Senior housing is a ‘resilient long-term investment’

Senior housing is a sector set to remain strong for the next 30 years, experts agree.

The long-term sustainability of senior housing is what is driving investors to the sector, delegates heard at the Unlocking Opportunities briefing, organised by the SHHA and Real Asset Media.

“Globally it is accepted that it is a business that is strong now and will remain strong for the next 30 years, which is something you cannot say for offices or logistics,” said Yeliz Bicici, chief operating officer at Cofinimmo. “Fundamentally, the business is resilient and sustainable over the long term.”

Demographics is the underlying driving force, and the sector is understood across countries, because they are all facing the same issues as people live longer. The focus is shifting to ensuring a better quality of life for everyone in their later years.

‘Given the challenges on the operational side in the last two years, you need to focus more to deliver returns for your shareholders.’

Yeliz Bicici, Cofinimmo

“It is a sector that delivers stable cashflows and solid returns,” said Raoul Thomassen, chief operating officer at Aedifica. “Margins are coming back and transparency is improving. But we are choosing to grow in the markets where we already have a presence, because regulatory frameworks are different.”

Geographical diversification is attractive, but it takes time to get to know a market in all its complexities, especially in a sector that has operational challenges like senior housing and healthcare.

“In the current market you need to be picky about where you invest,” said Nikolai Schmidt, managing director of transaction healthcare at Swiss Life Asset Managers. “It is not just a question of financials, but of strategy and management. You need to be hands-on, which is why we focus on the countries we have a presence in. You need to be on the ground, you cannot manage these assets from another country.”

The last two years have been difficult and some operators filed for insolvency, but now the market is improving, experts agreed.

“Given the challenges on the operational side in the last two years, you need to focus more to deliver returns for your shareholders,” said Bicici.

More activity is expected because investors like the stable income and long lease terms, even if the focus is still on mitigating potential operator stress. The market is becoming more professional and more attention is being paid to the sustainability of rents.

“It is important to partner with senior living operators to understand how they work, stabilise portfolios and guarantee good returns to investors,” said Alexander Fröse, founder and managing partner, DLE Living, at DLE Group. “The sector has a good risk/return profile for investors and the added bonus is that you are also giving something back to society.”

‘You need to be hands-on, which is why we focus on the countries we have a presence in. You need to be on the ground, you cannot manage these assets from another country.’

Nikolai Schmidt, Swiss Life Asset Managers

A starting point is forming partnerships and working together to make the sector more professional, Fröse added, as the market is still very fragmented so there is a lot of potential for consolidation.

“On the regulation side it is difficult to predict what the European Commission will do next and the EU care strategy is in the slow lane,” said Stefan Voß, partner at CMS. “My impression is that they will step back a bit and let the market develop.”

Regardless of what is coming down the tracks, it is always preferable to be one step ahead of regulations, as assets that are not taxonomy-aligned will not be viable in a few years.

“As investors, we need to be prepared for all scenarios, as more environmentally-friendly assets make sense regardless of regulations,” said Bicici. “We all need to be pragmatic and use common sense, legislators included. There is no point in setting objectives that are just unreachable. But there is no doubt that the next five years will bring great change to our sector.”

Different models attract investors

Both the sale and rental models offer good returns to senior housing investors, experts agreed at Real Asset Media’s recent Maximising Returns in Senior Living: Best Practices and Insights Across the Care Continuum briefing.

“They are both very valid from a consumer and investor perspective,” said Domas Karsokas, investment director at Octopus Real Estate. “We are doing many schemes for sale in the UK, but investors tend to like the rental model because it is simple, easily valued and the churn of tenants, compared to other asset classes like BTR or student housing, is much lower.”

Looking ahead, Octopus sees senior living rentals as “a strategic opportunity”, Karsokas added. “The UK’s integrated retirement communities, with extensive communal facilities, keeping people engaged in mental and physical activities, are a good proposition. It’s all about making the last years of people’s lives the best years of their lives.”

Wide spectrum of investments

One of the good things about the sector is there is a wide spectrum of possible investments, from senior living to care homes and hospitals. Another positive is that it is constantly evolving to take advantage of new technologies and to meet the different expectations and requirements of residents.

“We invest across the spectrum and are constantly innovating and finding new solutions,” said Frédéric Durousseau, group chief real estate and development officer at Clariane. “In France we are developing new home care solutions, guaranteeing continuity of care, and also co-living for seniors, which has many advantages. Niche markets can be very profitable.”

These innovations are spreading to different areas of France and potentially to other European countries, as companies are constantly looking at what others are doing and sharing best practice. Octopus is rolling out projects in Spain and developing a pan-European strategy.

There is a lot to learn from the US as well, starting from the terminology used, said Scott L Eckstein, managing director of Active Living International. “No one likes senior or assisted living, they are seen as ageist terms, so people prefer lifestyle living or later living,” he said.

The changes in terminology reflect very real changes in older people’s habits and lifestyle, he added. “The baby boomers are coming in now and they have very different expectations. They are not stopping when they retire, they go on to do another degree or to learn a new sport or get into a new hobby.”

The most successful places are the ones that have a multigenerational approach, Eckstein said. “Older people like to be with younger people, provided they share the same interests. Now it’s more about affinity and less about age.”