Trent Johnson and Brian Landrum are Senior Managing Directors and co-leads of the senior living team at Harbert Management Corporation, an alternative asset management firm founded in 1993 with $8 billion in assets. The team has been investing in the senior living sector for 15 years, launching a $210 million investment fund in 2016 and another $510 million fund for this segment in 2020. The group is currently in its third fundraising phase, aiming to capitalise on the first wave of baby boomers who will reach the age of 80 in 2026.
The two executives spoke with Commercial Observer about their careers, the evolution of the asset class, the present and future of senior living, and the best investment opportunities in this increasingly important sector. Trent Johnson began investing in this area in 2012, having previously worked as a real estate lawyer and at a large multifamily REIT. Brian Landrum entered the senior living industry in 2009 with Walton Street Capital and joined Trent Johnson at Fortress Investment Group in 2012, before they both moved to Harbert Management Corporation in 2015.
Brian Landrum notes that the product is rapidly changing, particularly with regard to the shifting generational cohort of customers. When he and Trent Johnson began investing capital in the asset class in 2012, the primary clientele were mainly from the 'Silent Generation'. This is now changing, as the oldest baby boomers in the United States turn 80 this year. This baby boomer generation is seeking senior living options that are significantly different from the offerings of the past 15 to 20 years.
Earlier developments were generally characterised by smaller footprints, smaller unit sizes, and fewer amenities. The Silent Generation placed great importance on lower rental prices, which led to the development of buildings that are now partly obsolete, as 35 to 45 percent of units might be studios. The baby boomer generation, however, is looking for Class-A to luxury senior living facilities with diverse dining options, all-day catering, rooftop bars, swimming pools, and pickleball courts. Their wealth, which is four to five times higher than that of the Silent Generation, enables them to finance these amenities.
Following the COVID pandemic, many development projects were still in the lease-up phase, leading to slower repayments to banks. Trent Johnson reports that this situation is now changing. Banks are increasingly receiving repayments on debts incurred before or during the pandemic. Capital markets have performed positively over the last twelve months, with new lenders entering the sector. Larger capital players are also returning to the buy-sell side, leading to productive dynamics on all fronts. New relationships are forming with previously unknown debt-side players.
Spreads in debt financing are as attractive as they have been in years, reflecting the conviction that this asset class has strong potential due to current supply and demand dynamics. The willingness of the baby boomer generation to pay for high-quality, new, and amenity-rich buildings is high. This allows for greater flexibility in restoring margins in such buildings compared to smaller properties with a high proportion of studios. Although all forms and sizes of senior living will continue to be needed, these high-quality buildings and willing financing partners are experiencing a significant uplift.
According to Brian Landrum, the fundraising environment for senior living properties is currently very constructive. The institutional investor (LP community) knowledge of this asset class has evolved considerably since the launch of the first fund in 2015/2016.
