Senior Housing’s Inflection Point: Demand is Quickly Outpacing Supply

0:00Most investors think senior housing is a demographic trend. You know, the silver tsunami, boomers turning 80, demand is inevitable. But that's the lazy version of the story. Because in the sasset class demographics don't save bad operators. The cheap capital doesn't fix broken staffing models, and buying at the wrong basis can erase years of projected upside. Now heading into 2026, senior housing isn't about inevitability. It's about operational discipline. And that's exactly what we're going to be diving into today. Welcome back to the Real Estate Investing for Casual Podcast. I'm your host Kevin Bubb. If you're new here, this show is all about helping you build durable cash flow through real estate assets. Discipline investing backed by real operational insight. Today we're going to be unpacking one of the most misunderstood asset classes in commercial real estate. Joining me is Lynn Jarrett, founder of Citroen Investment Group. Lynn came up through decision sciences and re-investing, worked across hospitality and multifamily, and today focuses exclusively on senior housing, independent living, assisted living, and memory care. Primarily across the Midwest, Mid-Atlantic, and the South Eastern regions. What makes this conversation different today is this.

1:02Lynn doesn't just buy stabilized deals. She targets distressed communities. She injects serious capital, fixes operations, and in some cases, even doubles the NOI. And so in this episode, we're going to cover why 2026 is an operator inflection point, not just a demographic wave. Where multifamily investors get senior housing dangerously wrong? How she underwrites staffing, licensing, and labor intensity, we get into a case study. You're going to want to hear what price per unit looks like after a value add is executed. And so if you've ever considered senior housing or dismissed it, this conversation will recalibrate how you think about it. So let's dive in. Lynn, welcome to the show. It's great to have you here with us today. Excited to jump in here and talk shop with you. Thanks, Kevin. It's great to be here. What are you seeing on the operator side of senior housing that that you feel most investors that are either in the space or looking to get into the space aren't paying attention to yet? Thanks for having me, and I'm excited to get into this conversation. So on the operator side, I think it's been a perennial concept,

2:02at least for the 30 years that I've been in the real estate industry, that investors and operators think they're talking to each other, but they may not actually be speaking the same language. Because operators fundamentally are thinking about hair, resident experience on the ground management, and then obviously, of course, an investor is thinking about returns, cash flow, profitability, financing, that sort of thing. And there's a missing piece in the middle, which is that translator, which is where Satrine fits in. We are the investment manager, and we are the ones who can interface with both the operators and the investors to ensure we're getting the premium results for everyone, both for the residents and for the investors. And so that, of course, there are operators who have that investment acumen in-house, and then there are investors who may have that operating experience,

3:02but by and large, that hasn't been the case, and it continues to not be the case today. I know that we've discussed this briefly before. You're seeing a lot of multifamily. Multifamilies is in trouble times right now, and surely we'll see a rebound. But there's lots of multifamily operators that are looking for the next thing, the next big thing. And I know that you're seeing a lot of those folks dive into the senior housing space. But again, I guess maybe more specifically, what are some of the big areas where they're really missing the mark? Because there's surely similarities with multifamily. You could find crossover in just about every asset class. There's definitely some crossover. But I would say in the senior housing space, there's compared to other asset classes, there's probably way more differences than similarities. So maybe speak to some of those. And again, where you see some of those folks that are just getting into the sector, where they're really missing the mark. Yeah, and I would say there aren't so many that are missing the mark today.

4:03I think that because of the early 2000s, excess supply in the senior housing space, and then you did have hospitality companies get into senior housing and multifamily investors, there's more awareness around the fact that senior is different. But there's still some that could be contemplating it. Especially if you're a developer and you have excess land, it's much easier to get zoning for a senior housing project than other types of projects, because municipalities don't consider it as much of an issue or an impact on their infrastructure. So I think it's a good question to discuss. Senior housing seems similar to multifamily, seems similar to hospitality, and there are elements you could pull from those. It really is its own asset class. And of course, also among senior housing, you just, you mentioned it in the beginning, you have assisted living memory care kind of in the middle, I'd say, independent living is on one end, and then like skilled nursing is on another end.

5:05And when you go higher up in the acuity scale, in the care scale, you are going to be more of a health care provider than if you're an independent living, which is probably the closest to multifamily, but still has some programming. So if you're in multifamily considering senior housing, what I'd say is don't think about it as a one off. Think of it as something you're really studying. Maybe it's analogous to a Southeast multifamily owner operator who says, oh, now I want to go into California, for example. Well, you wouldn't just jump in, you would do your research, you'd figure out the markets, who are the players, what are the differences and similarities to your existing markets. It's the same sort of diligence you would use to decide you want to get into senior housing. And then you also want to not think of it as something that you learn on the fly, you want to get involved in the industry, learn. It's a tight-knit, smaller space than the multifamily industry, for sure.

