There’s Nowhere Near Enough Senior Housing | Josh Pristaw on Demographic-Guaranteed Demand

Josh Pristaw from Clarion Partners, which manages over $70 billion in assets, explains why despite the data center boom, Clarion remains uninvested in that sector. While the company benefits indirectly through its $42 billion industrial logistics portfolio (whose tenants supply data center equipment), Pristaw argues that direct data center investments don't fit Clarion's core strategy of managing open-end evergreen funds focused on income, durability, and low volatility. The fundamental challenges include: individual data center assets often exceed Clarion's $500 million per-asset cap rate, limiting diversification; uncertainty around residual asset value when hyperscaler tenants eventually leave; and the inability to leverage data centers significantly, which is typically a key return driver. He notes that roughly $1 trillion in North American data center construction is underway—equivalent to 3.5x all institutional core real estate—but only $2 billion of that supply has found buyers through new-vehicle channels like Blackstone's recent fund launch. This suggests absorption will take longer than expected, pressuring developer returns and ultimately requiring core real estate funds to purchase assets at lower yields than current business plans assume.

On senior housing, Pristaw identifies an exceptional demographic tailwind: 10,000 people turn 80 every day in the U.S., and historically about 10% move to senior living facilities. This doubles the 80-year-old population by 2040, creating demand for approximately 125,000 new senior beds annually for 15 years—yet peak supply ever built was 56,000 units annually, with current pipeline at 25,000. This supply-demand imbalance mirrors the industrial sector 15-20 years ago during e-commerce's emergence, which generated sustained rent and cash flow growth. Clarion has already committed $1 billion to acquire 2,000 existing senior housing units and recently broke ground on its first ground-up development. The company has assembled a dedicated healthcare team and expects senior housing to become materially larger (multiples of the current $1 billion) within 12-24 months. Unlike traditional triple-net leases, senior housing operates more like multifamily or hotels: Clarion owns the property and hires management companies (similar to Marriott managing hotels) to provide services, with Clarion bearing residual economic risk. Supply constraints are partly historical—prior waves overbuilt anticipating people moving at age 70, but they typically move at 80; COVID-era operational challenges and deaths at facilities also dampened investor interest, though Pristaw expects capital to flow as demand becomes evident.

Regarding multifamily, Pristaw notes that 2022-2023 saw price declines of 20%+ and excess supply absorption, but forward demographics look strong: the 35-49 age cohort (peak household formation) will grow 6.5-10 million over the next decade, driving accelerated rental demand. However, his research identified job growth—specifically office-using employment—as the strongest predictor of multifamily rent growth, not demographics alone. Markets like San Francisco and New York with limited new supply and strong job growth (particularly in AI) are experiencing robust rent growth, while oversupplied markets like Austin are stabilizing. Nationally, new lease rates are flat nominally and down adjusting for inflation, but lease trade-outs (comparing new tenant rent to previous tenant rent after accounting for concessions) show 20% improvement in some recovered markets.

Clarion's industrial business remains its largest sector at $42 billion. Pristaw's research team identified e-commerce sales as the primary driver of warehouse demand, and projects e-commerce to grow by $1 trillion annually over the next decade, sustaining consistent (though not explosive) rent growth. The firm expects to break ground on 10 million square feet of new projects in 2026, driven by record leasing activity (8 million sq ft in Q1 2026, the best quarterly total in Clarion's 44-year history). While supply exceeded absorption in 2023-2024, rising interest rates reduced new project starts, and positive net absorption has resumed. Tenants increasingly care about power availability as warehouses become more automated and data-intensive, but most prefer leasing flexibility over ownership given volatile space requirements.

On valuation and market cycle positioning, Pristaw characterizes 2026 as the start of a new real estate cycle marked by seven consecutive quarters of positive private market returns, stabilized interest rates, and healthy fundamentals (positive net absorption, attractive pricing vs. historical averages, and cap rates fairly valued relative to other asset classes). He distinguishes between core strategies (low leverage <30% LTV, high income, class-A assets) and core-plus (slightly higher leverage 40-50% LTV, some development upside), which Clarion emphasizes, versus value-add and opportunistic strategies requiring 65-70% leverage. Clarion practices active portfolio management, selling as much as it buys annually to exit assets before they transition from class-A to class-B, avoiding the trap of selling obsolete properties to others. Office remains challenged, particularly class-B and class-C (older buildings), though trophy class-A assets in desirable locations with significant amenities show recovery. Pristaw argues real estate benefits from broader concerns about technology obsolescence in other asset classes: AI and software disruption won't eliminate the need for shelter or logistics, making real estate a "low obsolescence" business by comparison.