Institutional investors

Abstract

This research examines the rapid development over the last 15 years of the seniors housing market place as a hybrid real estate investment incorporating the characteristics of multifamily, hotel, and medical office property investments. The spectrum of seniors housing investment alternatives ranges from Independent Living Facilities (ILFs) to Assisted Living Facilities (ALFs) to Skilled Nursing Facilities (SNFs), and finally to Continuing Care Retirement Communities (CCRCs). The senior living and long-term care property sector has expanded in response to changing demographics and the increased needs of an overall aging population. As the population in total and baby boomers, specifically, reach retirement age and move into the "sunshine" years, the demand for real estate products designed with elderly end users in mind is growing, and the risk/return profiles of these investments are shifting. Capital flows to the broad real estate sector have increased, resulting in a compression of returns in the more traditional sectors of the market. Risk and return parameters vary from investments similar to apartment complexes to those more akin to special purpose properties, albeit with government entitlements (e.g., state allocated certificates of need which restrict competition) and licenses to provide special health care services. The aim of this research is to gain a better understanding of the specific types of investments available in the seniors housing real estate sector. We explored risk premiums for institutional investors as they move along the spectrum of real estate and health care needs by querying an expert in the field as well as institutional investors who are actively engaged in real estate investments. The survey of pension fund managers that are members of the Pension Real Estate Association (PREA) focused on ascertaining the relative perceived risks and returns associated with various seniors housing property types as well as the investors' perceptions of alternative asset classes.