6:10Multifamily has NMHC, national multi-housing council, as one of its larger trade organizations. And senior housing has Nick, national investment centers. And although Nick has grown a lot over the last two, three decades, it's still not as big as the multifamily space and industry events. And so you can spend relatively short amount of time learning a lot about the space. That's one of the reasons I call it a wide-mote space to take a term from venture capital. Because once you do get expertise, it's something that's a differentiator. It's a lot harder to get familiar and learn it as compared to multifamily. One example is licensure. So if you own an assisted living and memory care community, you have to get license from the state. And each state has different rules and procedures. And so in order to even open, or once you buy, the license doesn't automatically transfer.

7:11You have to go through the process. And understanding that alone is different than most other asset classes. No, that makes a lot of sense. I want to hit on a comment that you made there, backing up a little bit about 2000. There was a period of time where there was quite the oversupply in the marketplace. And I think I had mentioned to you as well. I years back, it's probably 2007, 2006, seven area. That I actually, we'd considered, we went down the path of looking at senior housing as an investment asset class that we'd like to get into. At least learn more about. I went through the whole formal process of becoming a licensed administrator in the state of Florida. And then realize that it just wasn't a great fit for me operationally, just a very operationally intensive business. I would love to maybe talk on that here in a little bit. But I guess what is different today? You'd mentioned that in the 2000s, early 2000s, there was quite an oversupply. And it's interesting because like the same, the whole silver tsunami conversation, like that was happening back then,

8:12which is ultimately what intrigue does about the space, right? Like just trying to, trying to marry, you know, the silver tsunami wave with, with opportunity and potentially getting to this business and serving the needs of those folks that need the type of housing. What is different today, you know, with that, with that whole demographic of the silver tsunamis that didn't exist back then, but, you know, to where maybe today there's not as big of a risk with oversupply. In fact, there's, I think to your point, there was a massive under-supply at this point in time. But just maybe give a contrast or comparison of that timeframe versus where we're at today and why you feel there's just a bigger opportunity today that didn't necessarily exist back then. In the early 2000s, the focus was on the silver tsunami, as you said, I think maybe part of the oversupply happened because that's just such a fun thing to say, I don't know, silver tsunami sounds pretty cool. But, you know, in real estate and economics, you can't just think about demand. You have to think about supply. And so I think that's what happened is that the demand,

9:15even though it was substantial, it wasn't higher than the new supply coming online. And there was, of course, hindsight's 2020. And when you look back at that time, which is almost, you know, almost 30 years ago, over 25 years ago, there was cheaper financing and more availability of debt and construction costs were lower on a real basis, I would say. And so those are the issues and factors today that are keeping supply in check. So we have increasing demand today. And we also have a dearth of supply because inflation, especially during and after the COVID time, really went up, you know, double digit for a few years there. And construction costs went up substantially. And although the rate of increase in the cost hasn't gone, hasn't stayed, the cost didn't come back down. So when you look at the numbers, it's really hard, even with the demand, to make a new project pencil.

10:17I was doing some back of the envelope calcs on construction financing. And it's likely over 9% today. So you're thinking about construction financing and in relation to your yield on cost. You need a, I don't know, an 11% yield on cost to make it even worth looking at. And still that margin is not that strong. Based on that feedback, you know, even with that short period of time, you know, late 2020 through 2022 before, you know, rates took, you know, went to all time historic lows. And then obviously crap back up to where they're at today. Obviously, we saw rampant inflation kind of occur simultaneously. But there were, I guess you didn't see a period of time when the costs, when the capital costs were so cheap that folks were diving in and trying to bring new supply to the market that just wasn't occurring. Given the fact that construction costs basically ramped up at all time, you know, high speeds as well at the same time that rates were low. It didn't happen because the market maybe was starting

11:18to ramp up in supply at 2019, 2018. And then 2020 hit. And with COVID reducing, not even reducing, just stopping new residents for coming into a community just with everything going on. You had projects that delivered CFO in 19 or 18 that couldn't lease up for many years. So you could have a project that delivered in 2019 that didn't finish its lease up until 2023, 2024, if it even finished. And by that point, it's five years in, maybe seven years if you count the construction period. The developer is mentally, financially exhausted. The operator is exhausted. The property just never kind of hit its rhythm. And so when developers see that experience going on, they're less likely to jump in and say, oh, no problem. I'm going to build into this soup of issues.

