October 16, 2025 • 14 mins
We lay out why seniors housing enters late 2025 with strong tailwinds: a surge in 80-plus demand meets a decade‑low construction pipeline, pushing occupancy and competition higher. We break down the “haves vs have‑nots,” the return of GSE lending, HUD’s faster lane, and the headwinds that could reshape returns.
• demographic surge in the 80-plus cohort driving needs-based demand
• decade-low construction pipeline and supply lag through 2026
• occupancy rebound, strong net absorption, and rent growth
• performance gap between modern, well-operated “haves” and older “have-nots”
• bidding wars, compressed cap rates, and seller leverage
• improved debt markets with Fannie, Freddie, and HUD Lean Express Lane
• role of bridge and preferred equity in value-add execution
• case studies on distressed demand and leasehold value
• affordability pressures, policy risk around Medicaid shifts, and capex needs
• labor normalization with structurally higher wages and margin impacts
• strategies: scale, operator quality, value-add, and policy vigilance
Sources & References
Market Data and Forecasts
- NIC MAP by NIC Analytics (Q2–Q3 2025 Reports) – Occupancy, rent growth, absorption, and construction pipeline data across primary and secondary markets.
- U.S. Census Bureau, Population Projections (2024 Revision) – Demographic data for the 75+ and 80+ cohorts through 2030; foundational to demand modeling.
- CBRE Seniors Housing & Care Investor Survey (Spring 2025) – Investor sentiment, cap rate ranges, and comparative yield data.
- JLL Senior Housing Investor Survey (2025 Edition) – Investment trends, debt market activity, and institutional appetite.
- Walker & Dunlop Senior Housing Outlook (2025) – Commentary on market fundamentals, lending trends, and investor behavior.
- Moody’s Analytics CRE Outlook (Q2 2025) – Macroeconomic assumptions, lending spreads, and risk-adjusted return projections.
Operational & Development Trends
- National Investment Center for Seniors Housing & Care (NIC) – Market Fundamentals Report, 2025 – Occupancy, rent, and absorption metrics used to benchmark performance recovery.
- Senior Housing News, “Pipeline Declines to Decade Lows,” August 2025 – Coverage of development activity and bank lending trends.
- Fannie Mae and Freddie Mac Seniors Housing Financing Program Updates (2025) – Details on agency re-engagement and competitive debt structures.
- U.S. Department of Housing and Urban Development (HUD) – Lean 232/223(f) Program Bulletins, 2025 – Policy updates and Lean Express Lane details.
Labor, Policy, and Cost Inputs
- Bureau of Labor Statistics (BLS) – Employment Cost Index, Healthcare and Social Assistance (2025) – Labor cost benchmarks influencing operating margins.
- Argentum & LeadingAge Workforce Surveys (2025) – Staffing normalization, agency reliance trends, and wage growth data.
- Marsh McLennan Insurance Market Index (2025) – Insights on insurance cost moderation and expense volatility.
Contextual and Strategic Commentary
- National Real Estate Investor (NREI) – “2025: The Year Seniors Housing Reclaims Momentum,” June 2025.
- PwC & Urban Land Institute – Emerging Trends in Real Estate 2025 – Sector outlook and investor preference analysis.
- Haven Senior Investments Internal Market Intelligence (2025) – Proprietary analysis and synthesis of senior housing transactions, valuations, and investor activity across the Haven network.
📘 Citation Note
All quantitative market data were sourced
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 01 (00:00):
Welcome to the deep dive.
Today we're uh digging into theseniors housing market,
specifically the outlook forfall 2025.
Speaker 00 (00:07):
Yeah.
Speaker 01 (00:08):
We're moving past the headlines, and well, the
data seems pretty clear.
There's some real momentumhere, lots of investor
confidence.
Speaker 00 (00:16):
That's right.
It's looking like uh maybe themost competitive time for
acquisitions in what, almost 10years.
Speaker 01 (00:22):
Seems like it.
Speaker 00 (00:22):
So our mission today really is to give you a fast
track.
We want to help you understandwhat's driving this
transformation.
We're unpacking the forcesbehind the competition, uh
focusing on that key spot wheredemographics, supply limits, and
you know the capital marketsall meet.
It's definitely more than justgrowth.
It feels like a structuralshift.
Exactly.
Speaker 01 (00:43):
And when you look at the sources, it's not just one
thing, is it?
It feels like three big trendscoming together.
First, you've got this deepinterest from big money, right?
Institutional capital is backand they seem confident.
