US later living market aims to accommodate rising need

The later living and care sector in the US not only provides housing with an array of services and amenities to the senior population, but also attracts significant investment. 

Property in this sector can be subdivided into the following categories, each of which can be a stand-alone property or combined to offer multiple care levels.

• Active adult communities: these market-rate, multi-family properties are designed to bridge the gap between traditional apartments and independent living. They tend to include well-sized common areas and offer more amenities to allow for activities and socialising. Light meals may be included in monthly rent, and more catering can be made available to residents at an additional cost. Typically, rents are charged monthly and without government subsidies; licensure requirements for care service properties to operate do not apply.
• Independent living: schemes are usually let on a monthly rental basis, and offer residents meals and other services, such as housekeeping, linen service, transportation, beauty salons or barbers, and social or recreational activities as part of their fees. Such properties do not provide assistance with medication, bathing, dressing, toileting and other daily activities, but residents may receive some home healthcare from in-house staff or an outside agency. Again, licensure requirements do not typically apply, and rent is usually paid privately rather than through government support.
• Assisted living: these state-regulated communities provide similar services and amenities as independent living but also include supportive care. Staff are trained to help residents who are unable to live independently and require assistance with daily activities such as managing medications, bathing, dressing, toileting, walking and eating. The monthly rent typically covers three meals a day, and additional care will be charged for.
• Memory care: usually considered a subset of assisted living, these residences offer similar support to assisted living residences, albeit dedicated to residents with forms of dementia including Alzheimer's. There is 24-hour support with more structured activities to ensure safety and quality of life, and trained staff members. Most memory care environments are fully secured but allow access to enclosed paths or gardens.
• Skilled nursing facilities: this category is the most in demand, representing the most care-intensive and highly regulated segment of the sector. Residents typically require 24-hour nursing and medical care, and in the majority of cases these properties are licensed for Medicaid and Medicare reimbursement. Nursing care properties are further divided into two categories: long-term care and post-acute care. Medicaid typically is the largest source of funding for the former while Medicare for the latter, which is dedicated to providing rehabilitation after surgery.
• Life plan communities: also referred to as continuing care retirement communities, this category provides all of the above housing options on a single campus, typically in different buildings. This arrangement allows older adults to remain in the same community with the same provider, even if their future care needs change, meaning they can age in place. These communities can offer considerable amenities, including pools, spas, fitness centres, artists' studios and more. Resident payment plans vary, and include entrance fees, condo or cooperative and rental programmes.

The median number of apartments for a stand-alone community will range from 48 for a memory care property to 119 for independent living. 

For combined properties, the median unit count ranges from 89 for a combined assisted living with memory care to 171 units for a property that contains independent, assisted living and memory care services. The median unit count for a life plan community is 287, but this category can sometimes contain 1,000 or more units.

Companion accommodation, consisting of shared suites designed to improve social interaction and provide more personalised care and support, may be prevalent in memory care and assisted-living properties that target the moderate to middle-income senior population. 

Villas or townhouse units may be available at more lifestyle-focused properties, while skilled nursing accommodation typically offers private or semi-private rooms in a more healthcare-oriented setting.

Given the range of services and care levels provided by each category, the decision about which service to choose tends to shift from a lifestyle preference with low or minimal assistance requirements to a more needs-based decision that is often made by adult children or medical professionals as acuity levels or healthcare needs increase. 

The Emerald at Magnolia Court in North Carolina is an example of an independent and assisted living community or senior living community, offering independent living, assisted living and memory care services.

Built in 2019–20 on 12.44 acres (5ha), it consists of 150 independent living units – 134 apartments and 16 cottage homes – as well as 83 assisted living and 32 memory care units. 

Amenities include dining rooms, bistro, cafe and outdoor dining as well as event spaces including a bar with an alcohol licence and golf simulator, an outdoor pool deck, modern fitness centres, full-service salons and spas, libraries and pickleball courts.

The independent living residences have full kitchens of their own with washers and dryers, as well as a large, central commercial kitchen.

The Emerald is owned by a real-estate company and private equity, managed by a joint venture operating partner and run on a rental model. The community is in the heart of an affluent, growing retirement destination, and caters to a large, growing senior population.

However, senior living and care properties comprise businesses that require a specific mix of tangible and intangible assets to operate effectively.

The former include the land, built real estate improvements, furniture, fixtures and equipment; yet unlike other forms of commercial real estate, intangible assets related to the operating business represent a meaningful component of value. 

The business model is more complex than core asset classes, making property operations an essential component of value. This active management component is broadly viewed by the market as adding incremental risk and complexity versus the conventional commercial real estate asset classes, which translates into higher return expectations from investors. 

Private, for-profit entities – including private real-estate investment trusts (REITs), private equity and life companies – are the largest owner of senior living and care properties in the US at 58% of the institutional supply, according to NIC. Non-profit entities also own a significant portion of the total supply at 27%, with publicly traded companies, including public REITs, controlling around 14%.

Ownership typically includes an operating company and a property company, with various partnerships and operating structures. The most common structure when private equity is involved is a joint venture between an operating company and a property company.

Owing to the REIT Investment Diversification and Empowerment Act 2007, REITs will most often engage in a joint venture structure with their operating partner that allows them to participate in the financial performance of the operating company.

Although uncommon, when a triple net lease or arm's-length lease exist, they are typically negotiated based on a ratio of net operating income to leave coverage.

Property owners will sometimes engage a management company to operate their estate through an arm's-length management agreement, with contracts that typically offer incentives or are paid based on a percentage of revenue.

For context, annual supply growth has averaged 26,000 units since 2014, with current levels much lower because construction starts have declined significantly due to elevated costs and lack of available finance. 

The NIC also reports that only 25% of existing senior living supply has been built in the past ten years, with more than 32% being older than 25 years and approaching the end of its useful life. 

Supply is already declining on the skilled nursing side. According to the Centers for Medicare and Medicaid Services, more than 650 facilities – or 4% of supply – closed between 2015 and 2023 due to functional obsolescence, regulatory changes or compliance issues, and this trend is expected to continue.

These subsidies are most prevalent in the skilled nursing segment of the market. Tax credits and other rent-controlled financing options are also available to help investors fund developments that serve the lower-income demographic.

However, there is a middle-income population of seniors who have too much in the way of financial resources to qualify for government support such as Medicaid, but not enough income to afford private options. 

More than half this demographic does not have adequate finances to afford assisted living – a number projected almost to double by 2029. This signals an increasing need for lower-cost options. 

More innovative strategies for this market are being explored, including:

• adapting existing properties
• building designs incorporating new technologies such as AI applications for optimising and managing staffing
• in-room sensors and wearable activity trackers that monitor movement to help staff pre-emptively manage care
• various forms of tele-medicine. 

The active adult operating model of outsourcing services and care may also meet some of this demand. Yet finding a broader solution remains a priority for industry leaders. 

As these trends affect investor sentiment and strategy, operators are managing costs in a disciplined way to optimise profit and property valuations. 

Rent growth remains in the mid- to upper-single digits, and operating expenses are beginning to decline. Investor sentiment remains cautiously optimistic. Transaction activity increased significantly through 2024 which is expected to continue going into the first half of 2025.

In the years ahead, renewed interest from investors and lenders is expected due to the favourable demographic tailwinds and long-term investment returns achieved by some of the more central sectors in the real-estate market, while operating performance for the senior living sector continues to show stable growth. 

Strong investment returns and operating performance in the sector will help maintain valuations and create opportunity for the more astute investor.