The NIC MAP^® Data Service recently released national monthly data through December 2018 for actual rates and leasing velocity. The NIC Actual Rates initiative is driven by the need to continually increase transparency in the seniors housing sector and achieve greater parity to data that is available in other real estate asset classes. Having access to accurate data on the monthly rates a seniors housing resident pays as compared to asking rates helps us achieve this goal.  

Key takeaways from the 4Q2018 Seniors Housing Actual Rates Report include: 

• Average initial rates for residents moving in were below average asking rates for both majority independent living and majority assisted living properties, with monthly spreads larger for majority assisted living properties throughout the entire reported period dating back to April 2015. 

• As of December 2018, initial rates for majority assisted living properties averaged 8.8% below their average asking rate, which equates to an average initial rate discount of 1.1 months on an annualized basis, up from 1.0 months in December 2017, but down from 1.2 months in December 2016. The average discount for majority independent living properties was smaller at the equivalent of 0.7 months and was down from 0.8 months in December 2017, but up from 0.4 months in December 2016. 

• Average asking rates for majority independent living properties have exceeded in-place rates for the past 8 months, a change from the prior 14 months (March 2017– April 2018) when asking rates were less than in-place rates. For majority assisted living properties, average asking rates have consistently exceeded average in-place rates. 

• The average majority independent living initial rate in December 2018 was 6.7% above its year-earlier level, registering the strongest pace in the 33 months that NIC has reported annual growth rates and significantly more than the average in-place rate growth of 2.2%. Annual growth for independent living move-in rates has been positive for the past eight consecutive months, a sharp contrast with the prior 16 months when year-over-year growth had been generally negative (January 2017 through April 2018). This pattern is not evident, however, in assisted living properties. 

• Annual growth in the average in-place rate for majority independent living properties has averaged 2.1% for the past five months, an acceleration from earlier in the year when growth averaged 1.3%. For majority assisted living properties, the annual growth in the average in-place rate has hovered around 1.9% since April 2018, up from 0.5% in the first three months of the year. 

• The rate of move-ins has exceeded or equaled the rate of move-outs since April for majority independent living, a contrast to the first three months of the year when move-outs exceeded move-ins. This pattern may reflect the influence of the cold winter months and the flu season.   This same pattern is evident in the 2017 data, with move-outs exceeding move-ins only during the winter months. 

• Assisted living also saw move-outs exceed move-ins during the winter months, but the trend in the rest of the year is more sporadic, with move-outs having exceeded move-ins in September and December as well. 2017 data also show stronger move-out patterns in the January to April period. 

This Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,500 properties across the U.S. operated by 25 to 30 seniors housing providers. Note that this monthly time series is comprised of end-of-month data for each respective month. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as we currently require participating operators to manage 5 or more properties.  

While these trends are certainly interesting aggregated across the states, actual rate data will be even more useful when it is available at the CBSA level. As NIC continues to work towards growing the sample size to be large enough to release data at the CBSA level, working with leading software providers like MatrixCare, Yardi, and Eldermark makes it easier for operators to contribute data to the Actual Rates initiative. NIC appreciates our relationships with software providers and our data contributors and their work in achieving standardized data reporting. Operators contributing data receive the national report free of charge and will soon receive complimentary reports benchmarking their data against the national figures. They are also helping to increase transparency for the benefit of the sector.  

If you are an operator or a software provider interested in how you can contribute to the Actual Rates initiative, please contact Brian Connolly at bconnolly@nic.org. 

One of the most talked-about sessions at the recent 2019 NIC Spring Conference was the “Boomer Hackathon,” in which three teams – and those in attendance – brainstormed innovations in seniors housing appropriate for incoming Baby Boomers. A standing-room-only crowd participated in the event, forming small groups to attack the same problem as three teams of experts, who were formed ahead of time. 

Popularized by Silicon Valley, the hackathon format hammers out rough, but functional, solutions, usually in 24-72 hours. NIC’s inaugural hackathon did so in 75 minutes, but not without a little advance preparation from each of three official teams. Lead by industry veterans, each team of three was selected from a pool of applicants. NIC’s approach to selection was based primarily on diversity of experience and perspective, as that has been shown to improve effectiveness in studies of hackathons. 