Speaker 00 (00:56):
Yep, they're definitely placing bets.
Speaker 01 (00:58):
Second, the money side, the capital markets,
they're actually playing ballnow.
Lending options are better,more competitive.
Speaker 00 (01:04):
Much more supportive than say a year or two ago.
That's crucial.
Speaker 01 (01:08):
And third, and this is a big one, the day-to-day
operations, which got hit sohard during the pandemic,
they're getting better, steadilyimproving.
Speaker 00 (01:16):
Yeah, stabilization is key.
People are seeing that pathforward now.
Speaker 01 (01:19):
l Okay, let's unpack this then.
Speaker 00 (01:21):
Yeah.
Speaker 01 (01:21):
Maybe start with the most basic driver the demand.
That's the engine, right?
Speaker 00 (01:26):
Absolutely.
The core idea for investors uhright now is pretty simple.
Demand is just outpacing newunits coming online pretty much
everywhere.
In almost every major market.
Yeah.
Nearly everyone.
And that imbalance, well, thataffects everything else.
It drives rent growth.
It pushes up valuations.
Makes sense.
But the real power here, youknow, it isn't just general
demand, it's the specifics ofthe demographics.
(01:48):
Seniors housing isfundamentally needs-based.
So less tied to the overalleconomy than like office
buildings or retail.
Significantly less sensitive,yeah.
The sources they point to U.S.
Census data showing really fastgrowth in the 80-plus age
group.
Speaker 01 (02:06):
And that's the key demographic.
That's the core user base.
And this isn't a short blip.
This wave expands the pool ofpeople needing senior care
options right through 2030, eveninto 2035.
It's a long-term thing, areally durable tailwind.
Okay.
So you've got this massive,kind of inevitable demand
building up, but then you lookat the other side, supply.
(02:26):
Right.
And the construction pipeline.
It's just fallen off a cliff.
That's a good way to put it.
New units under construction,they've really reset.
We're talking decade lows.
And it's been pretty quietsince mid-2021.
And why is that?
Still the same headwinds?
Pretty much.
You know, construction costsare still high, banks are still
cautious with lending fordevelopment and getting zoning
(02:46):
approval.
That's always a hurdle.
So the bottom line is newbuildings aren't going to catch
up to this demand wave anytimesoon.
Not until 2026.
Maybe later.
In most markets, yes.
Supply is going to lag demandfor a while, yeah.
And you can already see that squeeze playing out in
the operational numbers, can'tyou?
Occupancy rates are recovering.
Impressively so.
National occupancy is basicallyback to pre-pandemic levels,
(03:09):
uh, hit 88.1 percent in thesecond quarter of 2025.
That's pretty strong.
It is.
And the key thing is netabsorption.
That's the number of peoplemoving in minus those moving
out.
It's consistently higher thanthe new supply being delivered.
So the existing places arefilling up fast.
Speaker 00 (03:26):
Exactly.
What's out there is in highdemand.
Speaker 01 (03:28):
, which leads to this split in the market you
mentioned earlier.
Yeah, this intensity hasreally created or maybe widened
a gap.
We're seeing a big differencein performance in 2025 between
the really good establishedcommunities, the haves, and the
ones that are struggling, thehave-nots.
Okay.
Define the haves for us.
What makes a property fall intothat top category?
(03:50):
Well, it's more than justbeing in a great location,
though that helps.
It's usually assets with moderndesign, maybe integrated tech,
wellness programs, flexible careoptions.
Like dedicated memory carewings that are bright and
modern, good internet, that kindof thing.
Speaker 00 (04:06):
Exactly.
Plus, you need a strongoperator with a good reputation,
favorable supply and demand intheir specific little
neighborhood or submarket, andcrucially strong financials at
the property level.
Often these places are running,you know, over 95% full.
Speaker 01 (04:21):
They're the proven winners.
Speaker 00 (04:22):
Basically, yes, established winners.
Speaker 01 (04:24):
And the competition to buy these places, it's
intense.
Speaker 00 (04:27):
It's staggering.
Here's a number from thesources that really makes you
stop and think.
These top-tier have properties,they're regularly attracting 10
to 15 qualified bids when theygo up for sale.
Speaker 01 (04:40):
Wait, 10 to 15 bids for one property?
Speaker 00 (04:43):
15, yeah.
Compare that to maybe just twoor three serious bids a few
years back.
It's a huge jump.
Speaker 01 (04:50):
Wow.
And what does that kind ofcompetition do to the deal
process?
