Senior Living Industry Grapples With Growing Number Of Aging, Obsolete Communities

A little less than two-thirds of senior living communities are at least 17 years old, and that is a challenge that the senior living industry must grapple with in the years ahead.

That’s according to the National Investment Center for Seniors Housing and Care (NIC). According to the organization’s data, 45% of all senior living communities are 25 years old or older as of 2023.

Operators have anticipated challenges linked to the number of aging senior living communities in the U.S. But the last few years have brought a drought of new development projects, with a historic low number of new communities coming online to bring down that number.

Owners and operators of communities are faced with a choice to refresh or reposition properties with CapEx and other improvements, or to let them turn into other uses, like affordable and workforce housing, behavioral health or multifamily. For example, Ventas (NYSE: VTR) is marketing for conversion or sale a 14-story, 256-unit property operated by Brookdale Senior Living (NYSE: BKD) in Chicago’s sought-after Lakeview neighborhood. Although a spokesperson for Ventas told SHN the property may remain senior living, depending on who acquires it, it exemplifies the kinds of decisions real estate owners are making as they survey their aging portfolios.

According to NIC data, the  average age of all senior housing properties is 24 years,  while 60% are at least 17 years old. The older a community is, the more likely it has outdated exterior and interior design, poor infrastructure and lacks amenities often sought by today’s senior living customer. 

That obsolescence has exacerbated some of the industry’s current hardships, according to HealthTrust Chief Operating Officer Colleen Blumenthal.

“There’s more distressed and obsolete properties now than there used to be, and that’s because some of this first-generation product just isn’t cutting it anymore,” Blumenthal told Senior Housing News.

Repurposings of older communities could become “more increasingly common” as older assets no longer meet modern demand expectations or are in oversupplied markets, according to NIC Senior Principal Omar Zahraoui. 

Even so, though it will present challenges, Blumenthal sees the current ebb and flow of aging properties and limited supply as a “natural stage of evolution” for the senior living industry.

“This is pretty much first generation stock and it will find another use or be cleared for cornfields,” Blumenthal said. “That’s nothing to panic about, because we’ll build it better and more desirable the next time around.”

Barriers to reusing aging properties

Common sense dictates that senior living companies will simply update older properties in need of a refresh. But older properties may also come with some barriers to repositioning.

Lower, 8-foot ceilings,communal bathrooms and an abundance of studio apartments are often a barrier to an outdated senior living property’s ability to recover in its given market, according to Blumenthal.

She noted that HealthTrust has monitored recent projects in primary markets with a higher mix of studio apartments that are now struggling to lease up.

“When we’re talking obsolete, we’re basically saying there are too many studio units,” Blumenthal said. “People don’t love studios at any price point.”

The challenge for smaller communities with a large portion of studio apartments lies in their ability to collect revenue. For example, a community with 80 studios and 40, one-bedroom apartments might struggle to attract a qualified executive director or staff even at full census.

Blumenthal pointed to the struggles of former senior living operator Enlivant and its exposure in rural markets as an example of how a portfolio of aging properties can stymie operators’ ability to keep pace with demand.

“You’re barely going to be able to pay for the staff you need to run the building. So I think that that gets to be a challenge and that’s why, for some of these, it just doesn’t work anymore,” Blumenthal said. “I really think the biggest barrier is building design more than anything.”

Blumenthal added that “just because it’s older doesn’t mean it’s bad.” But her larger point is that they are not always well-suited for big renovations that can bring a property up to current standards.

Vivo Investment Group purchased a 40-year-old independent living property in Summerville, South Carolina, last year with unit layouts on average of 300 square feet. But census dropped below 80% after a competitor opened up a brand-new community, leading to a “death spiral” that put pressure on staffing and operations. 

“Everything gets harder,” Vivo Chief Investment Officer Brett Tanimoto told SHN. “It’s like you’re fighting this uphill battle when you’re competing against a new product.”

So, Vivo converted the property to affordable housing for workers, people who are single, under the age of 30 and over the age of 55. In the last five years, Vivo has invested in dozens of shuttered hotels and motels to convert them into affordable workforce housing by adding kitchenettes. The company has converted over 4,000 such units in the last five years.

“We’ve done that across the country and we wanted to see if we could replicate this strategy within the aging senior housing project,” Tanimoto said. “Summerville is the prototype.” 

Zoning changes with local municipalities and lack of parking needed to accommodate all tenants are among the biggest barriers to redeveloping a property, he said.

“Secondary and tertiary markets just happen to be easier to work in and just meet our investment criteria,” Tanimoto added.

In 2023, Helios Healthcare Advisors oversaw the sale of 13 former assisted living and memory care communities that averaged 20 to 50 units with small-footprint layouts in residential properties that were ultimately converted to substance use disorder providers, traumatic brain injury specialists and housing for people with intellectual and developmental disabilities.

“In certain instances on some of these smaller, more residential-style properties that subset works really well,” said Helios Managing Director Mario Santiago.

Santiago sees opportunities to convert larger old senior housing communities into affordable housing, citing the ongoing sale of a 260-unit independent living property in San Antonio, Texas, that was built in 1982. With larger properties, Santiago said owners should “reset the basis and convert to multi-family.”

But that may only work for “nicer” aged senior living properties that had a history of consistent maintenance, while non-trophy assets in the “second or third ring of developing suburbs” could face a tougher climb toward future reuse, Santiago said, depending on market location.

“What happens to those communities in high barriers to entry markets where the real estate is worth a ton,” Santiago said. “There are a lot of alternative uses for these things.”

Nearly ‘out of time’ for new development, aging supply

The senior living industry faces a ticking click in the form of demand from the baby boomer generation. In the coming years, millions of older adults will arrive at the industry’s doorstep, with potentially not enough supply to meet that demand.

The median construction duration for senior living properties has grown to 29 months in 2023, the year most recent data was available, up from 16 months in 2015. That coincides with a tough financing environment for new development and rising construction costs. At the same time, NIC data shows that the industry will fall short of demand by 2030 unless new development speeds up 3.5-times faster than its current pace.

“We have five years until this wave of all the boomers will be eligible for senior housing age to come and if the average development takes nearly three years or longer from concept to fully built, we’re practically out of time,” said Avenue Co-Founder Laurie Schultz. “If we don’t figure it out, someone else outside of the industry will and we need to figure out how the puzzle comes together.”

In what happens to older senior living properties that have reached the end of their functional life, Santiago sees an opportunity for the industry to solve its affordability issue in part with reuse and conversion of properties into affordable senior housing.

“I think people are going to realize that the affordability issue is an opportunity and not a barrier, and hopefully there’s enough development to meet demand,” Santiago said.

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