12:18In addition to that time, you also had labor shortages. And then the labor you did have the costs were going up double digit. So the period from like 2020 to 23, maybe even into 24, was really tough in the industry overall. So that's one of the differences to multi-family is it's less of a macro play. You have the macro elements of economics, job growth, demand supply. But then you've got the operational aspect that does take a lot of focus. And everything really working on all cylinders is what you need to justify something like on the margin use supply. I also want to say one thing about the early 2000s, you asked why it didn't really work then, what was the oversupply. The other thing that people didn't really anticipate is that the average age of the person going into assisted living would go up.

13:21So 25 years ago, you would say the person who's like 72, 75 would be a candidate for assisted living. Today it's 82, 85. It's 10 years older because people are healthier. They're able to do more at home. They can find alternatives to going into assisted living for a while. And then some people needed earlier, these are averages. But I've seen in my career the average age increase 10 years. So that obviously flattens the curve on the demand side. Yeah, now that's interesting. Is there a point in time given the average age has increased quite a bit? But in the recent years, there's been quite an advancement and technology and health care, telemed services, things of that nature. That's more prevalent in our world today. Five years ago, that just wasn't the case. Is there a point in time that you see in the future

14:21where maybe the traditional assisted living or senior care type facility gets maybe challenged again because now folks might have other options. Folks that might have, they're at that age, or at that 72 or 75 or whatever the age is where they need additional care, where they would be the ideal candidate for assisted living or some sort of senior type care facility to where maybe now they can stay at home. Like now there's a real, there's a cost comparison and one that one could argue that it might be cheaper than just to stay at home with a hybrid of AI, telemed type services and home health care. Do you perceive that to be a risk at some point here in the coming years? I don't, I think that just even if it was cheaper which actually don't think it would be, it would be more expensive to have home health. Certainly if you needed home health 24 hours a day, it'd be a lot more expensive. But let's say you don't need that and you just need a certain amount of time. Who's managing all that? Who's managing the home health provider that's coming in?

15:24The AI, who's making sure that Wi-Fi is not coming, you know, having a snafu. I mean, if you're the family of someone who needs these services and you don't live close by, are you really going to get comfortable with technology alone and then home health there at certain hours but not there at certain hours? It's a lot trickier than when you start thinking about it, there's a lot more to manage. And also the experience and the outcomes are higher and better when you're in a community. And Nick, the trade organization for senior housing has studies they've done with PhDs on outcomes of people coming into senior housing on cholesterol, diabetes, mental health, various parameters, and within nine months of moving into an assisted living community, the outcomes are better than the control group that didn't come in. So there's, I don't see that as a risk.

16:25The other thing I'd say is, So Trin, we focus on communities that have independent living and assisted living and memory care because what then happens is it allows the resident to age in place. As you get older, you usually want to stay in the same place, you're comfortable, you have a good feel, you know the people, it just feels better mentally and emotionally to have consistency. So when we look at communities we're buying, we like the idea of having a continuum of care in a community so that the resident doesn't feel like, oh my gosh, I need more help. And I now I have to move. That's a really, you know, moving is one of the most stressful experiences for anyone, let alone someone who's in their 80s or beyond. Yeah, no, you make a great point. I've got a little bit of a first aid experience with that. And so I think it really resonates with me and it wasn't, I guess it was my grandmother and grandfather both met at various times. It was on my mom's side. Obviously they were aging, having health care issues,

17:25different types of health care issues. But my grandmother was first and she was, we really tried to, she had early stages of dementia and my mother lives really close by. And so my mother was there to help out and really was quite stressed and strained by trying to manage the health care aspect. You know, as time went on, my grandmother needed quite a bit more care, you know, almost coming to like a full time your health care aid around the clock. But someone had to manage it to your point. My mother did that. And again, my grandmother just used a very, very stubborn woman and was very opposed to going into any type of senior care facility. And you know, the comparison I had there, she, you know, I feel like her health degraded fairly quickly. And then on the flip side that my grandfather a couple years later, you know, his health started wavering quite a bit. And he, he was okay with it. You know, he was okay with going into a facility. And, and you know, he, I can't say, I mean, I can't absolutely say that it added years to his life, but the quality of his life, I feel,