I mean, besides driving up theprice.
Speaker 00 (04:55):
, oh, it changes everything.
Sellers have all the leverage,due diligence times get squeezed
way down.
Buyers have to come in withnear certainty they can close,
often giving up importantprotections, those
contingencies.
Speaker 01 (05:08):
It becomes a race for speed and who's willing to
pay the most premium.
Exactly.
Speed and certainty.
And you see that premium reflected in the prices,
the transaction results.
Speaker 00 (05:16):
Definitely.
Big institutional money isclearly competing.
And the going in capitalizationrates, the cap rates for these
stable core assets, they'regetting pushed down into the low
6% to low 7% range.
Okay, so for anyone listening,that lower cap rate basically
means buyers are paying a higherprice relative to the current
(05:36):
income.
Right.
They're willing to accept alower initial yield because they
believe so strongly in thefuture, rent growth, and that
long-term demographic story wetalked about.
Is that it?
That's precisely it.
They're paying for thecertainty of that future cash
flow.
Now, flip that coin.
Mm-hmm.
The have nots.
They're facing real challenges.
Trevor Burrus, Jr.
What defines them?
(05:57):
Often they're in secondary ortertiary locations.
Maybe the building itself isolder, more like a commodity
product.
They struggle to stabilizeoperations, fill beds.
And fewer buyers areinterested.
Much fewer.
Very shallow bid sheets, maybejust a couple of groups looking.
And because these places oftenneed a lot of money poured into
them just to modernize, theytypically trade at a big
(06:17):
discount compared to what itwould cost to build something
new.
Speaker 01 (06:20):
A discount to replacement cost.
Okay, so this intensecompetition and pricing, it
probably wouldn't be sustainableif getting loans was still
really hard.
But you're saying the debtmarkets have thawed out.
Speaker 00 (06:30):
Significantly.
Conditions are much better thanthey were in 2024.
Long-term interest rates havemoderated some, and lenders just
seem more comfortable with thesector's recovery now.
And the big government playersare back.
Fannie Mae and Freddie Mack.
Yes.
The GSEs, Fannie and Freddie,are actively lending in seniors
housing again.
They're offering competitiverates, both fixed and floating.
(06:53):
And when they jump back inaggressively, that creates more
competition among lendersoverall, right?
Helps borrowers get better to exactly puts pressure
on everyone else and helps drivedown the spreads, especially
for these stronger borrowers.
But uh here's something reallyinteresting on the government
side.
There's a brand new program,HUD Lean Express Lane.
Speaker 01 (07:12):
HUD Lean Express Lane.
What's that do?
Speaker 00 (07:14):
It's designed specifically to speed things up,
to dramatically streamline theprocessing time for HUD loans on
qualifying deals.
Speaker 01 (07:22):
How much faster are we talking?
Speaker 00 (07:24):
Significantly faster.
Cutting down that typical timefrom when you apply to when you
actually get the loancommitment, it makes a huge
difference.
Speaker 01 (07:30):
I bet.
It takes a lot of theuncertainty out of the financing
piece for a buyer.
Speaker 00 (07:34):
It absolutely de-risks the execution.
If you're a buyer and you knowyou can lock in that long-term,
low-cost HUD financing muchquicker, it makes those interim
lenders, the bridge loanproviders, more willing to step
in for the initial purchase andfix-up period.
Because they see a clearerpath to getting paid back.
Precisely.
It just lowers the overall costof capital and increases
(07:56):
certainty.
And you mentioned bridgelenders.
Yeah.
Are they and other alternativelenders still active?
Oh, yes.
Bridge lenders preferred equity providers.
They're still very much in thegame.
They offer a flexiblefinancing, especially for those
repositioning deals or justneeding temporary funds until
the prominent GSC or HUD loan isready.
So it sounds like the dealshappening now aren't necessarily
(08:18):
fire sales.
It's more strategic.
That's a key point.
It's largely driven by choice,not widespread distress.
For sellers, it's mostly aboutoptimization, cashing in on
gains they've made, recyclingthat capital into something new,
maybe just rebalancing theiroverall portfolio.
Makes sense.
And buyers.
Yeah.
What's the main motivation?
It seems to be twofold
(08:39):
Buyers want to get bigger,build platforms to get more
efficient operationally.
You know, managing 10facilities is often cheaper per
unit than managing just two.
Trevor Burrus, Jr.
Speaker 01 (08:48):
Economies of scale.
Speaker 00 (08:49):
Right.
