It’s now been a little over a year since the Federal Reserve began to increase interest rates to slow the pace of inflation and the rate of economic growth. The increase in rates has been large, and it has been fast. Short-term interest rates have gone from virtually 0% in March 2022 to 4.75% today, the most significant tightening in monetary policy since the 1980s, when then-Fed Chair Paul Volcker also increased rates to combat inflation and slow economic growth. Meanwhile, longer-term interest rates have also risen, with the yield on the 10-year Treasury bonds increasing from 1.7% in early March 2022 to 3.5% today as the bond markets respond to the changing economic and policy landscape.  

Higher rates have made it significantly more costly and more difficult for borrowers to do what they do:  borrow—i.e., borrow for acquisitions of stabilized properties, borrow for new investment, borrow for business-as-usual and on-going business activity, borrow for construction and development projects, and borrow to refinance existing debt when it comes due.

Further, the movement of short-term interest rates away from historically low rates to above 4% has triggered a rapid shift of deposits away from regional bank savings accounts to higher interest-bearing instruments including U.S. Treasury bills, money market funds, and time-bearing deposits such as certificates of deposits (CDs). This poses an additional risk to borrowers because lending by regional banks is highly dependent upon deposit levels and flows. And even if the danger of more deposit outflows lessens, regional banks are likely to exert greater caution with their lending as they experience more regulatory scrutiny.   

This is particularly concerning for senior housing borrowers since an estimated one-third of real estate lending stems from regional banks.  Even before recent weeks, there were both credit and capacity issues in lending.  Most loans today require recourse, face lower loan-to-value ratios (50 to 60%), stricter loan covenants, and higher all-in rates.  

In addition, many permanent loan lenders prefer to extend credit to borrowers with stabilized assets. And for those with non-stabilized properties, bridge financing is significantly scarcer because the recycling of bank capital has diminished as deals are no longer quickly coming off lenders’ books.  Construction financing is very difficult to source for all but the best sponsors with a history of relationships with their lenders. For those in the transactions markets, deals are increasingly all cash with the expectation that borrowing costs will be less formidable in the future. 

The lending environment is just one of many challenging realities facing senior housing operators and their capital providers as we move into the summer months. Other considerations include the valuation adjustments going on across all commercial real estate asset classes including senior housing. Operators also face rising, albeit slower growing, expenses, which continue to take a toll on margins.  

Other realities are more positive in nature, however, and include continued improvement in senior housing market fundamentals. First quarter 2023 NIC MAP data, released by NIC MAP Vision, shows rising occupancy rates, steady demand, and limited inventory growth. In addition, labor shortages are shrinking and staffing challenges are improving for many operators.  Relatively strong demand in an inflationary environment is also supporting rate growth, which rose at its fastest annual pace in the history of the time series going back to 2006.  

Taken as a whole, there are near-term uncertainties and risks ahead, but the medium- and longer-term prospects for senior housing are steadfast, promising, and robust. Health care coordination stands out as one compelling opportunity with revenue enhancing possibilities and promises of cost-efficiencies and savings. Partnerships with other service providers, the use of technology, and the overall agility and creativity of operators seen during the worst days of the pandemic are also reasons to be bullish on the future of senior housing.  And of course, there are the demographics, with larger and growing numbers of older adults finding the value proposition of senior housing increasingly compelling and desirable.   

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Join us to learn more about these and other trends as NIC’s Chief Economist, Beth Mace, presents the well-regarded NIC Blue Book from which she will address current trends, challenges, and opportunities in the senior housing industry in NIC’s first 2023 NIC Leadership Huddle webinar taking place on Tuesday, May 2, at 2 PM ET.  Registration is complimentary. 

Based on current COVID-19 trends, the Department of Health and Human Services is planning for the federal Public Health Emergency (PHE) for COVID-19 to expire on May 11, 2023. The impacts of the public health emergency ending will vary by state, depending on specific policies and programs that were put in place during the emergency.

Certain flexibilities and waivers that were granted during the emergency are planned to sunset, and regulations and restrictions may be reinstated. For senior housing and care operators, three areas to be aware of include Medicaid redeterminations (which are currently underway), cost-sharing on COVID-19 testing and treatments, and the continuation of certain telehealth flexibilities. 