18:27was much greater than that of what my grandmother was staying at home. And so while she wanted to be in her own home, and you know, under her roof, something a place that she was familiar with, what happened with my, you know, she was still isolated, right? She still had my mother and some family and the home health care aid, but like still very isolated. Not involved in activities, not really engaging her brain on a regular basis, whereas my grandfather, he thrived. I mean, for the period of time that he, that he, that he was a lot of things, about five years that he was in the assisted living facility. He, you made friends, played cards on a daily basis, was, it was, was a very, he became very engaged and made friends there. And so I can only attribute that to the length of time that, that he, you know, that his health carried on before he finally did pass. And so again, I don't know if that's an apples, the apples comparison, but I, but I, I just, I saw it kind of firsthand and kind of lived it through my mother. And again, watching that, the strain and stress that, that she went through trying to keep my grandmother home versus that of my grandfather being in good hands, good care. And with friends, you know,

19:27ultimately made, made a lot of friends and had a community around him. So your, your experiences is spot on. That's what we see over and over again. I, that's why I call this purpose lead investing because you are changing lives. You're, you're, you're affect. You're not just giving people a place to live. You're improving their life. And there is that care part. There's the prescription medication management. There's the nursing. You know, it's not a hospital. So of course, we're not giving medical care per se. But there's the care that someone needs when they are on multiple medicines or maybe they need physical therapy. Me, someone watching their cognitive state and, you know, someone coming in maybe at a certain state. And when, you know, after six months, they could get better. They could get worse and, and having trained professionals watching and not just watching, but doing evaluations at regular intervals is huge. I, I sometimes look at our activities calendars for our communities. I'm like, I want to live here. I love being though. Let's play bingo. Let's play majog.

20:28Go on a field trip, you know, have special parties. And one of our communities has happy hours every Friday and Saturday night. I mean, it's, it's great. I mean, people, they're having fun. And as much as our family, you know, the eldest daughter typically makes the decision for most residents in senior housing. Of course, not every family has an eldest daughter. So that's just a general comment. But how can we as children or adult children of our parents be responsible for their entertainment? It doesn't really work. So having their own peers who have similar interests and they can share ideas with and also just grow with. They're sharing the same experiences. It makes it makes a really big difference. Yeah, no, agree with that. We'd love to touch on the COVID times. You know, surely they're every state kind of managed it a little differently. You know, we're down here in Florida. And so Florida was quite a different arena than that of maybe a California in New York, right?

21:28As it relates to shutdowns and shelter in place, restrictions, things of that nature. I know that you made a comment that a lot of, a lot of operators struggled. A lot of owners of facilities struggled during that period of time. Whether it was a brand new lease up, a brand new development that was going through the lease up fades during that fortunate period of time. Or even those that were existing, right? That just saw a dramatic drop in occupancy and quite a number of challenges for many, many years in some instances. And so I guess in the real estate world, you know, pain such as that on an owner side, you know, an investor side, typically equals opportunity on the other side of the table. So are you seeing, in your shoes, are you seeing quite a bit of opportunity that is an ultimate, you know, ultimately a direct reflection result of the COVID era? So we did. We did our first deal, late 22. And we saw a lot of that deal. We've seen a lot of opportunity. It was a little early.

22:29So there was still more to unfold because that was pretty close to when COVID, wouldn't say ended, but maybe dissipated. And then there was just this period of time from an investment standpoint where you just had a bid-ask spread. So even if an owner or an operator was having challenges at their community, whether it because of their level of financing or just their business plan, they weren't willing to sell for a market clearing price. And we saw that really change last year in a substantial way. And that's also why we've seen many more larger players come in. You see the public reads that are the real anchors of the industry with the lowest cost of capital doing such huge volume over the last couple of years. And that has also brought more attention to the space, which has then attracted foreign capital, institutional capital. So the market in 2026 for senior housing

23:31looks very different from three or four years ago. Also in comparison to other spaces or property types, like you mentioned multifamily, if you think about, of course, office, even industrial multifamily industrial may not have had the severity of impact from COVID on cash flow that senior housing did, but it also has slimmer margins on the cap rates side. Not on the operating side, but on the cap rates side, if you bought for a four cap that's in 2021, that's probably not worth a four cap today. So that's another thing I like about senior is as much as there is volatility and a more of an intensity in operations, it also gives us multiple avenues to create value. So we bring in a more expert operator, we have a better sales and marketing plan, we capitalize the deal differently.