The session wasted no time. Hosts Jacquelyn Kung and Bob Kramer quickly introduced the concept at hand, introduced the teams, then ordered them to get to work. Kung then encouraged attendees to form small groups of their own to dig into the issue, which was to create a retirement living model that works for Boomers, a business model that works for the investor (both debt and equity), and a business model that works for the operator. 

The teams were: 

Lynn Katzmann, CEO, Juniper Communities, with Gracyn Robinson and Mike Mattingly  

Kurt Read, Principal, RSF Partners, with Rachel Smith and Hsuan-Yao Huang 

Sean Kelly, CEO, the Kendal Corporation, with Ashley Wilkens and Astrid Kramarz 

A panel of three independent judges, all boomers themselves, was on hand to ask questions and provide feedback. These were Steve Moran, Publisher, Senior Housing Forum, Jenny Brimhall, a San Diego realtor, and Todd Reis, an actor and magician. 

While the teams got to work, Kung split attendees into half, instructing those on one side of the room to form small groups to brainstorm one innovative feature of a living complex attractive to Boomers age 64-73. Groups on the other side of the room were asked to think of an innovative financing approach for a non-traditional living model – and to specify if it was for the operations side or real estate side. 

The room buzzed with discussion, as attendees and teams alike attacked the issues, huddled around whiteboards, or circulated the room to listen in. After ten or so minutes, it was time to hear each team’s 2-minute “pitch” to the judges.  

First to pitch was Kurt Read, whose team presented the “live to learn” concept, a Cornell University alumni community on New York’s Roosevelt Island. The community would mix senior alumni with college students, offer continuing education, in luxury all-inclusive living spaces within easy reach of the city. The project’s investment case for operators features marketing to a large alumni community and outsourcing a-la-carte services. Net margins of 40% might be shared with the university. Assumptions were for 200 apartments; 60% double occupancy; 100 day passes at $5,000 per person and a 90% steady state of occupancy. 

Judges and the audience asked questions of Read, who highlighted the attractiveness of “going back to school” and that the model could scale to other locations, making it a “portable” IL concept. 

Katzmann’s pitch was for an international destination offering, featuring efficient 3-D printed buildings and interiors, solar and energy-efficiency, and even gardens to supplement food supplies. Seniors would be pitched on the ability to travel and live in communities around the world. Financials for operators would net an EBITDA of 40%, with retail covering 15% of debt service requirements. Investors would save 20-25% on lower-cost 3-D printing and gain significant savings from solar and energy efficiencies. A seven-year horizon and 12–month lease up would yield a 5% cap rate upon sale, for a 6% unlevered IRR. 

Questions yielded enthusiastic answers from the quick-thinking Katzmann, who addressed numerous potential flaws with as many potential upsides and creative solutions. 

The final pitch was delivered by Sean Kelly, who revealed that his team’s pitch was, in fact, a real project, currently in development. He walked through artist’s renderings and floorplans as he described how “Kendal at Sonoma”, marketed as a “Zen-lifestyle community,” will offer Boomers portability with sister campuses in other locations, access to community, walkability, and numerous amenities designed around life-balance and well-being. 

As session co-facilitator Bob Kramer later pointed out, no matter who might be considered a winner, perhaps the most interesting outcome of NIC’s first Hackathon was the revelation that all three teams made portability a feature of their appeal to Boomers. Other attendees noted that, while perhaps not yet the new normal, the new concepts – and the idea that operators and investors should think outside the box when preparing for Boomers – should be taken seriously as the generation that changes everything approaches senior living and care.  

Editor’s note: All calculations presented in this article are rough estimates and do not represent actual underwriting models. 

The Labor Department reported that there were only 20,000 jobs added in February, well below the consensus expectation of 180,000.  This marked the 101st consecutive month of job growth.  While February was weak, January was very strong.  The latest three-month average is 186,000, less than last year’s 223,000 monthly average but consistent with more modest growth anticipated for 2019.

January was revised up from 304,000 to 311,000 and December was revised up from 222,000 to 227,000.  Combined, employment gains in December and January were 12,000 more than previously reported. Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.

In February, employment in health care rose by 21,000. In the past year, health care has added 361,000 jobs.

The unemployment rate fell 0.2 percentage points to 3.8% in February.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.3% from 8.1%.  This was the lowest rate since 2000.  The federal government shutdown may have affected this figure.

