Senior housing is proving to be an attractive investment option with a strong long-term outlook. However, before you dive in, it’s essential to be aware of the five critical market factors that can influence the investment potential of a community.
Demographics Data – Understanding the local population is crucial, especially for senior housing. A comprehensive market study will reveal important insights about the senior population, adult children, and the availability of labor in the area. By analyzing projected growth and income-qualified demographics, you’ll be better equipped to gauge demand for senior living products and services.
Occupancy Trends – Occupancy is a key indicator of demand in the senior housing industry. Look beyond current occupancy rates and focus on multi-year trends and significant changes in the market area. Uncover the reasons behind fluctuations to make informed decisions about your investment.
Construction vs. Inventory – Balancing supply and demand is essential. Don’t be swayed by high volumes of new developments; overbuilding can lead to slower fill-ups for both new and existing communities. Look for markets with growing demand but stable supply.
Penetration Rates – Understanding how senior housing is being utilized in a region is vital. The Gross Market Penetration (GMP) rate measures the ratio of occupied units to age- and income-qualified households. High penetration means a competitive market, while low penetration suggests untapped potential for future demand.
Unit Potential – Unit potential calculates the net demand in a market area. Higher unit potential is generally more favorable, but consider the relationship with occupancy. High occupancy with high unit potential may indicate room for more development, while low occupancy with high unit potential might signal potential fill-up challenges.
Remember, these five senior housing market metrics are just the beginning. Always consider them in conjunction with other market factors and investment metrics to make informed decisions. Market studies are invaluable tools to guide you towards a successful, data-driven investment in senior housing.
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In March 2022, the secured overnight financing rate (SOFR) data – a key benchmark for bridge debt – was at a comfortable 0.5%. This was associated with spreads between 150 to 250 basis points, resulting in a collective rate of around 3%. Fast-forward to today, and we observe a stark increase in the SOFR, now