And they crave certainty.
So they lean towards assetsthat are already stable with
operators who have a proventrack record.
And they're using that betteraccess to capital, the GSE and
HUD options to lower their riskand lock in good debt terms.
Speaker 01 (09:05):
There is some pretty striking anecdotal evidence in
the source material about thelevel of interest, even for
properties needing work, likethat Ralston Creek deal.
Speaker 00 (09:13):
Yeah, Ralston Creek neighborhood in Colorado, that
was a 134-unit community,definitely distressed, needed
work.
They put it on the market.
And how many offers?
14 letters of intent to purchase.
Speaker 01 (09:24):
Fourteen.
For a distressed property.
Trevor Burrus, Jr.
Speaker 00 (09:26):
14.
It tells you just how muchcapital is out there looking for
opportunities and how willingthey are to take on the
renovation and stabilizationrisk because that underlying
demographic story is just socompelling.
Speaker 01 (09:37):
That's incredible.
Really shows the belief and thevalue add potential.
Speaker 00 (09:42):
It does.
And there is anotherinteresting case that highlights
a different angle focusing onoperations over just the real
estate itself.
The owned and leaseholdportfolio disposition, it was uh
44 skilled nursing facilities,but 37 of them were just
leaseholds, meaning the sellerdidn't own the actual buildings
(10:03):
or land for most of them.
Speaker 01 (10:04):
Okay.
So mostly just the operatingbusiness.
Speaker 00 (10:06):
Primarily.
But it still sold for a hugenumber, over nine figures.
The key was successfullypitching the value of the
replacement lessee and all theextra revenue streams, therapy,
pharmacy, things like that.
So the value is in themanagement contract and the cash
flow it generated, not just thebricks and mortar.
Exactly.
A different kind of valueproposition, but still very
attractive in this environment.
Okay.
Speaker 01 (10:26):
So things sound pretty positive overall, but
here's where it getsinteresting, right?
It can't all be smooth sailing.
There have to be someheadwinds, some challenges.
Definitely.
Speaker 00 (10:36):
No sector is without its challenges.
So what are the main onesinvestors need to keep an eye
on?
Affordability comes to mindfirst.
All that rent growth must beputting pressure on some seniors
and their families.
That's number one, yes.
Rapid rent growth creates realaffordability pressure for
certain segments.
That's undeniable.
And then there's policy risk.
(10:57):
That always seems to hang overhealthcare-related real estate.
Mm-hmm.
That's a big one to watch.
There are proposals floatingaround about potentially
shifting more control overMedicaid funding from the
federal government to thestates, maybe block grants.
Okay.
Speaker 01 (11:13):
And why is that a risk for investors?
Or is it an opportunity?
Well, it's uncertain.
Proponents might say it couldallow states to be more
flexible, maybe find localsolutions to boost supply.
But the big worry for investorsis that state control could
lead to changes, potentiallycuts in reimbursement rates for
lower income residents.
That makes it harder to servethat population profitably.
(11:34):
So investors need to reallypay attention to what's
happening state by state.
Speaker 00 (11:38):
Absolutely.
Any shift towards state blockgrants for Medicaid would make
regional differences even moreimportant than they already are.
It requires close monitoring.
Got it.
And then there's the physicalside of things, buildings
getting old, needing upgrades.
Right.
Capital needs.
A lot of properties might havedeferred maintenance or just
need significant investment, youknow, capex to modernize and
(12:02):
compete.
That can eat into your cashflow in the near term.
Makes sense.
And what about labor?
That was a huge issuepost-pandemic as that settled
down.
It's normalizing, thankfully.
That extreme reliance onexpensive temporary agency staff
is definitely easing up, whichhelps margins.
Speaker 01 (12:18):
Okay, that's good.
Speaker 00 (12:19):
But the baseline wages for frontline staff like
certified nursing assistants,CNAs, they're still much higher
than they were before 2020.
So labor costs are juststructurally higher now?
Pretty much.
That requires continued strongrent growth just to maintain
profitability.
It's an ongoing pressure point.
Speaker 01 (12:37):
Okay.
So putting it all together,what's the overall outlook for
the next year or two?
Speaker 00 (12:41):
If we connect this to the bigger picture, will we
expect continued revenue growthacross the sector and definitely
a very active transactionmarket, especially with debt
being more available?
Speaker 01 (12:51):
And strategically, what should investors be
focusing on?
Speaker 00 (12:55):
The focus is really clear.
Scale matters.
