Investment firm aims to lure boomers who can splurge on their retirement
By Peter Grant
An investment group is acquiring a luxury senior-housing operator in a $1 billion deal, seeking to capitalize on the buying power of the aging baby-boom generation.
BDT & MSD Partners, an investment and advisory firm, is taking a majority stake in Sunrise Senior Living, the fifth largest senior-housing operator in North America, while senior leadership at the privately held firm will own the rest.
Sunrise operates more than 230 communities across the U.S. and Canada, serving more than 22,000 residents.
Terms of the purchase from Canada's Public Sector Pension Investment Board weren't disclosed. But the buyer values the deal at more than $1 billion, according to people familiar with the matter, making it one of the largest senior-housing deals since Covid-19 disrupted the business in 2020.
With the population aging and people living longer, senior housing is becoming one of the hottest commercial-property types. The baby boom, which began 80 years ago, produced about 76 million U.S. births through 1964. That sets the stage for today's unprecedented demand for senior housing.
"The silver tsunami has been a topic since 1998," said Coburn Packard, head of real-estate equity at BDT & MSD Partners. "For the first time, it's not like this thing's going to happen. It's actually happening."
That is a change for the sector, which got clobbered by the pandemic. During the early Covid-19 years, occupancy nosedived. Move-ins virtually halted and social-distancing restrictions left residents isolated.
Now, demographic trends are filling those empty rooms. Senior-housing occupancy in 31 major metropolitan markets reached a postpandemic high of 90.4% in the third quarter, according to data provider NIC MAP. Assisted-living occupancy reached 89.1%, compared with below 74% at its pandemic low.
Most of Sunrise's communities are more than 90% occupied and many have wait lists, according to Chief Executive Jack R. Callison Jr. The company, which offers a range of options from independent living to memory care, charges roughly $10,000 a month for assisted living, not including add-on care services.
Sunrise was founded in 1981 by a husband-and-wife team who lived alongside residents in their first community in Oakton, Va. The company courts the upper end of the market by combining personalized care with upscale dining, amenities and programs designed to keep residents active and engaged.
At Sunrise's two Manhattan locations, for example, residents can take classes and attend performances by Juilliard students, work with visiting artists in dedicated art studios, and attend Broadway shows with backstage discussions, Callison said.
"They want that type of experience," Callison said. "They've had that their entire lives."
BDT & MSD has roots in the family office of computer pioneer Michael Dell, and today it manages capital for his family, as well as other investors. Sunrise marks its first investment in senior housing, but the firm brings extensive luxury-hospitality experience, with investments including The Boca Raton, Four Seasons Hualalai and a stake in hotel operator Auberge Collection.
Sunrise owns fewer than a quarter of its communities, earning management fees from operating the rest. Its growth plan is to win more management contracts by pairing Sunrise's senior-care expertise with BDT & MSD's experience in luxury hospitality.
Sunrise also hopes to benefit from a dearth of new senior-housing supply, which was limited until recently by the difficult pandemic years. NIC MAP projected in August that the U.S. could face a shortage of more than 575,000 senior-housing units by 2030, as the population age 80 and older grows by about one-third.
Sunrise's growth plan includes a development pipeline of more than 50 communities with an estimated construction cost of $7.5 billion. Callison said Sunrise is poised to move quickly with new projects because it kept its development team together during the pandemic and has been picking up sites abandoned by other developers.
The company is now on pace to start six to seven communities a year and plans to increase that to 10 annually by 2030, he said. "When everybody else was downsizing, we were really investing," Callison said.
Still, the aging of the population won't solve all of the senior-housing industry's problems. Inflation and high interest rates are driving up costs, an immigration crackdown threatens to deepen staffing shortages, and advances in healthcare and technology are helping older adults stay at home longer, delaying their move into senior housing.
Sunrise believes it can counter these pressures by helping residents live longer, healthier lives. The company has been investing in wellness programs that combine fitness, nutrition and social engagement, while exploring emerging therapies aimed at extending healthy lifespans.
"We think Sunrise has a very differentiated approach," Packard said.