24:33There's just a lot we can do, whereas in certain asset classes, I feel like it's mostly a beta play, like you've got to take what the market gives you. There hasn't been a lot of new supply that's come out of the ground here in the last five years, again, given the cost of capital, the cost of construction, cost of labor, all the above. How does one make the numbers work today? With a new ground up development, did the economics actually work? And if so, is it very selective geographically speaking where one can still get deals to pencil that are new development? More than 50% of all the markets they cover lack a single senior housing development project, not even one. So that's saying something, I mean, this is a huge country, and to not even have one project under construction. So from my perspective on a market basis, the numbers do not pencil, maybe someone has land they've owned for a long time, so the basis is really low, and they can make the numbers work.

25:34Maybe it's a larger project with a lot of components, so you're thinking about it differently, that could make the numbers work, but from a pure standalone development underwriting, the numbers don't work. What we're doing is buying distressed communities that need a substantial renovation. So in a new deal we actually have right now, we are the percent of the total price that we're spending on renovation is about 40 to 50%. So let's say 60% is the price of the deal, plus other costs, and 40% is the upgrades we're planning. So the way I look at it is, Citrine is creating more supply at the middle level, which is where there's the most demand by renovating existing projects, because currently the project is in its 50% census, it's only half occupied.

26:34So, and that's because the units aren't at a level that the market would want, so that's the way I can see getting around the lack of supply is adaptive reuse or renovation, and let me be careful about adaptive reuse. I would not recommend taking a hotel or an apartment building and converting it to senior unless you really understand the operations and how the flow of work and labor can be disseminated through the space, because you can lose a lot of money by having an inefficient floor plate, and then the experience for the resident is not very good. Have you seen quite a bit of adaptive reuse projects like that that were once a multifamily property or a hotel flounder? Mostly hotels, yes. Okay. I've seen a lot of hotels converted to multi, converted to senior that fail or they become the lowest quality product in the market, so they kind of bounce along the bottom,

27:35and I've even heard of some of those get converted back into hotel or something else because it just doesn't work. Interesting. Do you think about it? You need a kitchen, you need to have a dining room, you need to have nurses stations, you need to have ways to see all the residents, like a long hallway is really not great. So a resident who's 90 years old and uses a walker at the end of the hall that has to walk 10 minutes to get to dinner, that's not tenable. That's hard. That makes sense. There's just practical things when you think about it that you're like, yeah, why would I, I wouldn't put my mother there, you know? I love case studies, and because it just really gives us, it allows us to really paint the picture of those that are tuning in, paint the picture of more specifically your business model. So the deal you just referenced, the property that you're kind of working on, I don't know if you've closed, or it's, you know. We haven't closed yet. We've got a couple months left, yeah. So we don't have to talk, you know, we don't have to disclose names of facility, location, or anything like that, but I would love to have a veteran saying

28:36from a high level of, you know, the opportunity that you saw, you know, what's the distress? What calls it a stress? And then ultimately, what are the various aspects of your business plan? I know that you're gonna inject quite a bit of capital into this property, but what does that mean? What does it look like when it's all send done? So different examples I'll give without getting too specific. One deal we have doubled NOI and doubling the value of the project. Another deal we're buying for, you know, low, let's just say in the 30,000, a unit range, but our total cost will be 150,000, by the time we're done. And the value when we're done with our renovation, everything is probably more like 300 to 400,000 a unit. So those are the sort of deals we're doing, high-octane deals. So, you know, substantial business plan, substantial capital investment, and then also substantial returns.

29:37So our untrended yield on cost tends to go from nine to nine and a half to 15%, depending on the deal. So there's like one deal we did that's more stabilized, but it has the ability to expand by 50%. So that's another way we can create more supply you asked that earlier. So I like that as a model because we have a very successful project. We know what it takes to run it. We're not guessing on the market data. We have the data because we have sales and marketing in the market. It's fully leased. And so then we say, okay, if we increase the size of this community by 50%, what are we going to find here? How long are we going to take to build? And actually what we can do is do some spending, a smaller amount on pre-development, with architectural drawings, some rough order of magnitude, construction pricing, and then go to the market and say,

30:37hey, we're thinking of building this. Would you like to invest or would you like to rent here? If so, give a refundable deposit. We can collect some deposits. And when we hit a tipping point, then decide to go build. And if we change our mind, return the money. So it's a very different proposition than a ground up construction, where you've got to buy the land to start with, or maybe you can option the land. But even if you option the land, the cost is substantial and just pursuit. Using the example that you just, one of the examples, I think you're purchasing at a basis of 30K a bed. And you'll be all in for about 150K a bed. I think you had said, so obviously that's a very heavy value add, opportunistic type of play. What, obviously, higher risk higher rewards right on the back and higher return potential. But obviously, like those types of deals, there can be quite a disruptive nature of doing that heavy value out of a project. How do you manage a project such as that

