Public REITs are back on offense in seniors housing, scooping up assets well below replacement cost. With new construction at cycle lows and demographics pointing to surging demand, acquisitions are beating development on a risk-adjusted basis. The market is setting a pricing floor defined by the replacement-cost gap.
Replacement cost: $300K–$400K per unit (CBRE estimates).
Acquisition pricing: $200K–$250K per unit (recent comps).
Construction starts: 1,076 units in Q1 2025 across 31 tracked markets — lowest since 2009 (NIC MAP).
Demographics: U.S. 85+ population expected to grow ~60% by 2035 (Census).
Transaction volume: Welltower deployed $6.2B in Q1; Ventas lifted 2025 buy guidance to $2.0B.
Initial yields: 7–8% targeted; unlevered IRRs often low- to mid-teens.
Financing backdrop: 10-year Treasury around 4.3%, pressuring DSCR coverage.
1. Comps & Pricing Dynamics
The replacement-cost gap is the new anchor. With build costs north of $300K per unit but stabilized assets transacting closer to $225K, buyers are effectively locking in value below what it would cost to deliver today. That gap compresses downside risk and forces sellers to acknowledge “buy > build” realities.
2. Liquidity & Transaction Flow
Liquidity is flowing from institutional REITs (Welltower, Ventas, NHI). This is a pivotal signal: when public balance sheets commit billions, private buyers and lenders recalibrate expectations. Deal velocity is not broad-based — it’s concentrated in stabilized or near-stabilized portfolios — but it’s enough to reset benchmarks.
3. Sector Rotation & Performance Divergence
While multifamily and industrial dominate volume headlines, seniors housing is quietly emerging as a favored defensive play. Drivers: aging demographics, low new supply, and the operational moat of healthcare-linked demand. This divergence from oversupplied Sun Belt apartments is critical for allocators.
4. Execution Implications
The underwriting pivot is from bricks to operators. Performance now hinges less on physical real estate and more on operating quality — staffing ratios, expense control, and stabilization strategy. RIDEA structures bring operating risk back onto balance sheets, requiring deep diligence on operator alignment and P&L.
This isn’t a “wave all deals through” moment. It’s a pricing anchor. If I’m buying seniors housing, I’m demanding basis below build cost, underwriting operator execution like a hawk, and stress-testing DSCR at +50 bps on debt. Where those three hold, I’m aggressive; where they don’t, I pass.
📈 Read-Through
For capital allocators, the replacement-cost gap defines your floor. As long as that gap persists, acquisition > development. Underwriting needs to prioritize operator diligence, stabilization timelines, and real capex planning. Structurally, this is one of the few CRE asset classes where both cyclical (low supply) and secular (demographics) tailwinds align.
🔭 Outlook
Starts remain muted: Expect continued supply scarcity through 2026.
Capex inflation: Wage pressure in healthcare likely lifts opex; model accordingly.
Capital flows: Watch REIT quarterly guidance; public activity sets private comps.
Demographics: The 80+ cohort grows 29% in Texas alone over 5 years — key for market selection.
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