During a recent webinar with NIC MAP Vision clients, the NIC Analytics Team presented findings on key third quarter 2024 senior housing data trends. Morgin Morris, Senior Vice President with KeyBank Real Estate Capital and Jim Dooley, Director with JLL Capital Markets joined Lisa McCracken, NIC’s Head of Research for a conversation on the capital markets, debt lending, and transaction activity.

Key takeaways from the third quarter data included the following: 

Takeaway #1: Occupancy Increased for the 13^th Consecutive Quarter 

• The occupancy rate for the 31 NIC MAP Primary Markets rose 0.7 percentage points to 86.5% in the third quarter.
• This marked the thirteenth consecutive quarter of occupancy gains, driven by resident demand for senior housing units outpacing the amount of new inventory arriving online.    

Takeaway #2: Occupancy Gap Between Assisted Living and Independent Living Continued to Narrow

• In the third quarter of 2024, there was a 0.5 percentage point increase in the independent living occupancy rate and a 0.9 percentage point increase in the assisted living occupancy rate.
• Though the independent living occupancy rate still exceeded the assisted living occupancy rate (87.9% vs 85.1%), assisted living occupancy gains have outpaced those of independent living in recent years. 

Takeaway #3: Senior Housing Occupancy Growth Across All Markets

• We have seen positive occupancy rate movement in each of the 31 Primary Markets over the year ending in the third quarter of 2024.
• The strongest gains were in Cincinnati and Phoenix, which each increased by 4.0 percentage points over the past year.
• The smallest gains were in Riverside, CA, where occupancy rates are roughly in line with the NIC MAP average, and St. Louis, which has an occupancy rate below the NIC MAP average.

Takeaway #4: Senior Housing Units Under Construction Least Since 2014  

• Turning to construction trends, for both Majority Independent Living and Majority Assisted Living properties, we continue to observe an ongoing decline in the number of units under construction, which today are back to levels last seen in 2014.
• This decline may reflect ongoing headwinds to development such as access to capital, cost of capital, and construction costs.

Takeaway #5: Construction Starts Below Inventory Growth 

• Construction starts have continued to decline, and we have now reached a point where the number of new units breaking ground annually has fallen below the number of new units being delivered.
• This trend last occurred in 2021 – and before that – in 2009 during the Global Financial Crisis.

Guest panelists Morgin Morris and Jim Dooley both indicated that there is an increase in optimism within the industry and that they are seeing increased activity with transactions, competitive bidding, lending and even some minor movement with new development inquiries. 

In 2024, improving senior living industry fundamentals and evolving market dynamics are building momentum in the senior housing real estate market, and well-capitalized REITs have found themselves in a unique position to take advantage of the current buying environment.  

Many healthcare REITs have primarily been net sellers throughout the pandemic recovery period, shedding underperforming assets and portfolio outliers to focus on stabilizing their own portfolios, but are now touting robust investment pipelines of actionable deals. In contrast, bank debt continues to be in relatively short supply, with fewer lenders allocating funds in the sector, and higher interest rates limiting the rate of return investors can achieve when they can line up debt. So how have REITs been able to invest while much other capital has remained sidelined? To answer that, we will examine the series of events that led to the current, favorable position well-capitalized REITs find themselves in today.  

Pandemic: As we all know, the devastating impact of the pandemic disrupted senior living operations, as well as many other industries including commercial real estate, with the office and retail segments hit particularly hard.  

Rising rates: Inflation accelerated rapidly, marked by the sharp jump in the CPI-U in April 2021 and peaking at 9.1% in June 2022. The Federal Reserve (the Fed) was in hindsight, perhaps slow to respond, attributing the early spike in inflation to supply chain disruptions that would eventually normalize, waiting nearly a year after the first spike in the CPI-U to raise the Federal Funds rate in March 2022, steadily increasing it to 5.33% in July 2023. 

Market dislocation: Perhaps taking a cue from the Fed that the inflationary environment was temporary, coupled with the promise of recovering operations, the senior housing real estate market rebounded quickly in 2021 and 2022, pushing cap rates to pre-pandemic levels and at times even lower. Given interest rates were still relatively low at this time, financial institutions were still active in supplying capital.  With fewer favorable buying opportunities given the low cap rate environment and lack of stabilized senior living deals, many healthcare REITs instead focused on selling underperforming assets at low cap rates, using sale proceeds to improve their balance sheets by reducing debt and/or improving equity through stock buybacks, shrinking their companies in the near-term but positioning themselves to take advantage of future opportunities as markets normalized. 

