Chicago — An overabundance of unoccupied independent living, assisted living and memory care units means that billions of dollars in capital is not earning returns in the marketplace, Larry Rouvelas, principal of Senior Housing Analytics, and Kurt Read, principal of RSF Partners, told those attending a Tuesday afternoon session at the National Investment Center for Seniors Housing & Care Fall Conference.

Between independent living, assisted living and memory care, almost $20 billion in capital is not earning returns, they said.

The speakers shared insights into lease-up success based on their examination of NIC data.

The growth of memory care communities has been an “impressive” 44% over the past five years, going from 67,000 to 96,000 units, and more growth is coming, Rouvelas said.

But the number of vacant units increased during that time, too, from 8,000 to 18,000, he said., and 11,300 units are under construction. “If nothing else were built starting tomorrow … it would take over three years to fill up those units to 93% occupancy,” Rouvelas said.

“That’s about $3.6 billion of capital that’s getting a 0% return,” Read pointed out. “That’s a sobering fact.”

The story is similar in assisted living and independent living, Rouvelas said.

In assisted living, occupied units are up 13% in five years. It would take five years for the sector to hit 93% occupancy, however, Rouvelas said.

“The number of empty units has grown, too,” to 45,000, he said, and 20,000 units are under construction.

“That’s over $9 billion of capital that’s not getting returns,” Read said.

In independent living, recent absorption has been 6,400 annually in the past two years, Rouvelas said. There are 36,000 empty independent living units, with 17,000 more under construction, Rouvelas said.

“And that would be about $7.2 billion in private capital in the industry,” he said.

What makes a market productive

Rouvelas and Read discussed characteristics that distinguish more and less productive markets, pointing out that many variables determine whether properties will experience occupancy challenges.

Rouvelas said that, regarding lease-up success, his examination of NIC data on hundreds of property lease-ups from 2011 to 2016 indicates that:

  • Market density and whether a market is child-heavy or senior-heavy have minimal effect.
  • Mid- and high-penetration markets often are healthier.
  • For vintage properties, independent living recently has seen quicker lease-ups, whereas it’s been slower for assisted living and memory care.
  • Larger projects have seen lower occupancy and faster absorption.

NIC said it expects almost 3,000 attendees at this year’s fall meeting, which will include more than 50 speakers at 16 sessions. The gathering continues through Thursday.