The senior living market can’t keep up with demand as boomers age

But it is on the edge of a boom — a baby boom to be exact

Ventas, a senior living real estate investment trust with a $31 billion market cap, is betting big on what CEO Deb Cafaro calls the longevity economy. "We're buying billions of dollars a year in senior living, and we're seeing returns in the sevens going in, with low to mid-teens, unlevered IRRs [internal rates of return], so there's significant growth in assets, and we're buying below replacement costs," said Cafaro, who has been at the helm of the company for over 25 years. "I've never seen that combination of investment characteristics in my long career in real estate, and so we're fully taking advantage of all of that."Get perty Play directly to your inboxCNBC's perty Play with Diana Olick covers new and evolving opportunities for the real estate investor, dered weekly to your inbox. here to get access today.Cafaro said there is 28% jected growth in the senior living demand pool over the next five years

She called the demand tailwinds "incredibly strong and durable.""Think 2000 in the real estate investment trust — office was over 20% of the overall REIT pie, and health care was 2%

Why? Because that's where the demand is," she said.Cafaro said Ventas, which purchases perties but doesn't develop them, benefits from the deep lack of supply in the senior living sector, from active adult to assisted living to memory care facilities

The Sunrise of Lincoln Park senior living community, owned by Ventas, in Chicago, Illinois.Courtesy of Ventas"As an owner with one of the largest foots of senior housing, of existing stock in the U.S., we're benefited by the higher cost of development, because we have an installed base and we're acquiring assets actually at below replacement cost, and, right now, that's part of our strategy," Cafaro said. "We feel really good our base of 850 senior living communities, where occupancies are increasing

And we also feel good the multibillions of dollars we're every year in existing assets,"Why no supply?Aegis Living is a developer and operator of senior living facilities in Washington, California and Nevada

The massive supply-demand imbalance weighs heavily on its founder and CEO, Dwayne Clark."There's a blem brewing, and the only metaphor I can think of, it's putting a party balloon on the end of a fire hose and watching it increase with great velocity

Velocity without being able to do anything until it pops," Clark said.According to NIC data, there will be just 4,000 new senior living units developed this year and next year, but demand growth would necessitate 100,000 new beds each year through 2040."It's the lowest amount of units we've seen since 2009, the lowest

And, again, I've done this for 40 years

I've never seen such a lack of construction starts," Clark said.Average rents at Aegis are around $12,000 a month, but that includes utilities, transportation, food, activities and differing levels of care

Clark said most residents are covering costs in part by using the ceeds from the sale of their s, which have appreciated dramatically in the past five years.Higher interest rates, he said, are the primary roadblock to new development. "We have six buildings waiting to get refinanced

We never, in our 28-year history, have had more than two

We've got six, and soon to be seven, and it's all on floating debt

So that is a catastrophic blem for the industry

And again, we're not catching up with the demand," he added

Core Senior Housing strategy posted a more than 30% increase in same-location net operating income last year, according to a company spokesperson

Harris Street has maintained that with new supply constrained and demand durable, this could be the strongest entry point for alternative real estate investment in its 20-year history. "Frankly, over the course of the past 20 years, I can't identify another period where we were more excited the current setup within the sector," said Mike Gordon, global CIO of Harrison Street, which invests in the independent and assisted living segments, as well as memory care

Gordon said severe uncertainty in the first years of the pandemic — when there were horror stories of infections and fatalities in senior living facilities — has largely been resolved

He now said there are more seniors living in these communities than there were pre-Covid

Over the past few years, growing demand and tight supply have resulted in annual average rent increase of nearly 5% across the sector and high single digits in certain , according to Harrison Street

Despite high interest rates overall, Gordon said private investors have new interest in the sector, thanks to that strong rent growth."What we're seeing right now is a real quick return of liquidity into the sector," Gordon said.