A NEW LOW IN OCCUPANCY
At the same time, the sector is experiencing a significant softeningof fundamentals fueled by the pandemic.
Senior housing occupancy fell 2. 6 percentage points in the thirdquarter, from 84.7% to 82.1%, according to data from NIC MAPData Service provided by the National Investment Center forSeniors Housing & Care.
This is the second quarter in a row where occupancy fell morethan 2. 5 percentage points. With two consecutive quarters of deteriorating occupancies, the senior housing sector is now experiencing its largest drop in occupancy on record, according to NIC.
None of this comes as a surprise to experts in the field. “When
you drop 800 basis points of occupancy by restraining move-ins,
it takes a while to get it back,” Patricia Will, co-founder and CEO
of Belmont Village Senior Living. “In March, when COVID- 19
hit major cities across America, most senior housing providers
shut the front door and worked tirelessly to test, acquire per-
sonal protection equipment, and adjust to real rigor for mitigat-
ing contagion.”
Assisted living and independent living facilities experienced
their largest occupancy drop to date, according to NIC, falling 2. 9
percentage points to 79.1% and 2. 4 percentage points to 84.9%,
respectively.
“COVID has pushed revenues down in seniors’ housing,” Greg
Limoncelli, a partner with Akerman, says. “It has pushed expenses
up and made people afraid to go into facilities. As a general rule,
COVID has really hit the industry hard.”
As occupancy fell, independent living facilities saw their largest
increase in inventory since early 2009. “This reflects the relatively
robust lending and development environment of 18 to 24 months
ago that supported construction starts back then and which now are
completed properties entering the market,” noted Chuck Harry,
NIC’s chief operating officer in a prepared statement. “Construction
starts activity in the third quarter continued to be relatively weak,
reflecting today’s more constrained capital markets.”
But Limoncelli thinks the sector’s current struggles don’t paint
an accurate picture of its full potential in the future. While reve-
nues may be challenged because fewer people want to go into
seniors’ facilities because they’re afraid of the virus, he thinks that
operators can do things to ease these fears.
“What I think a lot of operators have seen is that if theyincrease their transparency, including their communication withthe families, residents and physicians, people start feeling safer,”Limoncelli says.
A SHIFT UNDERWAY?
This is perhaps one among a handful of subtle shifts underway that
suggest that senior housing may be on the cusp of a turning point
from its pandemic lows. For starters, now that the shock of Covid
has worn off, investors are beginning to refocus again on the strong
demographics that favor senior living. These will continue to
strengthen, Maddron says. ”With new supply coming to market at a
manageable pace in relation to the changing demographics, we
think investing in seniors housing will continue to favor investors.”
Will of Belmont Village Senior Living reports that there is a lot
of pent-up demand on the part of consumers. ”Seniors and their
families realize that it is better to be in a quality community than to
be home alone,” she says. “In the end, 2020 and 2021 will not be
our best, but during these difficult times we are seeing real demand
for our product and terrific brand loyalty.”
Additionally, she continues, many of the changes that have been
made at senior living facilitates will improve seniors’ social engage-
ment activity and will outlive the pandemic, such as a major band-
width for technology. “Telemedicine is also important, and has
improved the ability for seniors to obtain medical advice from
healthcare providers from the comfort of their home.”
Another silver lining: The pandemic has caused the regulators
and the industry to evaluate how to better approach such occur-
rences going forward. “This is a good result,” says Mark Hamister,
CEO of the Hamister Group.
“Further it is our opinion that the assisted living and independent living models today represent the best opportunities for providing a quality service and earning a respectable return for investors,” he adds.
Perhaps for these reasons, there are distinct signs that capital isbeginning to return and investor interest is perking up, JoelNelson, CEO of LCS, a Des Moines, Iowa-based senior living company, told the CBRE podcast. “We’re seeing some deals that weretabled initially with COVID coming back onto the market,” he said.In addition, new institutions and other investors are showing interest in the senior housing sector as they move away from sectors thathave been harder hit by the COVID- 19 pandemic.
“There’s a lot of new capital that’s reallocating from theaters andretail centers, [and] convention hotels into the space,” accordingto Lisa Widmier, EVP of CBRE’s Senior Housing Capital Marketspractice, who also participated in the podcast. “And that’s not onlyjust for domestic capital, but we’re seeing an uptick in global interest in the US senior housing market. So we’re pretty optimisticabout 2021.” ◆
“We believe that the demand for high quality seniorhousing will remain strong in the coming years with theupcoming demographic shift as the 75-plus populationcontinues to accelerate.”
PETER A. MERRIGAN | TAURUS INVESTMENT CEO