Medicaid Redeterminations

In March 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law. A key provision of the legislation required states to maintain enrollment of nearly all Medicaid enrollees throughout the COVID-19 Public Health Emergency. This stipulation was a condition of receiving a temporary 6.2 percentage point Federal Medical Assistance Percentage (FMAP). 

Medicaid enrollment has grown substantially compared to prior to the pandemic, largely due to this legislation. As a result, the uninsured rate dropped. However, as states begin the process of Medicaid redeterminations, it is expected that between 5 million and 14 million current Medicaid beneficiaries will lose their eligibility. These changes may affect coverage of services provided by assisted living communities under home- and community-based services. 

While the share of disenrolled across states will vary due to differences in how states prioritize renewals, it is expected that the groups that experienced the most growth due to the continuous enrollment provision will experience the largest declines in enrollment. Efforts to conduct outreach, education, and provide enrollment assistance can help ensure that those who remain eligible for Medicaid are able to retain coverage and those who are no longer eligible can transition to other sources of coverage.

The Consolidated Appropriations Act, passed in 2023, delinked the FFCRA’s Medicaid continuous enrollment from the ending of the public health emergency. As a result, beginning April 1, 2023, states are able to begin the termination process for Medicaid enrollees who are no longer eligible. 

Cost-Sharing on COVID-19 Testing and Treatments

Medicare beneficiaries will continue to have access to COVID-19 vaccines without cost sharing even after the PHE has ended. Additionally, Medicare beneficiaries can continue to receive COVID-19 PCR and antigen tests with no cost sharing, as long as the test has been ordered by a physician or other qualified health care provider and is performed in a laboratory. Medicare Advantage enrollees can also continue to receive PCR and antigen testing, although following the end of the PHE, their cost-sharing may change. By law, Medicare does not generally cover over-the-counter services and tests. As such, current access to free over-the-counter COVID-19 tests will end with the end of the PHE. 

There will be no change in Medicare coverage of treatments for those exposed to COVID-19 once the PHE ends. In cases where cost-sharing and deductibles applied during the COVID-19 emergency, they will continue to apply. 

Telehealth Flexibilities Remain – For the Time Being

The Department of Health and Human Services took a range of administrative steps to expedite the adoption and awareness of telehealth during the COVID-19 pandemic. During her confirmation hearing, CMS Administrator Chiquita Brooks-LaSure, indicated that she wanted to examine what CMS’ authority was to extend the flexibilities that were set to expire at the end of the public health emergency. Many of the flexibilities that were put into place– the originating site rule, mental health visits by rural health clinics, and allowing for audio-only telehealth visits have been extended through the end of 2024.

Projected shortages of primary care physicians and specialists, as well as uncertainty on the numbers of nurses that will be available to serve the needs of a rapid expanding population of seniors, highlight the need for telehealth to be a more routine part of care delivery. Technology has enabled physicians to use their medical offices to see higher-acuity patients. This method of care both lowers cost and improves outcomes, and as such, CMS should continue to support the expansion of telehealth and telehealth flexibilities.  

To see the complete list of CMS waivers and flexibilities that will be impacted by the May 11, 2023 end of the COVID-19 Public Health Emergency, please reference the CMS Fact Sheet that covers COVID-19 vaccines, testing, and treatments, telehealth services, and health care access. 

“Respondents were asked what areas have been impacted by the rising interest rate environment. Recapitalizing properties was the area most reported to be affected by rising interest rates (51%), followed by the ability to purchase properties (36%). Across all care segments, less than one in ten operators (7%) indicate that the rising interest rate environment has impacted all these abilities.

Less than one-third (30%) of organizations retained more than 80% of newly hired full-time staff on the job after one month. This is down from responses collected at this time last year, when nearly one-half (46%) of organizations retained more than 80% on the job after one month. Looking at longer-term retention, on average, only 7% of organizations retain more than 80% of new staff after one year. This metric is also down from this time last year when just under one-sixth (16%) of organizations retained more than 80% of new staff at the one-year mark.”

                                –Ryan Brooks, Senior Principal, NIC

When asked about the biggest challenges currently facing their organizations, the most cited response was rising operator expenses (92%), followed by staff turnover (88%), and attracting community and caregiving staff (82%). When compared to the February 2023 Executive Survey Insights findings, the proportion of organizations reporting rising operator expenses as a significant challenge has increased 15 percentage points.

