To catch the baby-boomer wave, elder-care investors need to think differently


Patrick McCormick, Plante Moran, private equity, baby boomers
Patrick McCormick, partner at Plante Moran. Photo courtesy of the firm.

By Patrick McCormick, Plante Moran

The boomers are coming: The massive generation born after World War II is starting to hit old age, a turning point that many senior-care operators and investors are viewing as a kind of salvation.

As PE in recent years has poured investment into the assisted-living sector, many markets have become oversaturated, leading to lower occupancy rates and slower rent growth.

The hope is that the 75 million aging baby boomers are poised to ride to the rescue, filling those empty rooms as they take the place of the Silent Generation.

But though the numbers look compelling, this idea oversimplifies the situation. It doesn’t account for two crucial social and technological changes accompanying this landmark demographic shift.

The first is that boomers have very different expectations and demands regarding their later lives. Surveys show they want to remain independent longer in the same home – to age in place. And they’re open to living in urban areas and are embracing tech.

The second difference is that technological changes and the gig economy are making it far easier for seniors to live independently.

Tech-savvy boomers can customize cost-effective support ecosystems: A 75-year-old living independently can get her groceries delivered by Amazon, her drain unblocked through TaskRabbit and her medications delivered by Pill Pack, all without leaving her armchair.

The effect of these trends is to push back the demographic curve.

By 2030, all baby boomers will be older than 65, meaning 1 in 5 U.S. residents will be at retirement age. But bear in mind that the oldest baby boomer is only 72 now and could be expected to live independently and avoid assisted living for another 15 to 20 years.

So investors banking on a relatively quick end to the assisted-living sector’s oversupply problems could face a long wait.

To be sure, not all assisted-living markets are oversaturated, and some still have enough demographic growth to absorb the capacity.

But many markets are struggling after the prolonged construction blitz in the sector. Some 14 percent of all senior-housing units were developed in the past five years, according to the National Investment Center for Seniors Housing and Care. Only 75 percent of these new units are occupied, a strikingly low rate.

Even facilities offered to investors at steep discounts may not be as good a deal as they appear once we consider how long the demographics will take to catch up.

Instead, senior-living-focused investors should be looking at independent-living solutions that are finding creative ways to tap the new trends. The number of new independent-living units has trailed the growth of assisted-living spaces, reaching 8,850 in 2018 compared with 12,744 AL units.

That presents an opportunity.

From an investment standpoint, independent-living facilities offer the advantage of being closer to the front edge of the Baby Boom generation. Their tenants are also likely to stay for significantly longer periods compared with assisted-living residents, whose average stay is around two years.

Within independent living, intelligent and thoughtful design of the units matters. Baby boomer retirees are more likely to want facilities with many characteristics of home, like bedroom space, a full kitchen and parking, with a minimal level of assistance — perhaps only one provided meal per day. That’s not what assisted living offers.

Examples of companies thinking creatively about independent living include Van Metre Homes, Merrill Gardens, Belmont Village and Maplewood Senior Living.

In the past few years, for example, Merrill Gardens has built five communities in urban centers, generating 95 percent or higher occupancy in less than a year.

Strange as it may sound, investors might do well to think of the new generation of seniors as not too dissimilar to Millennials.

They like living within walking distance to urban restaurants and entertainment, are happy to live in a modest space and are keen to use tech to make every-day life easier.

They want more choices and are even open to living in mixed-use developments where they are integrated with people of different age groups and backgrounds.

Demographic shifts offer a lot of noise but little signal. To separate one from the other, PE needs to shift its thinking, too.

Patrick McCormick, CPA, is a partner in the senior care and living practice of Plante Moran, the Detroit accounting and business-advisory firm. Reach him at Patrick.McCormick@PlanteMoran.com or +1 216-274-6524.