31:39so that it isn't so disruptive to the tenant-based to where you don't end up losing half of the resident base? Or maybe that's part of the plan, right? Maybe it's a turnover of half the units over a period of time. But just curious to how you manage a delicate balance on such a heavy lift. Well, resident experience is really important, of course. It's important in any asset class, but especially with senior, because we are very sensitive to their needs and being sure they're comfortable. Well, one of the reasons we're able to buy it so cheap is its lower occupancy today. So that it's easier to do renovations when you have a lot of empty units, but we'll phase it, we'll try to create as little disruption as possible for the residents. So it's more of a construction planning. Exercise each project is a little different. Like sometimes we're buying one tower, sometimes we're buying a community with 15 different buildings. So then that's a little easier because you're doing one building at a time. So not everybody is being affected. The other thing is really strong communication,

32:41like weekly communication with residents. Physically in front of them in town hall format, written communication electronically and letters, just an opportunity for them to ask questions and be involved and also give them some excitement as to like, what do you want to see? Like we have options to turn certain spaces into different things. What do the residents want and listen to their needs instead of trying to guess what would work best? And so in involving them in the process and making them feel like they're a part of it, I think is also goes a long way. And then of course being really on top of not creating the not creating environment where they feel like they're living in a construction zone. No, I love that. I love that you survey the residents. I mean, we do the same thing. We're in a very different space, manufacturer housing, but you know, we'll buy a community and you know, we'll make the necessary capital improvements. There's infrastructure upgrades, tree work, road work, things like that. Water line sewer lines, but then there's, then there's, you know, allocated cap before additional amenities

33:42or revitalizing existing amenities that are already there. But you know, every to your point, every market's a little different than the next. You know, we've got some markets where people could care less about a pool. You know, you put it in, no one's going to use it, right? Whereas others like, they're not going to live in your community unless you have a swimming pool or a clubhouse, right? And so just we do the same thing. We survey the residents really. Not what do we think you need, but what do you really need? What do you want? Like what are you going to actually use? Like what's going to make you enjoy living here even more? Yes. I love that you do that. Yeah, it creates excitement and then everyone feels like they're a part of it, which is what we're wanting. We want to create really thriving communities that where people want to live long term. I mean, independent living, you could have someone move in at 60, 65. And we've had this where someone moves in at 60 or 65 and lives there still at the age of 100. And think about that length of stay as compared to a multi-family. Even manufactured housing is really long lengths of stay as well. People tend to stay a longer term,

34:43but maybe not 30 years. It all depends on how you run the community. And I think what we have found in the manufacturer housing space, we've got some folks that've been there for 40-plus years, but then also ultimately what has kept them there, is a number one, love the community. But number two, at some period in time in the last couple of decades, they've had children, grandchildren, other extended family that have moved into that same community. So now it's their neighborhood. And so now they're there because their personal ecosystem is there. That's what we find that a lot, and independent as well, that either it's friends or cousins or siblings, and suddenly you've got many pods of families in the community. And then they have activities that are set up for them. So it's like the best of all worlds. It's fun. What percentage of new residents come from just outbound marketing versus that of referrals from existing residents that live in one of your communities? It's a mix. I would say it depends on each community, of course,

35:44but it's probably like 70, 30 or 65, 35, where it's 35% referrals, 65% outreach. And outreach can really be anything from having the right Google ad words to having monthly or quarterly events at the community showcasing what it offers and inviting people in who are prospective residents and have interest. So it also depends whether it's an independent living, only community versus independent with assisted in memory care. Because if you do have assisted in memory care, you may be out doing outreach to people at hospitals, hospital administrators, rehab professionals, doctors. Because a lot of times most families aren't so familiar with senior housing options. Like you might understand apartments, of course, like you've lived in an apartment, maybe your child lives in an apartment, maybe you live in an apartment, but you don't really go to senior housing communities

36:46unless you have someone there that you're visiting. And so when you think about that part, the referral is more specific. The independent living, there's higher referrals because it's not care-based, it's a choice, whereas assisted in memory care are more need-based. And so it's really like when the light bulb goes off, sometimes it's around the holidays, especially. Like Thanksgiving Christmas and the family may have not seen grandma for a few months, six months and they say, oh my gosh, she's really changed and we don't feel comfortable with her living alone anymore. And then we do see a lot of activity at the holiday time where people want to tour and find out what assisted living community can do for their loved one because they know what's happening at home is not working. Yeah, that makes sense. I'm curious to know as far as work capital is flowing

