The Booming Demand in Senior Living Real Estate: A Conversation with Ventas CEO, Deborah Cafaro
In a recent conversation with Diana Olick, Deborah Cafaro, the CEO of Ventas, Inc., a $31 billion real estate investment trust (REIT), emphasized the promising future of senior living real estate. While the senior living real estate sector might have previously been overlooked, Cafaro argues that it is on the verge of a significant boom, primarily driven by the aging baby boomer population.
The conversation began with Olick highlighting the potential boom in senior living real estate, largely driven by the aging baby boomer generation. Over 4 million boomers will turn 80 in the next five years, and occupancy rates in both active adult and assisted living communities are already increasing rapidly. This burgeoning demand is occurring against a backdrop of declining inventory growth, which recently dropped below 1% for the first time since tracking began in 2006.
Cafaro, whose company is one of the largest investors in senior living real estate, emphasized the growth opportunity in this sector. She attributed this to the rapidly growing population of over 80-year-olds in the U.S, which is expected to grow by 28% in the next five years. This segment’s growth far outstrips the 1% growth rate of the U.S population overall.
In terms of investment characteristics, Cafaro pointed out the high returns and significant asset growth in senior living. Ventas is investing billions of dollars annually in senior living, achieving returns in the sevens and unlevered IRRs in the low to mid-teens.
Olick then delved into the supply-demand dynamic in senior living real estate. With the over 80 population growing and the demand being needs-based, Cafaro sees the growth opportunity as already well underway. She also pointed to the constraints in construction, including high costs of construction labor and materials, as factors that have tipped the supply-demand balance in favor of current asset owners.
Despite high rents in senior living communities, Cafaro argued that they were still affordable for the baby boomer generation, many of whom control substantial wealth. She also expressed confidence in the sector’s resilience, even in the face of potential macroeconomic downturns or stagflation, due to its need-based nature.
Addressing criticisms about senior living facilities, Cafaro noted that the vast majority of senior living communities provide excellent care and services, contributing to their increasing popularity. She also highlighted the industry’s evolution, with senior living communities now offering a wide range of amenities to meet the needs of seniors at various stages of their aging process.
Olick also touched on the topic of gender, noting the rarity of female CEOs in real estate companies. In response, Cafaro shared her experience of navigating the ‘rough and tumble’ world of real estate, attributing her success to delivering strong performance for investors.
Conclusion
In conclusion, Cafaro reiterated the strong investment opportunity presented by senior living real estate. She pointed to the sector’s strong demand, driven by the aging baby boomer population and the limited supply, as key factors that make senior living a promising investment. She also highlighted the role of Ventas in serving seniors and their families while capitalizing on these trends.
Overall, the conversation shed light on the untapped potential of the senior living real estate sector. It is clear that with the right strategies and understanding of the market dynamics, investors can reap significant benefits from this often overlooked segment of the real estate market.