A data collection warehouse providing information on real estate investment returns recently added senior living and care to its benchmarking index in an effort to increase transparency and access to capital for the sector, according to an expert.
The National Council of Real Estate Investment Fiduciaries, or NCREIF, published its new, expanded NCREIF Property Index, or NPI, which now includes “senior housing” among the investment returns it tracks, in addition to office, retail, industrial and apartment sectors. As NCREIF defines it, the senior housing sector includes independent living, assisted living and continuing care retirement communities but also skilled nursing facilities.
“Overall, including seniors housing in the flagship NCREIF index raises its visibility with investors and makes it more difficult to exclude from investment portfolios, which in turn should help drive capital into senior housing and care,” Caroline Clapp, a senior principal at the National Investment Center for Seniors Housing & Care, wrote in a blog post.
Over the past couple of decades, NIC advocated for senior housing to be its own sector based on differing demand factors from residential sectors, senior housing’s higher level of operations, and the fact that it operates under different regulations due to larger operations and its offerings of both housing and care, Clapp told McKnight’s Senior Living. In its quarterly fundamentals releases, NIC defines senior housing as independent living and assisted living, including memory care; nursing care (skilled nursing facilities) is separate.
The NCREIF senior housing property index now includes data dating back to 2003, when NCREIF collected investment return information on 56 properties. Today, it tracks investment returns on 217 long-term care properties.
Independent living and assisted living properties have a shorter history with NCREIF, with assisted living returns dating back to 2016 and independent living returns going back to 2018.
Although Clapp noted in another blog post that the negative appreciation of independent living and assisted living properties led to relatively flat returns (-0.10%) in the first quarter, she told McKnight’s Senior Living that she found it interesting that independent living outperformed assisted living.
Over the past five years, independent living has outperformed assisted living, where there is much interstate due to needs-based demand, by 150 basis points on a total return basis annually. Over the longer term, Clapp said, independent living outperformed assisted living on a total return basis over one-, three- and five-year periods. This performance, Clapp said, could be attributed to higher margins typically generated in lower-needs settings such as independent living, which require less staffing.
On a longer-term basis, the 7.01% annualized 10-year return for senior living was the strongest compared with most other property types, outperforming the NPI 10-year annualized return total of 6.51%. Income (4.95%) and appreciation (2%) returns for senior living also surpassed the NPI (4.57% for income and 1.87% for appreciation) over 10 years.
With the negative headlines about private equity, Clapp said this information shows these are “reasonable returns” and comparable to other real estate types.
“It’s not gouging,” Clapp said. “It’s a very good story, showing if you are an investor and you need to diversify your holdings, senior housing should be considered.”
She added the index, which is tracking 217 long-term care properties today, brings more data and transparency to the industry and that it will be interesting to see whether the share of the senior housing index continues to grow as more properties are added.
“It helps investors make the cast to invest — why lenders should lend,” Clapp said. “It helps bring much-needed capital to the senior housing community.”