37:46in the marketplace, you find that capital is favoring a certain niche, like active adult versus that of independent or independent to that of assisted or assisted to that of memory care. Is there one that predominantly kind of rises to the top where capital is really trying to work its way into versus the others? So I'll answer the question first by cap rates because I think anyone who likes real estate likes cap rates stabilized cap rates, and let's see if you agree for multi-family or I would say about five and a half across the board, generally speaking. Independent living is about six and a half percent. Assisted living memory care I'm gonna put them in the same category and that's seven and a half percent. There's some specialty memory care that will keep separate because that's its own category. And then if you think about skilled nursing which we haven't talked a lot about today but is on that higher end of acuity, that's nine to 12 percent. So when you look at cap rates, I think that gives you a sense for demand

38:49for that investment option because the lower the cap rate that means there's compression, that means there's more people who wanna invest in that asset class. And I didn't do active adult. Active adult is around multi-family independent living. It's definitely lower than independent living. And sometimes it's lower than multi-family. It's really high in demand because active adult is defined as anything over 55 and over. And really that is mostly a zoning distinction. And then sometimes it's just a distinction people put on where there is no rule or regulation that the person living there has to be over 55 but it's a lifestyle choice. And people just don't want, they wanna live around people their own age. So active adult has no care, maybe has a little bit of programming, probably not a lot. And it has that element you'd mentioned where families or friends choose to live there together.

39:51So it has that resilience and longer term residency because you're with your people and your community. And then within the assisted memory care independent living just that segment, which I'd say is the bulk of senior housing. There's interest in all three. It's not so much that someone favors one over the other generally speaking. It's more where is it in its life cycle? Is it a stabilized deal? Is it a value ad? Is it an opportunistic? Based on what each one of these respective niche is kind of trade for from a capric perspective. It almost seems like the valuations are kind of tied to the operational complexities because memory care obviously much more higher operational complexities than active adult, right? Or even just a bit more than any of the others that we're talking about here today, so. Yeah, and I also wanna, so that what you said is exactly, right? And it's logical and rational also.

40:51And then if you look at margins, operating margins, they would be higher for the lower acuity. So assisted, I mean, active adult, multifamily, independent living are going to have higher operating margins than assisted living memory care and skilled nursing. So that's another way with numbers of saying what you just said, operational intensity. And then I wanna just compare. I told you six and a half to seven and a half percent for the capitalized capitalized capitalized for independent living assisted living memory care. And that's what my sale cap rates are for my projects that I'm buying at nine to 15% cap rates. So that's how we're making really substantial returns because we're able to create value at a certain level and then sell it for a much higher price. Yeah, no, that's fantastic. Is it, are the majority of your residents or is it private pay? Yes, yes, almost exclusively private pay. There's some, you know, sometimes we'll buy a community

41:53that has some public pay and there's a very specific reason we're buying it. But that's not our target. Got understood. So, and I ask that just to kind of follow up question is your buy box, obviously, you know, you're looking for probably, you know, private pay depending on the facility, it could be, you know, it's expensive. It's just, this type of care is, you know, typically fairly expensive. And so, I'm sure you need residents that can afford it. So when you're kind of checking all the boxes on your buy box, like what are you looking for in a geographic region as far as, you know, immediate incomes, you know, median home prices, I mean, what are the other, you know, checkmarks that you need in order to determine that, like, this is a strong market. We feel as though that, you know, the demographics that live in this area, they've got the income, they've got the net worth to be able to actually afford a private pay type facility. Yeah, so the exact numbers depend on the market. So if we're buying into a community that we know,

42:53we have a really low basis and it's just, we want healthy communities. We want stable to growing communities. We don't want to go into a declining community because over time that's, you're just not going to have the demographics. So the biggest thing we look at on population is that over 80 number and then we look at the over 80 qualified income percent. So over 80, what's their income level and it could come from pensions, it could come from social security, it can come from the equity that's in their home. So we're looking at a lot of different factors and then we have a really low assumed penetration rate within that segment. So it could be between five to 10% that you're saying, okay, if there's 40,000 or 20, let's say 20,000 residents over 80 in this trade area and we say 10% of those people would look at assisted living memory care, for example,

43:54then that's 2,000 people, okay, how many units are already existing in the market? How occupied are those units? And then what's the excess demand versus supply? So that's how we look at that part. And then the actual numbers on housing prices and incomes, we triangulate that with the community we're buying and what the rents we're targeting are. So there's not a specific number there. It could be a community with $1,000,000 homes and that works because of the type of community we have. For example, if we're in a trade area to be more specific with $1,000,000 homes but are the community that we're targeting, the assisted living memory care or independent living community we're targeting is lower end, it doesn't fit the market. So people aren't gonna wanna live there because they're used to being in this more expensive area. So we're matching the building and the community we're buying to the trade area.