Regional banking crisis: The failure of Silicon Valley Bank (SVB) in March 2023, while fairly contained, sent ripple effects across the regional banking industry, which is a major real estate capital source, accounting for 80% of commercial real estate loans. With $2.2 trillion in commercial loans coming due over the next 3 years, smaller and regional banks may continue to be limited in their ability to lend to our industry at levels prior to this crisis. As the regional banks had to more aggressively manage their own loan portfolios and financials sponsors, which rely heavily on leverage, and began pulling back on capital allocation, the result was a significant slowdown in commercial real estate transactions, including the senior housing industry.  

Higher for Longer: Following the onset of the regional banking crisis, capital dried up, forcing sellers and borrowers to reassess. With the Fed not being quick to reduce rates, in early 2024, market expectations began to shift to acceptance that rates would be higher for longer, and the market became much more favorable for well-capitalized financial intermediaries, including REITS.  

Rates are now starting to adjust to slowing inflation and employment data, and the Federal Reserve cut the federal funds rate at its September meeting. Even with this movement, the cost of debt remains elevated by recent historical standards, and we are seeing transaction spreads that adequately compensate for this reality.  More recently, the publicly traded healthcare REITs with a focus on senior housing and skilled nursing have experienced a significant improvement in their cost of equity, and investors are showing optimism that they are in a unique position to deploy accretive capital while their competition has remained sidelined. 

Many REITs are now actively engaged as buyers, and some are expecting to meet or exceed pre-pandemic investment volume in 2024. In addition to acquisitions, with fewer lending options in the market from traditional banks, some REITs are increasingly stepping into the lender position, capitalizing on high-yielding debt and ideally striving to create a pipeline for future growth through purchase options on properties at stabilization.  

In closing, given current market conditions and what is anticipated in the short-term, we envision an active role for REITs in senior housing throughout the end of 2024 and into 2025. 

The senior housing and care sector is evolving, and ensuring adequate capital for operations is essential to driving quality services and long-term success. Recognizing this critical need, NIC has established a dedicated Capital for Operations Focus Area Committee focused on understanding and growing the role of operational capital in senior housing. Organized into three subcommittees, this group is actively working to define key terms related to this topic, to explore financing opportunities, and to draw lessons from other industries which may help senior housing providers access capital for their operations for the long-term. Select committee members met recently at the NIC Fall Conference to solicit feedback from key industry leaders on these very topics.

Why Capital for Operations Matters

For decades, the senior housing sector has heavily relied on real estate-backed financing to support growth. However, the focus must shift as the sector looks toward a future where the demand for high-quality services continues to expand, a demand that relies on operating companies to execute. Real estate connected capital cannot alone sustain this growth. While real estate assets are foundational to senior housing and care offerings, they are optimized when paired with exceptional operations that drive customer engagement and satisfaction. Simply put, without quality operations, there can be no quality returns.

Even the largest senior housing capital providers cannot thrive solely through the ownership of real estate that is not paired with high-performing operations. This underscores the importance of ensuring that capital sources are available and structured to support not only the real estate, but also the day-to-day operations of senior housing.

Defining the Landscape

One of the committee’s key objectives is to bring clarity and consistency to the concept of “Capital for Operations.” To achieve this, the Definitions Subcommittee is developing a comprehensive glossary that will provide clear definitions for key stakeholders related to this topic, including “operator,” “manager,” “real estate owner,” and “enterprise.” Having agreed-upon terminology will be essential for attracting new sources of capital to the sector and providing external investors with a deeper understanding of senior housing constituent groups.

Expanding Financing Opportunities

The Finance Subcommittee is tasked with broadening the range of financing options available to operators in the senior housing ecosystem. A major hurdle in this area is the need for increased education and understanding about how to best structure deals for cash flow-based financing. While healthcare lenders often lend on cash flow, this practice is not widespread in the senior housing sector, especially for managers and operators who typically do not hold real estate assets.

