Senior housing considered a well-positioned sector

None of the three principal members of commercial real estate brokerage firm Cushman & Wakefield’s Tampa-based senior housing team set out to market the niche property sector.

When Allen McMurtry began listing senior housing stock, in 1986, the industry was dominated by mom-and-pop operators and generalist developers.

At the time that he sold the first of what would become dozens of nursing homes around the country, in St. Petersburg, he was among a handful of brokers who specialized in the sector nationwide.

Three decades on, McMurtry is a Cushman & Wakefield executive director who leads a team has sold nearly 200 properties from Florida to Washington state, as senior housing has mushroomed into a multibillion industry.

David Kliewer’s family owned apartments, but rather than pursuing a path of multifamily rentals, he chose work as an analyst at a boutique commercial real estate brokerage in 2001.

Four mergers and acquisitions later, he’s now a senior director at Cushman & Wakefield.

Jay Jordan’s father was involved with apartments, too, only as a general contractor in Upstate New York. After graduation from college, he joined a training program at Key Bank, in Cleveland. His clients were senior housing developers and operators.

Three years later he transferred to Tampa as part of the bank’s expansion and eventually crossed paths with McMurtry, who recognized his lending knowledge would be a good fit at Cushman & Wakefield and recruited him.

“Our team is unique from some others at (commercial real estate) brokerages because we all have to wear a lot of hats,” says Kliewer.

Senior housing, the team has found, is among the most unique of commercial real estate sectors — not unlike hospitality — because it contains within it an operating business that is integrally linked to the real estate it occupies.

“We call it forensic brokerage because when we take on an assignment we’re not just selling real estate,” Kliewer says. “There are a lot of nuances to senior housing, and we contend our understanding of them is what sets us apart.

“We have to understand the business itself, potential areas of upside for a buyer, all the construction,” he adds. “We take a really deep dive because while it is real estate it’s also an operating business we’re dealing with.”

Together with an administrative support team led by Yami Rivera, who provides project management, graphic design and marketing support, that “deep dive” has helped establish the team as one of the premier brokerage operations in the Southeast.

In 2019, the team sold 10 projects with a transactional volume in excess of $370 million, led by the roughly $100 million deal for the 338-unit The Claire high-rise in downtown Chicago.

Of the total, five were on behalf of repeat clients, which Kliewer describes as a testament to McMurtry’s “longevity and expertise.”

Among the team’s largest deals was the sale of an Illinois senior housing community totaling nearly 1,100 units, according to Cushman & Wakefield promotional material.

But conducting transactions with an average sale price of $35 million requires up-to-date knowledge of dynamics and submarkets — and a different approach to obtaining and keeping clients.

“The industry today is much more data driven,” Jordan says. “There’s a lot more information than ever before to keep track of.”

“But I think what really differentiates us is that we take an advisory approach with clients. We spend a lot of time with them, finding out what they want to accomplish with their properties over the next two, five and 10 years. We’re not just selling. Selling is actually I’d say a small portion of what we do.”

That focus on advising clients has served Cushman & Wakefield well  especially over the past five years, as the inventory of senior housing units from independent living to assisted living to memory care and skilled nursing has risen dramatically and caused occupancy rates to decline.

At the same time as development has increased, however, labor costs have increased significantly – adding to the financial friction many owners and operators feel. That dynamic is only expected to grow in a post-COVID-19 environment, Jordan and Kliewer say, as operators may be forced to include segregated dining options and amenities to contain future viruses or pandemics.

“The industry certainly has been met with two major headwinds in the recent past,” Kliewer says. “We believe occupancy will continue to fall in the short-term, but that when the baby boomers begin to look to senior housing in earnest the industry will be in a great place.”

To meet that anticipated demand from baby boomers — born between 1946 and 1964 — many senior housing developers are increasing the average unit size in their projects and adding a greater number of amenities to appeal to the demographic.

“Newer projects, we believe, will have a more upscale feel overall,” Jordan says. “Affluent seniors want larger units and more amenities associated with them.”

Going forward, Kliewer also contends that senior housing projects that provide a “continuum of care” with independent living, assisted living and memory care components will be most attractive to both residents and potential buyers.

“Projects that have multiple components are very much in favor with investors right now,” he says.

Kliewer and Jordan also expect urban infill projects to gain in popularity among seniors, as well, because they will by nature be close to existing cultural and civic amenities.

“We see a lot more townhomes being layered into senior housing campuses, with access to meals and amenities,” Jordan says.

Nor does the team believe the growing “aging in place” trend, in which older Americans prefer to remain in their homes rather than shift to senior housing, will have a dramatic impact on the industry longer term.

“The average age of the assisted living resident is getting older, and in independent living they have a different lifestyle than generations past,” Jordan says. “They’re more independent and more active and they have less chronic health conditions overall.”

“As a result, we think there will continue to be a demand and a need for senior housing, especially as people get older and it becomes tougher to stay in one’s home with all the burdens and costs of home ownership,” Kliewer says. “When you take everything into account senior housing makes financial sense.”