Repositions, labor challenges, and interest rate updates from Aron Will, Vice President and Co-Head of National Senior Housing at CBRE Capital Markets. Don’t miss this conversation about the pendulum swing from 2020 to 2025 and where the real estate market is headed into this year.

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Hear Aron on ep. 266.

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This podcast was recorded at the 2025 ASHA Annual Meeting. 

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Produced by Solinity Marketing.

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‍Become a sponsor of Bridge the Gap.

Intro

Welcome to season eight of Bridge The Gap, a podcast dedicated to informing, educating, and influencing the future of housing and services for seniors. Powered by sponsors Aline, NIC MAP, Procare HR, Sage, Hamilton CapTel, Service Master, The Bridge Group Construction and Solinity. Produced by Solinity Marketing. Bridge the Gap in three, two.

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00:48 - 01:02

Lucas McCurdy

Welcome to Bridge the Gap podcast, the senior Living podcast with Josh and Lucas in a beautiful spot here in Arizona at the Arizona Biltmore. Wonderful ASHA meeting. And we have a great friend and returning guest back to the program. Welcome, Aron Will. Welcome to the show.

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01:02 - 01:03

Aron Will

Thank you. Thanks for having me again.

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01:03 - 01:35

Lucas McCurdy

So glad to have you back. We love getting you on the show because I see you as this pilot that gets to see the dashboard of the entire industry. And you got, like, check engine lights go on and you got, like, altitude. Like, all this stuff is going, and you're getting kind of a high level view of all of these different things. And it's so fun to pick your brain about: where is the industry? Where are we going? What's the new administration's effect on the next couple of years? There's so many things to talk about. Let's get rolling.

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01:35 - 08:53

Aron Will

First thing, I appreciate that. A lot of folks at this conference and just generally speaking, you know, the first question that they've posed to me is, Aron, where are we? Where are we in this cycle? Where are we as a sector? And my response is, the fourth inning, whether in the top or the bottom – couldn't tell you. I could tell you that the pendulum has swung.

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If you think about 2023 and compare and contrast fourth quarter 2023 to fourth quarter of 2024, and you just think about equity capital in the sector. Market participation was 25, 30%. Market participation is now probably 70%. Which is  huge. If you think about that in the context of weighted capital, in our sector, compared to a more mature space like multifamily. We try not to be so myopic, as a discipline within our organization and compare and contrast. And, in the processes that we had going on in the fourth quarter of last year, our multi family brethren saw the interest rate volatility, more specifically the ten year running up to close to 5%. It wasn't lockstep, you know, you know price free trades for deals that weren't hard. But it was pretty close.

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And two three 4 or 5% re trades on deals. Right. Because more or less the composition of investors in that mature asset type is the same. Right. So interest rates have a material impact on your valuations. Right. If 3 to 5% additional capital, which is what we saw almost like a light switch in the third, fourth quarter of last year, and more specifically core and core plus capital coming into our sector.

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In other words, in the senior housing sector, if you had a stabilized asset for the longest time in our space, it was a mismatch because every single virtually institutional investor wanted value add or opportunistic returns. And alas, we worked on some transactions. One in particular very high dollar per unit low cap rate deals, about a quarter billion dollar deal. That has kind of set the stage for the industry coming at it for a position of strength whereby there's core and core plus capital chasing seniors and the weight of capital in the sector in the fourth quarter to offset that rise in interest rates, which was fascinating. And we didn't see that in virtually any other real estate asset class.

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And so I think the reason that that is right, and that the reason that there's a lot of sophisticated asset managers now that are entering our space, if you look at the composition and the bid sheets today, you have some of the usual suspects. But a subset of those folks are somewhat jaded. If they had large portfolios of seniors and they got impacted during Covid because they take deals too. I see and say, you look like this and this in our portfolio. How do we make that work? And the answer is vintage matters. And Covid happened and so on and so forth. But the fact of the matter is a lot of institutional investors today want exposure to alts.

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Senior housing is at the top of that list. If you talk to these folks. Yes, it's data centers, student, but seniors has a real place. And if you look at the demographics in the performance right today, you look at the supply picture at 1% or less. We're getting to like GFC levels. 2026 and beyond, it's very, very hard to satiate the demand function. You have to build at twice the peak levels that have ever been done in our sector. A lot of people are reading the Green Street Report, so a lot of people are reading and looking very closely at the NIC data and kind of leaning into our sector. And a lot of people are saying even people that solve for mid-teens returns, saying with realistic underwriting assumptions, or maybe it'll be a 17. I think they're right.