The Finance Subcommittee is focusing on identifying capital sources and supporting educational efforts that effectively outline the unique dynamics of senior housing operations. The goal is to bring thoughtful operational capital into the sector. In addition, dialogue with lenders will be enhanced to better educate existing senior housing stakeholders about the qualifications needed to obtain operational capital.

Learning from Other Industries

The Research Subcommittee will initially examine the lodging (hospitality) sector to understand what learnings may be helpful for senior housing in terms of capital and operations. While perhaps not as operationally complex as senior housing, in that elements of longer-term ‘housing’ and ‘care’ are notably absent, the lodging industry has a number of nuances and complexities within its business that could provide important takeaways for the sector. Ultimately, the goal is to provoke thoughtful discussion and stimulate the development of potentially innovative solutions.

Conclusion

The senior housing sector is at a crossroads, where societal and economic forces are converging to create both challenges and opportunities. With the aging population set to grow exponentially over the next few decades, the demand for high-quality, personalized care will only intensify. As shared by Pete Stavros, Founder of Ownership Works, at the NIC Fall Conference, we need to look at alternative models to structure and capitalize our businesses. Better capitalization is going to be a key component of success for the industry moving forward.

Beyond the need for financing operations, this very dialogue reflects a broader strategic shift. Forward-thinking stakeholders will recognize that future success hinges not solely on real estate investments, but also on the ability to deliver healthcare-integrated services, personalized experiences, and operational efficiency. As value-based care models gain traction, senior housing will increasingly intersect with healthcare delivery, pushing operational capital to the forefront of investment strategies. To best respond to the increasing operational complexity, those who can secure and deploy growth capital effectively will be best positioned to lead the sector into a future where the quality of resident life is as valuable as the physical assets that house it.

More than 2,800 owners, operators, and related industry professionals attended the 2024 NIC Fall Conference in Washington, D.C. The conference provided the ideal opportunity to ‘take the temperature’ on the general outlook and industry sentiment among those working in and investing in the senior housing and care sector. Beginning with a poll at the 2024 NIC Spring Conference, and replicated at this year’s Fall Conference, all attendees were asked to respond to the question, “What is your overall outlook for senior housing and care across the next year?” Roughly 2,600 individuals provided their feedback.  

Poll results showed the average overall outlook is positive, coming in at 4.14 (1=extremely negative; 5-extremely positive). This is slightly above the NIC Spring Conference average rating of 4.11. Not surprisingly, the ratings varied depending on the respondent type. The lowest ratings came from lenders and debt providers, similar to the pattern that emerged at the spring conference. Despite this lowest ranking across all groups, the 4.0 translates into a “positive” outlook for the months ahead. In March, the lenders and debt provider responses averaged 3.8.   

These ratings support the general sentiment shared by conference attendees anecdotally as well as by speakers across various sessions. It has been a difficult environment over the past few years with the pandemic followed by inflationary pressures and capital challenges. With the recent rate cut by the Federal Reserve, projected future rate reductions, and significant demand dynamics driven by the aging demographic, many continue to see brighter days ahead. These NIC poll results support this sentiment.

Many thanks to everyone who attended the 2024 NIC Fall Conference and who took the time to respond to the poll.

Senior living’s premier event energizes and motivates enthusiastic attendees.  

At a time when the senior living industry faces rapid advancements and shifting market dynamics, the 2024 NIC Fall Conference delivered three days of strategic networking, timely high-profile speakers, and educational opportunities.   

Taking place just weeks before the 2024 election and after a long-awaited interest rate cut, the conference offered attendees broad perspectives from top-tier political, economic, and industry experts. The well-attended educational sessions reflected the conference theme: Navigating the Crossroads: Insights for Strategic Choices.   

“This year’s conference was designed to help industry stakeholders navigate key decision points,” said NIC President and CEO Ray Braun. “The conference provided practical insights for making strategic choices while creating lasting connections and innovative idea exchanges.” 

Recognized as the industry’s annual flagship event, the 2024 NIC Fall Conference was held September 23-25 at the Marriott Marquis, Washington, D.C. Almost 3,000 people participated in the event. 