Having a larger platform bringsefficiencies.
Operator quality is paramount,who is actually running the
community day-to-day iscritical.
And there's still a lot offocus on finding value add
opportunities, buying some ofthose have not assets, and
investing the capital toreposition them.
And keeping an eye on thosestate level policy changes and
(13:18):
affordability issues.
Constantly.
You absolutely have to factorthose into your planning.
But fundamentally, the sectorlooks set up for pretty durable
performance over the next coupleof years.
Okay.
So wrapping this up for you,the listener, you've got the
roadmap for seniors housing aswe head towards the end of 2025.
The big takeaway, it's thiscollision, really, a huge
demographic wave hitting ahistorically low supply
(13:40):
pipeline.
Yeah, that imbalance is key.
Speaker 01 (13:43):
And that dynamic strongly favors the high quality
properties and the reallystrong proven operators.
And critically, you now knowwhat the big institutional
investors are looking for, andimportantly, what financing
tools are making deals easier,like the GSEs being back and new
programs like that HUD leanexpress lane.
Speaker 00 (14:02):
Right.
So maybe here's a final thoughtfor you to chew on.
We know demand is projected tosoar, especially for the 80 plus
group.
Meeting that demand likelymeans we need to build new
seniors housing at a pace muchfaster than we have in years,
maybe faster than ever before.
A pace we're nowhere nearachieving right now.
Exactly.
So the question becomes whatfundamental changes, societal
(14:23):
shifts, maybe policy changeswill actually be needed to
unlock all that necessary newconstruction?
And how do we do that whilealso tackling the affordability
problem that's already startingto bite?
That tension, that massive gapbetween the aging population and
the constrained supply.
That's really the definingchallenge for the sector over
the next decade.
Welcome to the deep dive.
Today we're uh digging into theseniors housing market,
specifically the outlook forfall 2025.
Speaker 00 (00:07):
Yeah.
Speaker 01 (00:08):
We're moving past the headlines, and well, the
data seems pretty clear.
There's some real momentumhere, lots of investor
confidence.
Speaker 00 (00:16):
That's right.
It's looking like uh maybe themost competitive time for
acquisitions in what, almost 10years.
Speaker 01 (00:22):
Seems like it.
Speaker 00 (00:22):
So our mission today really is to give you a fast
track.
We want to help you understandwhat's driving this
transformation.
We're unpacking the forcesbehind the competition, uh
focusing on that key spot wheredemographics, supply limits, and
you know the capital marketsall meet.
It's definitely more than justgrowth.
It feels like a structuralshift.
Exactly.
Speaker 01 (00:43):
And when you look at the sources, it's not just one
thing, is it?
It feels like three big trendscoming together.
First, you've got this deepinterest from big money, right?
Institutional capital is backand they seem confident.
Speaker 00 (00:56):
Yep, they're definitely placing bets.
Speaker 01 (00:58):
Second, the money side, the capital markets,
they're actually playing ballnow.
Lending options are better,more competitive.
Speaker 00 (01:04):
Much more supportive than say a year or two ago.
That's crucial.
Speaker 01 (01:08):
And third, and this is a big one, the day-to-day
operations, which got hit sohard during the pandemic,
they're getting better, steadilyimproving.
Speaker 00 (01:16):
Yeah, stabilization is key.
People are seeing that pathforward now.
Speaker 01 (01:19):
l Okay, let's unpack this then.
Speaker 00 (01:21):
Yeah.
Speaker 01 (01:21):
Maybe start with the most basic driver the demand.
That's the engine, right?
Speaker 00 (01:26):
Absolutely.
The core idea for investors uhright now is pretty simple.
Demand is just outpacing newunits coming online pretty much
everywhere.
In almost every major market.
Yeah.
Nearly everyone.
And that imbalance, well, thataffects everything else.
It drives rent growth.
It pushes up valuations.
Makes sense.
But the real power here, youknow, it isn't just general
demand, it's the specifics ofthe demographics.
(01:48):
Seniors housing isfundamentally needs-based.
So less tied to the overalleconomy than like office
buildings or retail.
Significantly less sensitive,yeah.
The sources they point to U.S.
Census data showing really fastgrowth in the 80-plus age
group.
Speaker 01 (02:06):
And that's the key demographic.
That's the core user base.
And this isn't a short blip.
This wave expands the pool ofpeople needing senior care
options right through 2030, eveninto 2035.
It's a long-term thing, areally durable tailwind.
Okay.