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So there's a way to capital now in our space, and there's a trickle down effect, too. The interesting thing is not just on the equity, side of the, the market. For the longest time just starting, you know, the bottom up, the banking market was effectively shut down, right? And in particular in our sector, given the Covid impact. Unless there was a depository relationship and it was a conforming loan, which typically meant 115, 120 debt service, which on a 535 SOFR plus, three something spread on pay rate on a 30 year amortization schedule was a very high bar, so to speak, right on AT6 look bad.

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Not a lot of deals. Pencil. Right. You know, that's a very, very high debt yield. And to make it work in a bank context, right. Today, fast forward, there's a subset of banks that are starting to look at deals 105 110, with fresh equity in, you know, for institutional sponsors, we're starting to see the first wave of those deals getting financed. There's infinitely more liquidity in the debt fund space. We've seen a, you know, spread compression in that space as well, especially in the larger deal. And we've got deals now ranging from, you know, 35 million to, close to 300 million that we're marketing, on the debt side. And we've seen 50 to 75 basis points of spread compression, again, from November – October, November to the present very rapidly in our sector because people are looking at seniors going multi is extraordinarily compressed.

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I can still get 75 basis points of yield premium for these deals. I like the operating fundamentals better in this sector. If I pick my bets right with the right institutional sponsors and operators and so forth. And so we're kind of seeing a lot of positive trends across the board. It's a very, very fascinating time in the market. You spoke to the administration just touching on that for a moment. And obviously that has a huge impact on hospitality, any heavily staffed asset type. We'll see what happens.

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08:53 - 09:36

Josh Crisp

So, Aron, that's a lot. But I heard a lot of positive things about space. You've been with the industry so long, you've seen the ebb and flow, the highs, the lows from a forward looking standpoint with all that. Even hearing our partners at NIC MAP a lot of positive data trends that support what you're saying, as we talk to them. Do you have any, reservations or cautions or, kind of words of wisdom for those that are going to potentially be hitting some high growth spurts over the next 24 months or so as new capitals coming into the market to kind of like stay disciplined or things that we should really be, cautious about, optimistically, as we're moving ahead in a favorable direction?

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09:45 - 12:50

Aron Will

Those that have been exposed, if you look at the last cycle and Covid, a lot of people have a misconception in our sector that it was just the mom and pop operators that didn't have the right, playbook, policies and procedures, so on and so forth. That's not accurate. There were a lot of operators in our sector that were 30, 40, 50, 70 properties that didn't have the underlying infrastructure either, or they were pretenders from a different asset type that got in and were not really tried and true senior housing people and so forth. So, I mean, the biggest piece of advice that I would have for institutional investors in the sector is people think, senior housing is when they come into it initially as a real estate play.

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And it is. But it's also an operating business attached to real estate. And picking your partners and picking your partners right is of critical, critical importance. So as the operating fundamentals are improving quarter over quarter in a very demonstrable fashion. That's the thing I see. Some of the things you're speaking of coming out of the GFC as an example that crushed the sector, like over development, overzealous developers and low barrier to entry markets tend to get overdeveloped in every real estate asset type in every cycle. That happened in our sector with abandon. The gestation period of development, now the cost of development. Most development, unless it's a super high barrier to entry, very high rent, kind of stuff or active adult, in that space. Commodities, more specifically wood frame construction has gone down versus the concrete, which does not make it a little bit more sense, but still, it takes 18, 24 months to build. It takes 2 to 3 years to lease it. It's so far out and it's in the next 24 months. Just to address your question head on, I don't see that as a risk. Going to development specifically.

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You know labor that's a big thing that's normalized – labor challenges. There's various things that impact that market. Some markets are still more challenged than others from a labor perspective, some more paying attention to insurance that impacts all the real estate. And obviously what happened in California and L.A., more specifically, people pay attention to things like that. But that's not something that's so specific to senior housing.

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12:51 - 14:01

Josh Crisp

Another question I had. So I've heard a lot of talk, now that it seems like cash is coming into the market, I have heard a lot of, I would say opportunistic, very successful developers in other verticals. Real estate players and other verticals. They see the demographic. They know the numbers.

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13:15 - 13:42

Josh Crisp

They, you know, studied what the boomers are about to enter and they're seeing the opportunity to not develop right now, but to go in and just be really bullish on acquisition. And you start looking at a lot of the assets that are aged assets. You know, and they're thinking, “Hey, we're going to come in, we're going to put a little bit of lipstick on it and somehow have a different result.”

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Do you have any words of wisdom or caution for people when they're sizing up these assets where they're going to deploy a lot of cash and build out a platform and how we should be approaching the aging asset and the repositioning of that for next generation senior housing. Do you have any thoughts on that or words of wisdom, caution?