The conference featured 11 main stage sessions offering timely insights on emerging trends and critical issues for the sector, including the state of the capital markets, the evolving active adult and middle market segments, and a roadmap for the acquisition and deployment of cutting-edge technology. Attendees dove into the details during Innovation Labs—interactive, workshop-style sessions that provided actionable strategies to be implemented back at the office.  

Highly recognized speakers delivered compelling keynote addresses to a full ballroom.  

NBC’s Chief Political Analyst Chuck Todd was featured in a discussion of likely policy and regulatory changes in the aftermath of the 2024 election. He was joined on the main stage by Mike Leavitt, former Utah governor and Secretary of Health and Human Services. While the pair declined to predict a winner of the presidential race, they agreed that the branches of government would probably remain divided.  

A timely economic outlook was presented by Diane Swonk, chief economist at KPMG and globally recognized advisor to policy makers. She methodically guided attendees through the metrics that will impact the senior living industry as the Federal Reserve adjusts its policies. Bottom line: Swonk expects another interest rate cut after the election and additional cuts in 2025.   

Amid continuing workforce challenges, several sessions focused on employee retention. Pete Stavros, founder of Ownership Works and a partner at private equity firm KKR discussed his mission to advocate for employee ownership of business. At a separate session, “Happy Teams, Healthy Returns,” panelists highlighted resident and employee engagement programs that boost profits.  

Other educational sessions—also focused on key industry issues—were well attended and well received. 

A panel of stakeholders in the growing active adult segment shared key lessons from the first wave of new development and how the product is likely to evolve in response to consumer demand.  

NIC Co-Founder and Strategic Advisor Bob Kramer introduced the session on the opportunity for middle market senior housing. Recognizing the huge need for housing and services to support middle-income seniors, Kramer said, “Our industry has to be part of the solution.” The panelists provided examples of successful middle market business models.  

A session on technology tackled the puzzling questions on how to evaluate and deploy the best solutions. Innovative approaches were detailed as well as what’s ahead, including the role of AI in operations. “AI will eventually become ubiquitous,” said Arick Morton, CEO of NIC MAP Vision.  

Other conference highlights include: 

• A signature session on the capital markets addressed the recent interest rate cut and implications for the industry including debt financing, transaction volumes and valuations. Panelists agreed that the credit logjam is starting to ease.  

• NIC Head of Research & Analytics Lisa McCracken led a panel of experts on the investment outlook for senior living as demand from aging baby boomers begins to outstrip the supply of inventory. Panelist Dianne Munevar, of NORC at the University of Chicago, previewed new research demonstrating the value of senior housing, specifically, the potential for senior housing operators to impact the overall cost of care for older adults.  

• The new 7^th edition of the NIC Investment Guide was introduced at the conference. The Guide is the most comprehensive review of senior living and the investment opportunities in the sector. The 7^th edition provides insights based on data into 2024 and now includes detail on the active adult segment. 

Building Connections and Expertise 

C-suite and executive decision makers comprised 75% of attendees, with an even mix of operators, developers, and capital providers represented, supporting conversations to advance NIC’s mission to promote housing access and choice for older adults.  

Attendees enjoyed multiple daily, formal and informal, networking opportunities, including a Women’s Networking Meet-Up bringing together several hundred women who exchanged ideas and made connections.  

NIC Board Chair Susan Barlow of Blue Moon Capital Partners kicked off the Women’s Meet-Up, introducing guest speaker Lauren Miller Rogen, a film producer and the wife of comedian Seth Rogen. The couple has produced a highly anticipated documentary, Taking Care. The film follows the course of Lauren’s mother’s early onset Alzheimer’s disease and the family’s struggle to cope with the situation. 

“It was a nightmare. We didn’t know what to do,” said Lauren. “Then we realized we had an opportunity to share our story to help others.” An exclusive preview of the film was shared with all conference attendees during a main stage session the next day.  

A skilled nursing bootcamp was held on site during the conference with a record-high number of participants. Participants analyzed a case study on whether to buy, sell or hold a nursing home property. The bootcamp is part of the NIC Academy which offers programs for senior living and care professionals. The Certified Senior Housing Investment Professional (CSHIP) program includes specialized courses on how to underwrite senior housing properties.  

Mark your calendar! Join us at the 2025 NIC Spring Conference, March 5-7, 2025 in San Diego, CA.