So you've got this massive,kind of inevitable demand
building up, but then you lookat the other side, supply.
(02:26):
Right.
And the construction pipeline.
It's just fallen off a cliff.
That's a good way to put it.
New units under construction,they've really reset.
We're talking decade lows.
And it's been pretty quietsince mid-2021.
And why is that?
Still the same headwinds?
Pretty much.
You know, construction costsare still high, banks are still
cautious with lending fordevelopment and getting zoning
(02:46):
approval.
That's always a hurdle.
So the bottom line is newbuildings aren't going to catch
up to this demand wave anytimesoon.
Not until 2026.
Maybe later.
In most markets, yes.
Supply is going to lag demandfor a while, yeah.
And you can already see that squeeze playing out in
the operational numbers, can'tyou?
Occupancy rates are recovering.
Impressively so.
National occupancy is basicallyback to pre-pandemic levels,
(03:09):
uh, hit 88.1 percent in thesecond quarter of 2025.
That's pretty strong.
It is.
And the key thing is netabsorption.
That's the number of peoplemoving in minus those moving
out.
It's consistently higher thanthe new supply being delivered.
So the existing places arefilling up fast.
Speaker 00 (03:26):
Exactly.
What's out there is in highdemand.
Speaker 01 (03:28):
, which leads to this split in the market you
mentioned earlier.
Yeah, this intensity hasreally created or maybe widened
a gap.
We're seeing a big differencein performance in 2025 between
the really good establishedcommunities, the haves, and the
ones that are struggling, thehave-nots.
Okay.
Define the haves for us.
What makes a property fall intothat top category?
(03:50):
Well, it's more than justbeing in a great location,
though that helps.
It's usually assets with moderndesign, maybe integrated tech,
wellness programs, flexible careoptions.
Like dedicated memory carewings that are bright and
modern, good internet, that kindof thing.
Speaker 00 (04:06):
Exactly.
Plus, you need a strongoperator with a good reputation,
favorable supply and demand intheir specific little
neighborhood or submarket, andcrucially strong financials at
the property level.
Often these places are running,you know, over 95% full.
Speaker 01 (04:21):
They're the proven winners.
Speaker 00 (04:22):
Basically, yes, established winners.
Speaker 01 (04:24):
And the competition to buy these places, it's
intense.
Speaker 00 (04:27):
It's staggering.
Here's a number from thesources that really makes you
stop and think.
These top-tier have properties,they're regularly attracting 10
to 15 qualified bids when theygo up for sale.
Speaker 01 (04:40):
Wait, 10 to 15 bids for one property?
Speaker 00 (04:43):
15, yeah.
Compare that to maybe just twoor three serious bids a few
years back.
It's a huge jump.
Speaker 01 (04:50):
Wow.
And what does that kind ofcompetition do to the deal
process?
I mean, besides driving up theprice.
Speaker 00 (04:55):
, oh, it changes everything.
Sellers have all the leverage,due diligence times get squeezed
way down.
Buyers have to come in withnear certainty they can close,
often giving up importantprotections, those
contingencies.
Speaker 01 (05:08):
It becomes a race for speed and who's willing to
pay the most premium.
Exactly.
Speed and certainty.
And you see that premium reflected in the prices,
the transaction results.
Speaker 00 (05:16):
Definitely.
Big institutional money isclearly competing.
And the going in capitalizationrates, the cap rates for these
stable core assets, they'regetting pushed down into the low
6% to low 7% range.
Okay, so for anyone listening,that lower cap rate basically
means buyers are paying a higherprice relative to the current
(05:36):
income.
Right.
They're willing to accept alower initial yield because they
believe so strongly in thefuture, rent growth, and that
long-term demographic story wetalked about.
Is that it?
That's precisely it.
They're paying for thecertainty of that future cash
flow.
Now, flip that coin.
Mm-hmm.
The have nots.
They're facing real challenges.
Trevor Burrus, Jr.
What defines them?
(05:57):
Often they're in secondary ortertiary locations.
Maybe the building itself isolder, more like a commodity
product.
They struggle to stabilizeoperations, fill beds.
And fewer buyers areinterested.
Much fewer.
Very shallow bid sheets, maybejust a couple of groups looking.
And because these places oftenneed a lot of money poured into
them just to modernize, theytypically trade at a big
(06:17):
discount compared to what itwould cost to build something
new.
Speaker 01 (06:20):
A discount to replacement cost.
Okay, so this intensecompetition and pricing, it
probably wouldn't be sustainableif getting loans was still
really hard.
