Senior Housing, Investment Strategy, Memory Care, Operations, Capital Stewardship, Assisted Living, Clarity Brief
What Senior Housing Investors Get Wrong And How to Get It Right
Senior housing looks like real estate on paper, but it behaves much more like healthcare in practice. That tension is where most investment mistakes are made.
The industry often attracts capital because the demographics are compelling and the buildings look familiar. But the variables that drive performance are not just about square footage, lease-up, and exit caps. They are about human beings, clinical needs, and the ability of an operating team to consistently deliver care.
When investors underwrite senior housing as if it were simply another commercial asset class, they tend to miss the very levers that create durability, resiliency, and long-term returns.
1. Mistake: Treating Senior Housing as “Just Another Real Estate Deal”
A common error is to view senior living communities like apartments with more services and a higher rent roll. The underwriting then leans heavily on:
- Purchase price
- Cap rate
- Replacement cost
- Market rents and absorption
Those are all important, but they are not the core drivers of risk.
Senior housing is not a passive rent collection model. It is a care-delivery ecosystem wrapped in a real estate shell. The building can be beautiful and the location excellent, but if the operational platform is weak, the performance will suffer.
How to get it right: Start with the operating model, not the bricks and mortar. Ask:
- What care levels are being delivered, and at what staffing ratios?
- Is the leadership team stable, experienced, and adequately supported?
- How do clinical outcomes, occupancy, and staff turnover compare to peers?
Only after you understand the operating reality should you decide whether the real estate and capital structure make sense.
2. Mistake: Underestimating Acuity and Care Complexity
Many investors are surprised to learn how quickly resident acuity changes the economics of a building. Memory care, behavioral health, and higher physical needs require more staffing, different training, and a very different risk profile than traditional independent living.
Underwriting that simply assumes “x” percent assisted living and “y” percent memory care, without understanding how care levels actually move over time, will miss:
- The rising cost of staffing as acuity grows
- The margin pressure created by higher care needs
- The regulatory exposure associated with more complex residents
How to get it right: Underwrite resident acuity as deliberately as you underwrite rents.
- Model different care levels and their impact on staffing, margins, and risk.
- Ask operators how they handle residents who can no longer be safely served in place.
- Understand the clinical philosophy: are they a housing provider, a care provider, or both?
Durable performance comes from matching the level of care promised to the level of care actually delivered—without crossing into unsustainable staffing or compliance exposure.
3. Mistake: Ignoring the Leadership Bench
Another common oversight is underestimating how much a single executive director or wellness leader impacts performance. Investors will sometimes spend hours debating basis points on a cap rate and minutes asking about the leadership pipeline.
Senior housing is a people business. A strong executive director and clinical lead can:
- Stabilize a community
- Reduce turnover
- Build trust with families and referral sources
- Navigate regulatory surveys and events
A weak leadership team can quickly erode occupancy, staffing, and reputation—even in an otherwise “good” market.
How to get it right: Underwrite the leadership bench with the same seriousness you underwrite the building.
- Ask about tenure, succession plans, and regional support.
- Look for an operator with a track record of building leaders, not just filling positions.
- Evaluate whether the culture is transactional or relational.
The most successful investments typically sit on top of a stable, well-supported leadership framework.
4. Mistake: Over-Focusing on Entry Cap Rates and Under-Focusing on Exit Durability
It is tempting to fall in love with an entry cap rate, especially in a dislocated market. But senior housing returns are rarely defined by the first year of income. They are defined by:
- The ability to reach and sustain a healthy occupancy level
- The trajectory of margins over time
- The quality of the operator-resident-family relationship
- The capacity to invest in the building as residents’ needs evolve
A community that barely meets pro forma in year one but has a strong leadership team and a thoughtful care model is often a better bet than a “perfect” year-one NOI with a fragile operating platform.
How to get it right: Think less about what the asset looks like at acquisition and more about what it can become under the right stewardship.
- Model scenarios that stress test staffing, occupancy, and rate growth.
- Consider the capital needed for programming, technology, and building improvements.
- View the investment horizon through the lens of resident well-being and operator strength, not short-term optics.
5. Moving from Transactional Thinking to Stewardship
Ultimately, the biggest shift senior housing investors can make is moving from a transactional mindset to a stewardship mindset.
Stewardship asks:
- Are we aligned with the operator in mission and incentives?
- Are we resourcing the community to care for residents over time, not just to meet a pro forma?
- Are we willing to think in terms of decades of impact, not just years of return?
At Mainstay Financial and Mainstay Senior Living, we focus on opportunities where capital, care, and community can be integrated. That means:
- Investing in secondary markets where demand is necessity-based and durable
- Partnering with operators who understand both the human and financial sides of the business
- Designing capital structures that respect the complexity of caring for older adults
Senior housing is one of the most meaningful and resilient investment categories available today—but only when we underwrite it for what it truly is: a blend of real estate, healthcare, and human dignity.
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About the Author: Tod Petty serves as Chief Investment Officer at Mainstay Financial Services & Mainstay Senior Living, guiding capital strategy and investor relations. He authors The Build Series—a collection of insights designed to bring clarity and discipline to senior housing investment.
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