Approximately one-half of respondents report that resident acuity at move-in was higher than it was one year prior, while no respondents report that resident acuity has decreased. Approximately one-half of respondents cite there has been no change in resident acuity at move-in.

Respondents who indicated that resident acuity at move-in had increased were asked why that was the case. Responses include that residents are waiting longer to move-in, residents have been delaying medical throughout the COVID-19 pandemic, being older upon move-in, or waiting until an acute incident forces a move.

March 2023 Executive Survey Insights respondents were also asked if lead volumes were above the prior year. With concerns about residents holding off on their first move to senior housing showing as a concern in Executive Survey Insights responses, lead volumes may be a leading indicator to watch with regards to occupancy recovery. As shown above, although there has been volatility in organizations reporting higher lead volumes than one year prior, a solid majority of operators continue to have higher lead volumes than one year prior. More than three-quarters of single-site operators (77%) report higher lead volume, while just under three-quarters of operators with two to nine properties (70%) report higher lead volume. More than nine-tenths (92%) of operators with 10-25 properties have lead volume higher than last year, but that drops to just under three-quarters for operators with more than 26 properties (71%).

Regarding tenure of newly hired, full-time employees, on average, just under one-third (30%) of organizations retained more than 80% of new staff on the job after one month. This is down from responses collected at this time last year (Wave 39 survey, conducted in March 2022), when just under one-half (46%) of organizations retained more than 80% on the job after one month. 

Looking at longer-term retention, on average, only 7% of organizations managed to retain more than 80% of new staff after one year. This metric is also down from this time last year (Wave 39 survey, conducted in March 2022) when just under one-sixth (16%) of organizations retained more than 80% of new staff at the one-year mark.

Respondents were asked what areas have been impacted by the rising interest rate environment. Recapitalizing properties was the area most reported to be affected by rising interest rates, followed by the ability to purchase properties. Across all care segments, under one in ten operators (7%) indicate that their abilities to purchase, sell, and recapitalize properties have all been impacted by the rising interest rate environment.

“[The cost of debt] makes lenders and capital partners more hesitant

to pull the trigger.”

Respondents were also asked to specify in what ways those areas have been affected. Responses include the inability to secure debt on buildings for sale, debt coverage ratios that have skyrocketed, and increased capital and construction costs delaying projects – or in some cases making them unfeasible. Many responses referenced the inability to meet rising debt-service coverage ratios, and the lower availability of debt has reduced the transaction volume outside of distressed assets.
Although the rising interest rate environment is of concern, there is slight optimism with regards to operating margins in the near future. When asked about operating margin expectations over the next six months, seven out of ten respondents (70%) expect operating margins to increase. This is a growth of 15 percentage points compared to the most recent time this question was asked, in the Wave 49 survey, conducted between December 2022 and January 2023.  

The most common expectation for operating margins over the next six months – cited by nearly six out of ten respondents (57%) – was for operating margins to increase between 1% and 5%. This is followed by one-sixth of respondents (17%) who anticipate operating margins to stay the same over the next six months. Just over one-tenth of respondents (11%) expect operating margins to increase between 6% and 10%, while a small portion (2%) anticipate increases beyond 10%. 

Fewer operators are anticipating decreases in their operating margins in the coming months. Approximately one-tenth (9%) anticipate a decrease in operating margin between 1% and 5%. Less than 5% of respondents expect operating margins to decrease beyond 5%.  

March 2023 Survey Demographics

• Responses were collected between March 1 and March 31, 2023, from owners and executives of 49 senior housing and skilled nursing operators across the nation.
• Owners/operators with 1 to 10 properties comprise roughly one-half of the sample (54%). Operators with 11 to 25 properties account for 19%, and operators with 26 properties or more make up the rest of the sample with 27%.
• More than one-half of respondents are exclusively for-profit providers (61%), one-third operate not-for-profit seniors housing and care properties (29%), and 10% operate both.  
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, three-quarters (73%) of the organizations operate seniors housing properties (IL, AL, MC), 18% operate nursing care properties, and 37% operate CCRCs – also known as life plan communities.

