to a Reuters report.

Seven properties sold at a discount of more than $100 million during the first quarter, compared with two during all of 2023. These include the sale of a Midtown Manhattan office building that went for a 97% discount of its original price, accounting for a $276.5 million loss, according to Moody’s data.

According to the RCA Commercial Property Price Index, office prices have fallen 12.4% year-over-year. This trend has industry observers speculating that the worst of office distress may be behind us. An increase in transaction volume would confirm the industry’s comfort level with current pricing.

Many stakeholders have opted to extend maturing loans rather than sell during the past two years largely due to an unclear pricing benchmark. Office sales have averaged $13.4 billion per quarter since 2023, according to data from MSCI Real Capital Analytics. That compares with an average of $35 billion per quarter before the pandemic, which drove vacancies and higher operating costs.

Owners have also been waiting for lower interest rates while contending with low vacancies and revenues, making it difficult to pay interest on existing loans. Even with the Fed’s recent rate cut, up to three-quarters of $19 billion of maturing loans over the next year could struggle to refinance because they lack enough equity. One-third of loans maturing in 2024 have either failed to pay off or refinance successfully on time, according to CRED iQ. Experts suggest interest rates must drop 300-400 basis points to compensate for the decline in property values.

Parkview Financial is one lender that has elected to sell despite the challenging market. The company offered to sell $300 million of seven multifamily and office loans in New York, New Jersey and Connecticut via auction, Reuters reported. Parkview CEO Paul Rahimian said the firm received multiple bids at 95-98 cents to the dollar for four of those loans. Parkview plans to offer new loans with the proceeds of the sales.

Source: “Office Market May Have Hit Bottom After Wave of Discounted Sales”