But you're saying the debtmarkets have thawed out.
Speaker 00 (06:30):
Significantly.
Conditions are much better thanthey were in 2024.
Long-term interest rates havemoderated some, and lenders just
seem more comfortable with thesector's recovery now.
And the big government playersare back.
Fannie Mae and Freddie Mack.
Yes.
The GSEs, Fannie and Freddie,are actively lending in seniors
housing again.
They're offering competitiverates, both fixed and floating.
(06:53):
And when they jump back inaggressively, that creates more
competition among lendersoverall, right?
Helps borrowers get better to exactly puts pressure
on everyone else and helps drivedown the spreads, especially
for these stronger borrowers.
But uh here's something reallyinteresting on the government
side.
There's a brand new program,HUD Lean Express Lane.
Speaker 01 (07:12):
HUD Lean Express Lane.
What's that do?
Speaker 00 (07:14):
It's designed specifically to speed things up,
to dramatically streamline theprocessing time for HUD loans on
qualifying deals.
Speaker 01 (07:22):
How much faster are we talking?
Speaker 00 (07:24):
Significantly faster.
Cutting down that typical timefrom when you apply to when you
actually get the loancommitment, it makes a huge
difference.
Speaker 01 (07:30):
I bet.
It takes a lot of theuncertainty out of the financing
piece for a buyer.
Speaker 00 (07:34):
It absolutely de-risks the execution.
If you're a buyer and you knowyou can lock in that long-term,
low-cost HUD financing muchquicker, it makes those interim
lenders, the bridge loanproviders, more willing to step
in for the initial purchase andfix-up period.
Because they see a clearerpath to getting paid back.
Precisely.
It just lowers the overall costof capital and increases
(07:56):
certainty.
And you mentioned bridgelenders.
Yeah.
Are they and other alternativelenders still active?
Oh, yes.
Bridge lenders preferred equity providers.
They're still very much in thegame.
They offer a flexiblefinancing, especially for those
repositioning deals or justneeding temporary funds until
the prominent GSC or HUD loan isready.
So it sounds like the dealshappening now aren't necessarily
(08:18):
fire sales.
It's more strategic.
That's a key point.
It's largely driven by choice,not widespread distress.
For sellers, it's mostly aboutoptimization, cashing in on
gains they've made, recyclingthat capital into something new,
maybe just rebalancing theiroverall portfolio.
Makes sense.
And buyers.
Yeah.
What's the main motivation?
It seems to be twofold
(08:39):
Buyers want to get bigger,build platforms to get more
efficient operationally.
You know, managing 10facilities is often cheaper per
unit than managing just two.
Trevor Burrus, Jr.
Speaker 01 (08:48):
Economies of scale.
Speaker 00 (08:49):
Right.
And they crave certainty.
So they lean towards assetsthat are already stable with
operators who have a proventrack record.
And they're using that betteraccess to capital, the GSE and
HUD options to lower their riskand lock in good debt terms.
Speaker 01 (09:05):
There is some pretty striking anecdotal evidence in
the source material about thelevel of interest, even for
properties needing work, likethat Ralston Creek deal.
Speaker 00 (09:13):
Yeah, Ralston Creek neighborhood in Colorado, that
was a 134-unit community,definitely distressed, needed
work.
They put it on the market.
And how many offers?
14 letters of intent to purchase.
Speaker 01 (09:24):
Fourteen.
For a distressed property.
Trevor Burrus, Jr.
Speaker 00 (09:26):
14.
It tells you just how muchcapital is out there looking for
opportunities and how willingthey are to take on the
renovation and stabilizationrisk because that underlying
demographic story is just socompelling.
Speaker 01 (09:37):
That's incredible.
Really shows the belief and thevalue add potential.
Speaker 00 (09:42):
It does.
And there is anotherinteresting case that highlights
a different angle focusing onoperations over just the real
estate itself.
The owned and leaseholdportfolio disposition, it was uh
44 skilled nursing facilities,but 37 of them were just
leaseholds, meaning the sellerdidn't own the actual buildings
(10:03):
or land for most of them.
Speaker 01 (10:04):
Okay.
So mostly just the operatingbusiness.
Speaker 00 (10:06):
Primarily.
But it still sold for a hugenumber, over nine figures.
The key was successfullypitching the value of the
replacement lessee and all theextra revenue streams, therapy,
pharmacy, things like that.
So the value is in themanagement contract and the cash
flow it generated, not just thebricks and mortar.