The April 2023 ESI survey is currently open and will be collecting responses through April 30, 2023. If you are an owner or C-suite executive of seniors housing and care and would like an invitation to participate in the survey, please contact Ryan Brooks at rbrooks@nic.org to be added to the list of recipients.

NIC wishes to extend a heartfelt thank you to the owners and operators who have contributed to this survey over the past three years. It is remarkable that we have now completed more than 50 waves. We have surveyed through numerous challenges — COVID-19, threats of a looming recession, labor shortages, inflation, and rising expenses — many of which persist. As we continue to navigate these challenges, your input and real-time insights help ensure the narrative on the senior housing and care sector is accurate. By demonstrating transparency, you build trust.  

The Bureau of Labor Statistics reported that the unemployment rate slipped back to 3.5% in March from 3.6% in February, but up from 3.4% in January, which was its lowest level since 1969. It has been hovering in a narrow range for many months now. Separately, the BLS also reported that nonfarm payrolls rose by 236,000 in March 2023, below the monthly pace of 334,000 over the prior six months, but still strong. Market expectations had called for a gain of 230,000 jobs. Revisions subtracted 17,000 positions to total payrolls in the previous two months.  

Today’s report shows the labor market remains relatively strong with the economy still creating jobs at a solid, albeit, slowing pace. That said, the slowing in average hourly earnings and other reports on the jobs market suggest an adjustment in the labor markets is starting to occur. The general softening in the labor force will be welcome news to the Fed which is watching for signs that inflationary pressures are dissipating. A softer labor market should help to ease wage pressures and prevent a wage/price inflationary spiral from occurring. 

Indeed, earlier this week, the Labor Department released the Job Openings and Labor Turnover report (JOLTS) that showed that the demand for labor is starting to cool down a bit. The report showed that there was a drop in job openings to 6.0% in February from 6.4% in January driven by declines in professional services, education, and leisure. The vacancy-to-unemployment ratio which the Fed cites as a measure of excess labor demand fell to its lowest level since late 2021. And the job quits rate inched higher. Job layoffs remained low, however.

Note that the March report comes too early to capture much impact from the recent banking sector woes, with the troubles at SVB not coming to a head until near the end of the survey period.

Today’s report showed that employment in health care rose by 34,000 in March, compared with the average monthly increase of 54,000 over the past six months. Employment in nursing care facilities grew by 3,400 jobs from last month and 50,100 from year-earlier levels and stood at 1,392,700 positions. Jobs increased by 4,300 positions in CCRC and assisted living facilities and were up by 59,800 from year-earlier levels to 944,000 jobs.

In the household survey conducted by the BLS, the jobless rate slipped 0.1 percentage point to 3.5%, down from 3.6% in February. Both months’ unemployment rates were well below the 14.7% peak seen in April 2020. The underemployment rate was 6.7% versus 6.8% in February. 

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.09 in March to $33.18. This was a gain of 4.2% from year-earlier levels, lower than in recent months. 

The labor force participation rate inched up to 62.6% in March, up from 62.5% in February, which followed three prior monthly increases in the rate. It was below the February 2020 level of 63.3%, however.    

The number of long-term unemployed (those jobless for 27 weeks or more) was 1.1 million in March. These individuals accounted for 18.9% of all unemployed persons.  

Among the major worker groups, the March unemployment rates were 3.1% for adult women, adult men (3.4%), teenagers (9.8%), Whites (3.2%), Hispanics (4.6%), Blacks (5.0%), and Asians (2.8%).

Big industry awards ceremony draws former NIC board chairs and leaders.

Recognized as the entrepreneurial thought leader who created a forum for investors in senior housing and care, and revolutionized the use of data in the sector, Robert G. Kramer was honored with the 2023 Career Achievement Award at the inaugural McKnight’s Pinnacle Awards ceremony March 7 in Chicago. Awards went to 30 providers and long-time leaders in the senior living, skilled nursing and home care sectors.

“We have the greatest impact on our field by investing in people.”

                                                                                                    —Bob Kramer

“For more than 35 years, Bob has been a transformational figure in the senior housing and care field,” McKnight’s Vice President and Editorial Director John O’Connor said.

Kramer accepted the award to a standing ovation giving credit to those whose shoulders he stood on to achieve success, while emphasizing the importance for today’s leaders to encourage and mentor young leaders. “We have the greatest impact on our field by investing in people,” said Kramer.

