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Aging America proves a lucrative real estate niche

by Beth Marlowe
Oct 24, 2007


Info Box:

 
Name:  Senior Living Investment Brokerage Inc.
Business: Brokers sales of senior housing facilities.
Location: Glen Ellyn

Founder and president: Grant Kief
2006 Annual Revenue: $4.2 million
Estimated 2007 Revenue: $6.5 million
Employees: 15

 


Ten years ago, Grant Kief saw opportunity in aging.

While working for a real estate brokerage, he heard about a new division dedicated to buying and selling housing for seniors, such as assisted living and skilled nursing facilities. “I begged and kicked and screamed to get into it,” he said.

Why scream to get into such a small market? “Because of the aging demographics,” said Kief, referring to the growing number of Americans age 65 and over. Between now and 2050, the population of older adults will double, growing at a rate of up to 2.8 percent a year, according to the U.S. Census Bureau.

Kief got in, and after learning the business struck out on his own, founding Senior Living Investment Brokerage Inc. in Glen Ellyn in 1997.

Back then Kief, now 43, was on his own, selling nursing and assisted living facilities in the one to twenty million dollar range. Now the second largest investment brokerage of its kind in the country, according to Kief, Senior Living currently has 15 employees doing deals of up to $300 million, offices in St. Louis and Yakima, Wash, and two satellite businesses that offer mortgages and marketing for senior housing.

“There’s generally a higher return than for single family homes or retail,” said Stephen Monroe, editor of the trade magazine SeniorCare Investor. “Higher risk but higher return.”

According to Kief, the capitalization rate, the rate of return on the investment if a buyer pays cash, for apartment and retail real estate has dropped to around 4 or 5 percent, but the rate for senior housing is between 8 and 12 percent.

In 2006 the company brokered 22 transactions totaling $260 million. Its revenues were over $4.2 million last year, and Kief expects that to jump to $6.5 million in 2007.

Senior Living owes some of that tremendous growth to the explosion of options for elderly people who are no longer able to—or no longer choose to—live in their own homes.

Housing for older people doesn’t mean just nursing homes anymore. Linda Barbarotta of the American Association of Homes and Service for the Aging says that today’s long-term care options runs the gamut from skilled nursing facilities at one end to home care visits at the other.

Skilled nursing facilities still offer hospital-level care for the very ill, but organizations like Sunrise Senior Living Inc. and Brookdale Senior Living Inc. offer seniors varying levels of care—from nursing to transportation to help around the house—in their assisted living and independent living facilities. About 30 percent of the facilities Senior Living sells are skilled nursing homes, while the remaining 70 percent are assisted living and independent living.

Not only has the scope of care broadened, but “the quality of what’s for sale has been going up,” said Monroe.

Kief agrees. “There’s the old generation of nursing home that I remember going to visit my grandmother in,” he said, recalling the hospital smells and depressed feel of the home. But now, with bright, airy rooms and lots of activities for residents, “they are really, really nice,” Keif said.

While quality is improving, however, the quantity of senior housing isn’t keeping up with the increasing demand.

“There’s gonna be a shortage. Even if they start building right now, there’s gonna be a shortage of housing,” Kief said.

States contribute to this shortage by limiting the number of facilities they will approve. Without a certificate of need from the state, skilled nursing facilities cannot get reimbursement from Medicare and Medicaid. Some states even have limits on the numbers of assisted living facilities.

The Chicago area has more projects under construction than any other region in the country, according to a 2006 joint survey by the National Investment Center and American Seniors Housing Association, but national demand is still high. “Everything is sellable right now,” Kief said.

In such a narrow market, personal connections are invaluable. Senior Living finds its clients “the old-fashioned way—it’s all networking,” said Kief.

“They pride themselves on relationships,” said Jim Bowe, the vice president of advocacy and business development at Trinity Continuing Care Services, which has already used Senior Living for two transactions in the Midwest.

Bowe relied on the broker’s local knowledge. “They make it their business to understand all of the ins and outs,” Bowe said. “That’s the kind of expertise people are looking for.”

Kief relies on his team of 15 brokers to know everything about what’s happening in the industry across the country. Each broker covers about two or three states, and “if somebody’s selling—if somebody sneezes—they know about it,” Kief declared.

Over half of Senior Living’s clients are “mom and pop” places, many of which started out by renting rooms in their homes and built a business over the years. Some of these families want to expand their businesses by buying a second or third facility. Others are ready to retire and looking to sell to larger investors, like real estate investment trusts that focus on healthcare, or the private equity firms that have recently entered the industry.

No matter who is buying or selling, confidentiality is essential in these types of sales. According to Kief, rumors of a change in ownership make both residents and staff nervous about the future. That’s why Senior Living handpicks prospective buyers, and makes them sign confidentiality agreements before viewing properties.

Monroe praised Senior Living’s ability to balance marketing and confidentiality. “You want to market it as broadly as possible, but you don’t want to shout it from the rooftops,” he said.

Kief understands the importance of finding the right owners. Remembering one company that tried to buy into the industry in the 1990s, he said, “they were watching the bottom line as opposed to being concerned about what the residents needed and wanted.”

“It may appear to be an apartment with food,” he said. “But it’s as specialized as the door handles having levers, and having wider hallways and wider doorways to get wheelchairs in.”

“It’s a people business, it really is a people business.”