Exactly.
A different kind of valueproposition, but still very
attractive in this environment.
Okay.
Speaker 01 (10:26):
So things sound pretty positive overall, but
here's where it getsinteresting, right?
It can't all be smooth sailing.
There have to be someheadwinds, some challenges.
Definitely.
Speaker 00 (10:36):
No sector is without its challenges.
So what are the main onesinvestors need to keep an eye
on?
Affordability comes to mindfirst.
All that rent growth must beputting pressure on some seniors
and their families.
That's number one, yes.
Rapid rent growth creates realaffordability pressure for
certain segments.
That's undeniable.
And then there's policy risk.
(10:57):
That always seems to hang overhealthcare-related real estate.
Mm-hmm.
That's a big one to watch.
There are proposals floatingaround about potentially
shifting more control overMedicaid funding from the
federal government to thestates, maybe block grants.
Okay.
Speaker 01 (11:13):
And why is that a risk for investors?
Or is it an opportunity?
Well, it's uncertain.
Proponents might say it couldallow states to be more
flexible, maybe find localsolutions to boost supply.
But the big worry for investorsis that state control could
lead to changes, potentiallycuts in reimbursement rates for
lower income residents.
That makes it harder to servethat population profitably.
(11:34):
So investors need to reallypay attention to what's
happening state by state.
Speaker 00 (11:38):
Absolutely.
Any shift towards state blockgrants for Medicaid would make
regional differences even moreimportant than they already are.
It requires close monitoring.
Got it.
And then there's the physicalside of things, buildings
getting old, needing upgrades.
Right.
Capital needs.
A lot of properties might havedeferred maintenance or just
need significant investment, youknow, capex to modernize and
(12:02):
compete.
That can eat into your cashflow in the near term.
Makes sense.
And what about labor?
That was a huge issuepost-pandemic as that settled
down.
It's normalizing, thankfully.
That extreme reliance onexpensive temporary agency staff
is definitely easing up, whichhelps margins.
Speaker 01 (12:18):
Okay, that's good.
Speaker 00 (12:19):
But the baseline wages for frontline staff like
certified nursing assistants,CNAs, they're still much higher
than they were before 2020.
So labor costs are juststructurally higher now?
Pretty much.
That requires continued strongrent growth just to maintain
profitability.
It's an ongoing pressure point.
Speaker 01 (12:37):
Okay.
So putting it all together,what's the overall outlook for
the next year or two?
Speaker 00 (12:41):
If we connect this to the bigger picture, will we
expect continued revenue growthacross the sector and definitely
a very active transactionmarket, especially with debt
being more available?
Speaker 01 (12:51):
And strategically, what should investors be
focusing on?
Speaker 00 (12:55):
The focus is really clear.
Scale matters.
Having a larger platform bringsefficiencies.
Operator quality is paramount,who is actually running the
community day-to-day iscritical.
And there's still a lot offocus on finding value add
opportunities, buying some ofthose have not assets, and
investing the capital toreposition them.
And keeping an eye on thosestate level policy changes and
(13:18):
affordability issues.
Constantly.
You absolutely have to factorthose into your planning.
But fundamentally, the sectorlooks set up for pretty durable
performance over the next coupleof years.
Okay.
So wrapping this up for you,the listener, you've got the
roadmap for seniors housing aswe head towards the end of 2025.
The big takeaway, it's thiscollision, really, a huge
demographic wave hitting ahistorically low supply
(13:40):
pipeline.
Yeah, that imbalance is key.
Speaker 01 (13:43):
And that dynamic strongly favors the high quality
properties and the reallystrong proven operators.
And critically, you now knowwhat the big institutional
investors are looking for, andimportantly, what financing
tools are making deals easier,like the GSEs being back and new
programs like that HUD leanexpress lane.
Speaker 00 (14:02):
Right.
So maybe here's a final thoughtfor you to chew on.
We know demand is projected tosoar, especially for the 80 plus
group.
Meeting that demand likelymeans we need to build new
seniors housing at a pace muchfaster than we have in years,
maybe faster than ever before.
A pace we're nowhere nearachieving right now.
Exactly.
So the question becomes whatfundamental changes, societal
(14:23):
shifts, maybe policy changeswill actually be needed to
unlock all that necessary newconstruction?
And how do we do that whilealso tackling the affordability
problem that's already startingto bite?
That tension, that massive gapbetween the aging population and
the constrained supply.
That's really the definingchallenge for the sector over
the next decade.
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