44:55How does all the demographics also play into your decision-making when it comes to staffing and labor, right? That's another big key consideration. That is really important. So if you're going to be close in like urban markets are totally different. I'd say the being inside the city for senior housing is a different animal and can be really lucrative but we're not targeting urban communities. So I'm gonna focus on suburban. So if you're in a very inner ring suburb to a major city your labor costs are going to be higher than if you're in a community, let's say 30, 40 minutes outside of the center of the city and then you can pull labor from 20 minutes further west or further north or further south as an example. So we definitely take into account whether labor is available, especially nurses because there is still, and we've been hearing this for decades, that there's a nursing shortage in the United States

45:55and that still is true. COVID exacerbated it and you need actually 24 hour nursing coverage at a senior housing community assisted living memory care. You don't have that requirement in independent living. So you have to be in an area where there's nurses. And if there aren't, then you're hiring temporary nurses or traveling nurses and the cost can be triple. Yeah, I know you had an example that we briefly chatted about where, and I don't think we talked about the specific location, but if you looked at just some of the demographics, there was a very aging population in this area, but what you came to found out is that the entire population was aging. And so ultimately there was no one young enough to actually be the labor force that you needed, right? That's exactly right. So we passed on that transaction. It was such a successful retirement area that there were no workers. So that's a microcosm of an issue we can have in the United States that we want to be aware of.

46:56If we have an aging population, we want to make sure we have enough younger people to help serve as the workers. You know, it almost reminds me of the villages here in Florida, which I'm sure you're very familiar with. Obviously, they built a retirement, a very massive retirement, really not a community, just a city. I mean, it's massive. It's an engineering marvel, but ultimately in order to support that, they put in schools. They put in schools to support the working class folks that actually have to work at all this establishment, the retail stores, the healthcare facilities that are there to support the retirement age folks that are living there enjoying life. And so they almost had to fabricate it. It didn't exist before. They had to build around that. It's exactly right. It reminds me a little bit of ski towns where you need to create working class apartments or subsidize housing for people working there because otherwise the housing is too expensive. It's the same idea. Lynn, this has been a fun conversation.

47:57What else haven't I asked you? I'm sure that we could spend quite a long time getting very granular in different aspects of this asset class and what you guys are doing at Citrine. I guess generally speaking, anything else that I've missed on that you feel is relevant and something you'd like to share with the listeners here today. Thanks for asking that. I think the big thing I'd say for your audience, especially if they're looking to invest is, this is not an asset class to look at purely financially and purely return-based if you're an active investor. You want to look at it also from the human element side because the way to be successful is to really care about the residents, the staff, your management, everyone involved and think of it as a calling and it's not always easy. You're helping people at one of their most fragile times in life. There's confusion, there's stress, there's emotions, there's families, you know, in multi-family, you're probably not working or talking to a resident's family or a tenant's family.

48:58You're probably only talking to the tenant. Here, you're often talking to a family with multiple siblings, other parties. And so you have to like people and you have to like to take care of people in order to really thrive in the space. And certainly, Satrine, we've chosen it because we really value creating communities in that broader sense of the word, whether it's senior housing communities, communities of friends, creating places where people feel like they're living their best life. Yeah, no, that's fantastic. Well, yeah, no, that's great. And I appreciate Lynn and please keep up the great work. It's also what you guys are doing over there at Satrine and it's been a great conversation. I appreciate you coming on the show. And I guess for those that want to learn more, that want to dive a little deep in the Satrine and what you guys have going on, where is the best place to connect with you? So you can check me out on LinkedIn and also you can look at our website, Satrine IMAI, as in India, M as in Mary, A as in Apple. And from there, we have an email. You can, I think we have a form.

49:58You can fill out and reach out to us that it'll come to us and we can respond that way. Okay, fantastic. Well, thank you again, Lynn, for coming on the show. It's been a pleasure having you. Thank you for having me. It's been great. All right, you guys. And if you enjoyed today's episode, please do take a moment. Subscribe and leave a rating review. And just again, share with somebody in your network who you feel needs to hear it or would benefit from hearing this conversation that we had here today. And you'll continue learning, continue growing. And I think most importantly, continue investing with intention. So with that, we'll see you on the next episode. Take care.