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14:01 - 18:19

Aron Will

Well, there's two types of repositioning I think maybe you're speaking to or alluding to. One is non-purpose built. A repurposing of hotels and you know, hospitals and things of that nature. And what I've found personally haven't worked on unless it's extraordinarily precious real estate, and you get it for free, it's invariably much more expensive, much more complicated. And there's a stigma attached to that. And 95% of institutional investors on the flip will not touch it. If you go to monetize that. So you gotta be prepared to keep it forever.

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If you're converting on purpose built stuff. So I think that it's fundamentally a bad investment strategy, personally. My own pocket. But repositioning older senior housing, purpose built senior housing assets. That's a different kettle of fish. A subset of those assets, in my opinion, are functionally obsolete. A subset of those assets are not as good.

Bonds stand the test of time. Good underlying real estate – generation one, generation two. Late 90s, early 2000s kind of vintage. You're right where you can put cap backs into them and they may not be commensurate with the class A plus comp, but there's a place in the market for those. And those are not all forgotten assets.

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And another thing I didn't speak to. What do people gravitate to early in the cycle? They gravitate toward low hanging fruit. In every real estate cycle. What does that mean in senior living today? What is the low hanging fruit? Low hanging fruit is a full continuum of care. IL, AL, memory care, or assisted in memory care. Major market vintage typically 2010 to the present. In some cases, some investors say it's got to be even newer than that major market. 80% or more leased a little bit of meat on the bone don't have to effectuate a huge, heavy lift.

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And they love that story. And those deals. A lot of those deals existed. Well, we've run through a lot of these deals. So what's going to happen next? We're going to go into secondary markets. We're going to buy assets that have some age target. People are going to go into tertiary markets eventually and are already starting to do so at the appropriate price and so on and so forth. It happens in every real estate asset class and every cycle. And it's happening now at senior living. So to your point, there will be and there is a place to reposition assets at this time, but has not been the product of your or the strategy here today because there's been so much low hanging fruit in the new. It was a Covid baby. We have a debt, maturity or partnership issue or an operational issue or fund maturity or some combination thereof and people were able to seize those opportunities. Well, a lot of those opportunities are, or have been run through. And now they're on to the next thing. It's not going to be as easy for those seeking high yielding opportunities. So I do think that there's a place in the market for that and there's gonna be some great opportunities here today that's been a contrarian, investment strategy to reposition kind of older and buy those assets, though I think it's an interesting one now. And I think it's an interesting one to do now before the field is a lot more crowded, quite frankly. But you know, purpose built versus non purpose built is a huge distinction in my opinion.

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18:19 - 18:33

Josh Crisp

Well and I think that's a great distinction you so eloquently put for our audience. Great wealth of information as always, Lucas, with Aron. If we could literally have you sit down with us every quarter. What a wealth of information and appreciation to our audience.

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18:33 - 18:43

Lucas McCurdy

So we got to get Aron to his next meeting. But before you go, final words on, interest rates 2025. Give us the crystal ball.

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18:43 - 18:44

Josh Crisp

That’s Loaded.

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18:44 - 20:01

Aron Will

So my ball is as hazy as the next guy. I think people believe the ten year is going to be bobbing around between four and a half or five, I think that closer to four and a half the better. And then five. I think we sit at 456, seven today. I think so long as there's stability, that's that's better.

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00:19:07:26 - 00:19:45:14

Aron Will

Right. Obviously, people are expecting so for to be cut, you know, 125 actually more which would be wonderful. And floating rate make floating rate bridge and construction much more manageable today. What's interesting is spreads have come in, which is good. So long as that continues in their stability and spreads and they gap out. The Treasury's going to be where it's going to be. I don't think that's going to compress a ton of stuff. The people I pay close attention to, the economists that I pay close attention to, are a heck of a lot smarter than me, so.

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20:01 - 20:07

Josh Crisp

Well, great information, Lucas. Aron, thanks, man, for sitting down with us. What a great, great time with you. Always.

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20:07 - 20:27

Lucas McCurdy

Yeah. We always appreciate Aron, giving us his depth of knowledge. And, if you enjoyed this episode, Aron has been on a couple of times before. If you want to kind of dig back into the archives here on this, we call this the Masterclass series with Aron. Well, you can go back to episode 266, for instance, and check him out there. Aron, thanks for your time today.

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20:27 - 20:28

Aron Will

Very welcome.

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20:28 - 20:29

Josh Crisp

It's good to see you.

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20:29 - 20:39

Lucas McCurdy

And for our listeners, go to Bridge the Gap – btgoice.com. And you can check out this content so much more. Connect with us on LinkedIn. And thanks for listening to another great episode of Bridge the gap

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Outro

Thanks for listening to Bridge the Gap podcast with Josh and Lucas. Connect with the BTG network team and use your voice to influence the industry by connecting with us at btgvoice.com.

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