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NIC Investment Guide

Investment Guide


Gain mission critical insight into the seniors housing and care industry. This must-have resource is essential for anyone involved in, or looking to enter, the industry.

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Frequently Asked Questions

Metrics for the Seniors Housing & Care Property Market:

What are the property market supply trends?
What are the property market demand trends, including the resident demographics?
How is occupancy tracked, and what are the property market occupancy trends?
What are the revenue models, payer types, and payment risk?
What are the revenue trends for NOI, rents and expenses?


What are the property market supply trends?

Senior housing and care supply trends are in somewhat of a state of transition, given the current economic environment. The fallout in the capital markets has significantly impacted the construction pipeline, resulting in a slowdown of new units being added to inventory. However, even with the decline on the construction side, the industry has continued to add units to the inventory. The graph below, comprised of data compiled through the NIC MAP Data & Analysis Service, shows the current supply and construction trends for seniors housing.
Seniors Housing Construction and Inventory Growth, MAP 31

For further information on the supply market for seniors housing and care properties in the United States, see Section 1.1 of the NIC Investment Guide, Second Edition.


What are the property market demand trends, including the resident demographics?

Demand for seniors housing and care is primarily driven by any combination of the following factors: age, frailty, wealth, income from the senior population, and the desire to live in a seniors housing community. Generally, the higher the concentration of the aforementioned factors in the resident population, the higher the demand for senior living services and accommodations. The most prominent demand trend is the growing senior population resulting from the baby boom. As of 2010, approximately 6% of the US population, or roughly 19.0 million individuals, were aged 75 years or older. The level of seniors in this age group will continue to grow at a steady pace for the next 10 years, at which point, the percentage of seniors in the age group is projected to grow at a much more significant rate due to the aging of the baby boomers.
Growth of the 75+ population in the U.S.

An important factor contributing to the increasing demand for seniors housing is increased life expectancy. The recent emphasis on healthy, active lifestyles has led to seniors living longer, thus increasing the length of time they stay in a seniors housing community, as well as shaping expectations of what senior living should be like.

Another important consideration in demographics for some forms of seniors housing is the financial resources and well-being as well as the geographic residence location of seniors’ adult children, who often participate in decision-making on behalf of their parents.

A more in-depth discussion of each of the demand factors and trends can be found in Appendix B of the NIC Investment Guide, Second Edition.


How is occupancy tracked, and what are the property market occupancy trends?

Occupancy trends across the various seniors housing and care property types have been somewhat mixed in recent quarters, after seeing general declines during the economic downturn of 2007-2009. Since occupancy trends for senior housing and care properties change over time, investors should seek out the most recent information available, such as that available through the NIC MAP Data & Analysis Service. Longer term trends in the industry indicate relatively stable occupancy for the higher levels of acuity where care is the predominant concern (i.e., assisted living and nursing care), and a closer correlation to general economic factors where lifestyle is the predominant concern (independent living). It should be noted that occupancies for senior housing and care are relatively stable and have ranged only three to five percentage points throughout various economic cycles. Occupancy is commonly tracked by total units in independent living and assisted living properties and by actual beds in nursing care properties, where shared units are prevalent. Further occupancy trend information for independent living, assisted living, nursing care, and CCRC properties can be found in the respective sections of the NIC Investment Guide, Second Edition.
Occupancy by Property Type, MAP 31


What are the revenue models, payer types, and payment risk?

The core revenue models are rental and entrance fee with monthly service fee. There are also some examples of condominium communities with services fees and home owner association fees. In the latter case, the resident owns the real estate; while in the entrance fee community, they receive a right to occupy without the direct ownership.

The primary payment types are private pay, Medicaid waiver (essentially a state program for reimbursement of AL charges but not supported in all states), privately purchased long term care insurance, and some other forms of support. Other forms include veterans’ benefits which support some forms of assisted living services or state housing finance programs stipulating low/moderate income rental programs, which support the real estate needs but not the care needs.

Payment risk in the case of private pay could surface in a couple of different forms. The most common form is depletion of assets and inability to remain current on payments. In the case of entrance fee communities, the risk from a resident standpoint is that entrance fees are not typically secured and thereby potentially exposing the reimbursement of entrance fees at a contracted level upon death or vacation of the unit to credit loss as an unsecured creditor to the project. In the case of condo projects, the resident has the risk/burden of resale which is similar to entrance fees, but where they have to carry the real estate until resale. Medicaid and veterans benefits carry the risk of inadequate reimbursement for the level of services required and, in some states, limit the operator’s ability to discharge residents due to the level of care needs.


What are the revenue trends for NOI, rents and expenses?

Rental rates (and revenues) for seniors housing and care properties have historically increased on average by 3% to 5% on an annual basis over the last several decades, with certain geographical regions seeing higher or lower gains due to local market factors. More recently however, rental rates have seen only modest increases due to downward pressure from the slower economic growth and pressures on the personal finances of residents and their adult children.

Since rental rate trends for senior housing and care properties can change quickly, investors should seek out the most recent information available, such as that available through the NIC MAP Data & Analysis Service.

Expenses traditionally have seen annual increases comparable to those in revenues, with operating margins therefore remaining fairly constant. The recent recession has also caused some downward pressure on expenses, most notably labor.


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