The new Pinnacle awards program was launched to honor those who have had a remarkable influence over the industry, played key roles as change-makers or inspired others with their leadership approach. NIC Board Member Lynne Katzmann, founder and CEO of Juniper Communities, received the Pinnacle Thought Leader Award and NIC Operator Advisory Board member Mary Leary of Mather received the Pinnacle Agent of Change Award.

Kramer is co-founder, past president and CEO and current strategic advisor to the National Investment Center for Senior Housing & Care (NIC), as well as Founder & Fellow at Nexus Insights, a think tank advancing the well-being of older adults through innovative models of housing, community and healthcare (http: //www.nexusinsights.net/).

More than 200 aging services professionals, business partners, and supporters attended the dinner and awards ceremony. Kramer was accompanied by members of NIC’s current and past volunteer executive leadership teams and current NIC president and CEO Ray Braun.

Former NIC board chairs in attendance included John Moore, Atria Senior Living; Brad Razook, CS Capital Advisors; Kevin McMeen, MidCap Financial; Thilo Best, Bayshore Retirement Living; and Randy Richardson, former president of Vi.

Also in attendance was NIC Vice Chair Susan Barlow, Blue Moon Capital Partners; Fee Stubblefield, The Springs Living, and NIC Chair of the Operator Advisory Board; and Kari Onweller, Invesque, and Chair of the NIC Future Leaders Council.

Ceremony emcee and Long-Term Care News Executive Editor Jim Berklan said that Kramer had blazed the way and made and raised the bar for the profession. Berklan read a testimonial from Arnie Whitman, a former NIC Board Chair who was unable to attend the event. Whitman noted that Kramer was, “The inspiration that created this industry.” Vi’s Richardson welcomed Kramer to the stage to receive the award to several minutes of applause.

In his remarks, Kramer emphasized that all the award winners were there because they were encouraged and mentored by others. “We didn’t just materialize and become a leader out of nowhere,” he said. “We stood on people’s shoulders who invested in us.”

Kramer said his father taught him how to think creatively and constructively. Many others helped him along the way. As a freshman in the Maryland legislature in 1983, then House Speaker Ben Cardin took a chance on Kramer and asked him to be the house representative on the committee to rewrite CCRC regulations for the state. “I didn’t know what a CCRC was,” said Kramer. “But that was how I got my start in the industry 40 years ago.”

Kramer thanked the volunteer executive leadership that has made NIC so successful. “Each has impacted me and made me a better person,” he said. Kramer encouraged all the honorees, and those who care passionately about improving the lives of older adults and changing the expectations of and the lived experience of aging, to thank the people on whose shoulders they stand. He added that everyone in the room should make sure at least 10 people stand on their shoulders as the industry grows.

“That means mentoring,” said Kramer. “We are about people and investing in people. Be conscious of who stands on your shoulders so they will be here in future years.”

A Career of Supporting Future Leaders

Kramer himself has a long history of mentoring and supporting the development of the next generation of senior housing leaders. He has backed the growth of university and college senior living programs and scholarships.

Under Kramer’s leadership, NIC has helped to fund two college scholarships to raise the profile of the industry and to educate new leaders. The Anthony J. Mullen Scholarship and William E. Colson Scholarship—named in honor of industry trailblazers—are awarded to students at the Erickson School of Aging Studies at the University of Maryland Baltimore County (UMBC).

In a previous interview, Kramer said, “The industry needs to attract the best and the brightest. Scholarships will help meet senior living’s huge leadership and workforce demands.”

Kramer added that the professional staff at NIC and its volunteer leaders have donated many hours of their time to teach classes and speak at various schools about the senior housing and care industry. They have also helped to develop curriculums to spotlight the field’s opportunities as the older population continues to grow.

Thanks to the work of industry executives, college programs and classes in senior living are available at the Erickson School of Aging Studies and a number of other schools. These schools include the University of Wisconsin-Eau Claire; Boston University; Cornell University; the University of Southern California and Washington State University.

NIC’s board members and members of the Future Leaders Council are now targeting top graduate schools to expand senior living programming options as well as supporting broader industry initiatives like the Vision Centre. “Our goal is to raise the profile of senior living and attract more students to the sector,” said Kramer.