A record $473 million financing deal for a senior housing project in an affluent California suburb is the latest sign of demand for the property type in the United States as investors bet on a growing population of older renters.
An investment bank focused on elder and nursing-care developments arranged the financing for the construction of a senior living facility in Orange County, marking the largest nonprofit senior living bond issuance ever recorded for a single property, according to JLL, the brokerage that structured and facilitated the deal.
The bonds, provided by HJ Sims, will be used for the ground-up development of The James, a 350-bed senior living facility on a 3-acre site at 1001 Gates Ave. in Irvine, a city where apartment rents run nearly double the national average, according to CoStar data.
A rapid expansion of the area’s elderly population could fuel demand for the new project, the largest senior housing project underway in the region. Orange County’s 65-and-over population is the fastest growing segment of the area’s residents, according to JLL.
More than 10,000 people turn 65 years old every day in the United States, according to data from the U.S. Department of Health and Human Services, equating to a 44% growth rate, well above the 5% growth rate among the American population at large. This increase "will significantly boost demand for seniors housing," per a recent Walker & Dunlop report.
In Orange County, 21% of the area’s population was over the age of 60 in 2020, including nearly 670,000 residents, according to the California Department of Aging. At the end of the bond’s 35-year term, those numbers could expand to 1.14 million people, or 36% of Orange County’s total population, agency projections indicate.
'Template for partnerships'
The bonds were secured on behalf of the project’s developers, Harbert South Bay Partners and Lamb Properties; the nonprofit P3 Foundation; and senior housing operator Momentum Senior Living. The financing consists of $442.1 million in publicly offered, tax-exempt senior bonds; $12.93 million in taxable senior bonds; and $18 million in subordinate, tax-exempt bonds.
The project's financing deal was also the largest tax-exempt senior living financing of the year, according to JLL.
“This transformational bond financing … will serve as a template for partnerships between non-profit borrowers and for-profit developers and operators," Aaron Rulnick, cohead of HJ Sims’ banking team, said in a statement.
The James is slated to be the first new senior living community in the Irvine market in 28 years, according to JLL. Designs call for 210 independent living units, 110 assisted living units and 30 memory care units. Floorplans are expected to range from studio to two bedrooms averaging 837 square feet.
The proposed property is set across the street from upscale shopping complex The District at Tustin Legacy as well as near interstates 5 and 405, providing access to the Irvine Spectrum Center, Hoag Hospital Irvine, Orange County's Great Park and John Wayne Airport, according to JLL.
Despite signs of growth, the senior housing segment faces headwinds in the form of high operational costs and regulatory burdens, with profit margins still below pre-pandemic levels, data shows.
But "rent growth has played a significant role in driving revenue, helping operators offset rising costs," according to the Walker & Dunlop report.