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  Senior Citizens: Real Estate Market of the Future 

Torres, Magdalena; Nuñez, J.; Martínez, J.; Suárez, José Luis
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Spain is getting older. Projections made by the country's National Statistics Institute (INE) for the year 2050 indicate that people over 65 will represent 28.4 percent of the total population, compared to 14.7 percent in 2001. The European Union goes even further, placing Spain in the year 2050 as the continent's "oldest" country: One third of its residents will be senior citizens. Real estate companies are taking special note of the aging phenomenon and are diversifying their business models with housing projects designed exclusively for senior citizens. About one third of this segment of the population can currently afford a space in the private sector, a percentage that should increase due to the growing number of pension plans.

Polls show that young people are progressively more in favor of the nursing home option, though in Spain this practice is less frequent than in the rest of the European Union. Yet, senior citizens are still reticent to that type of life, which they associate with high dependence levels. This tendency will change with the arrival of new options, which are more like resorts than hospitals and which combine personalized care and medical services with a high degree of independence and privacy.

The study entitled "La atención de las necesidades residenciales para las personas mayores" ("Attending to the Residential Needs of the Elderly") by researchers Magdalena Torres, Jaume Nuñez, Javier Martínez and IESE Professor José Luís Suárez shows that the Spanish market will see a particularly high demand from retirees of the U.K., Norway, Denmark, Germany, Russia and Switzerland. The good climate and proximity to their countries of origin make Spain the ideal place for retirement.

Dependence the Key Factor
The study's authors feel that the options available for nursing homes and services for senior citizens are structured around the customer's degree of dependence and the location of the service being offered.

Apartments and residential complexes are communities designed for residents who are fully active and independent. They provide all of the standard features of normal complexes but are available exclusively to senior citizens. These homes are located in coastal areas and include leisure and domestic services (including laundry and housekeeping). They attract foreigners as well as nationals, and some even cater directly to Scandinavian customers.

Assisted living homes are offered to active seniors who prefer having the benefit of common services such as healthcare, dining room, rehabilitation, transportation and group activities. These homes, which combine household services with healthcare, are marketed by real estate agencies as both sales and rental properties and are generally located in urban areas.

Adapted housing is another variation that includes special services for seniors but not necessarily located within residential complexes. Moreover, unlike assisted living, adapted housing just includes household services, apart from a few exceptions. It is aimed at the market niche for customers over 60 who are able-bodied but concerned about getting older.

Nursing homes are the most traditional type of housing, offering complete care services and a permanent abode for all types of dependence levels. The availability in Spain is 270,000 spaces, or about 3.66 per 100 inhabitants. The World Health Organization considers five spaces per 100 inhabitants to be optimum. Therefore, the market will demand another 100,000 spaces. Operators in 2005 planned between 80,000 and 100,000 new spaces. The demand is being covered and the sector is actually showing signs of maturity: Nursing homes are getting increasingly harder to fill.

Lastly, day or night care centers are basically part-time nursing homes. The problem is the price: They are nearly as expensive as a full-time space. The best business model consists of treating them as an extension of the residential center, which makes use of the same resources for both types of clientele.

An Increasingly Privatized Sector
Public administrations play a very important role in the sector. They own and operate their own nursing homes, transfer the management of some to third parties, and grant spaces in private centers at a negotiated price. But there is a growing tendency toward fostering private efforts, which are aimed at meeting the demand of a market, which, although currently showing signs of maturity, is predestined to expansion given the aging of the population.

According to the report, the real estate sector has an opportunity in nursing homes for the elderly. And Spanish investors have not missed out on the call: The main operators in the market have shareholders that include commercial banks, savings banks, venture capital funds, insurance companies and real estate developers. Real estate companies are offering everything from geriatric complexes with modules for specific illnesses (Adavir, for example), to traditional nursing homes with varying levels of care (i.e., Grupo SyV, Sanitas Residencial). Companies like Cisa (Grupo Bancaja) have opted for joining forces with Sanyres (Prasa real estate group) to offer complexes located on the coast.

The construction company OHL has also made a significant investment, building 17 centers with 140 beds, and 10 day centers for 40 people, mostly located in the Community of Valencia. Riofisa, a company primarily dedicated to developing shopping centers, plans to make its debut with an investment of 28 million Euros in a joint project with the EULEN Group. The firm has designed the 34,000 m2 Santo Domingo "Campus for the Elderly" in Algete (Madrid), located next to highway A-1.

Another example is the leading Spanish real estate company Metrovacesa. With collaboration from nursing home service provider Geroplan and contributions from different financial institutions, Metrovacesa founded the Planiger company. In 2006, it comprised seven nursing homes in the Community of Madrid and another in the province of Ciudad Real. As for future plans, the company is considering expanding by 31 nursing homes, a project that equates to an investment of 320 million Euros over five years.

These cases all show how each real estate company handles the senior citizen segment with solutions that adapt to its overall strategy, with a combination of knowledge, synergies and alliances that give highly varied results. There is a tendency, however, to design projects for customers of the upper-middle economic echelon and above. The lower-income segment is the target market for both public nursing homes and private centers offering subsidized spaces.

Profitability and Perspectives
Is it cost-effective to invest in services for the elderly? That depends on the option selected. With the nursing home model, the operator gets about 10-15 percent profitability on sales if its customers are private parties, and 6-9 percent in the case of subsidized spaces. The developer, with respect to the total cost of the project, earns profits around 10 percent when maintaining ownership and farming out management, and around 7 percent when simply selling the facilities.

The best results are seen by projects focused on the tourism/leisure/healthcare sector, as its customers have the greatest buying power. Plus, the group has the highest demand for leisure and the lowest for healthcare services, all of which leads to lower costs.

However, growth has been curtailed in the sector, partly due to the shortage of land: Affordable properties in good locations are hard to come by. In addition, business will tend to get costlier. In the future, salaries will have to go up (to remunerate a job that wears down workers), and the quality demanded by both customers and public institutions (i.e., ISO standards) will put pressure on costs when that happens.

One crucial factor for the sector's prospects will be decided by the Spanish Dependency Law: the possibility of the central and regional governments financing costs for seniors' use of centers for the elderly. The State will assess the dependency level of potential customers and in turn offer a wide range of services, from commuter care to house calls to day/night care centers and nursing homes. Thus, it is not hard to imagine the small revolution that this regulation could give rise to in the sector.

This article is based on:  La atención de las necesidades residenciales para las personas mayores
Publisher:  IESE
Year:  2006
Language:  Spanish