Average hourly earnings for all employees on private nonfarm payrolls rose in February by eleven cents to $27.66. Over the past 12 months, average hourly earnings have increased by 3.4%, a new cycle high.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work held steady at 63.2% in February, still very low but up from its cyclical low of 62.3% in 2015.  The low rate at least partially reflecting the effects of an aging population.

This report, in combination with other recent data on economic activity, will support the Fed’s recent position of pausing interest rate increases.  In February, Federal Reserve Chairman Powell indicated that the Fed would not be raising interest rates in the immediate future due to concerns about global economic growth and limited inflation.  In December, the Federal Reserve had raised the fed funds rate by 25 basis points to a range of 2.25% to 2.50%. That marked the fourth increase in 2018.  The Fed has now raised rates by a quarter percentage point nine times since late 2015, after keeping them near zero for seven years.

Focused on transformational change and increased collaboration, the annual event brought together more than 1,700 seniors housing and care executives – and a growing number of healthcare players – in San Diego, February 20-22.

The conference theme, “Investing in Seniors Housing & Healthcare Collaboration,” addressed the reality that the sector faces a period of change in which partnerships with a variety of service and healthcare providers will be key to business success.

Educational sessions explored the availability of capital, current market conditions, local market variations and how operators of skilled nursing properties can succeed under the new PDPM payment model. Sessions also explored innovation, taking on risk, and forging new partnerships in a value-based world.

NIC president and CEO Brian Jurutka outlined three forces driving the push for collaboration, saying, “These drivers will lead to transformational change,” in his opening general session remarks. He pointed out that baby boomers have different needs and preferences, and that the industry plays an important role as home to millions of high-need, high-cost seniors amidst significant healthcare delivery and payment reform. The third driver he pointed to is technological advancement, which he said will change operations for the better.

In his first public address since leaving Capitol Hill, Former Speaker of the U.S. House of Representatives, Paul Ryan, gave an encouraging perspective on the state of the U.S. economy. He reminded the packed general session audience of the enduring strength of the American system of government and the American dream.  In a follow-up fireside chat, Ryan and John J. Kelliher, a consultant and policy expert, discussed the growing role of Medicare Advantage programs, Medicare and Medicaid payment reform, and immigration issues amid a labor shortage. “Immigration reform will get done,” predicted Ryan. “But not in the next two years.”

Luncheon keynote speaker Ian Morrison, a healthcare futurist, identified the problems with the American healthcare system (too expensive) and then suggested some fixes. He pointed to technological advances, data analysis, and the importance of social determinants of health, and said that payors will increasingly cover non-traditional services, such as housing, to keep seniors out of the hospital. He answered questions in follow-up interactive session.

Highlights of the program of educational sessions:

Day 1

“Underwriting Healthcare in Private Pay Seniors Housing” showed investors how changes in the broader healthcare system impact the NOI of their properties. Using two scenarios, one from today and one from 2025, the panel illustrated how coordination of care will make a difference for fictional 86-year-old Mary and her eldest daughter, Sue, and also drive new revenue streams and improve NOI.

In a NIC first, video highlights were replayed on Day 2 along with a discussion, and live number-crunching, facilitated by moderator Joel Mendes of JLL, and NIC founder and strategic advisor Bob Kramer.

“Equity in Senior Care: Understanding the Players” was presented in a lively “Dating Game” format, complete with theme music and dating references. In two different games, two very different capital seekers asked tough questions of three potential financial partners to find the perfect match.

“I-SNPs: Why Providers are Becoming Payors in a Value-Based World” addressed the strategy of creating a Medicare Advantage plan. A panel of experts, already involved in the process, discussed Institutional Special Needs Plans, and keys to success.

Day 2

“Medicaid Managed Care in Seniors Housing and Skilled Nursing: Opportunity or Threat?” Panelists provided a roadmap of Medicaid managed care. How it works and the opportunities it represents.

“Valuation Methodology Revisited: The Impact of Change” covered current factors impacting property values: inventory, labor pressures, investor interest in the sector, and the availability of capital. The biggest risk going forward according to a poll of the audience is competition—for labor and from other providers.

“Beyond the I-SNP: Future Opportunities for Participation in Value-Based Care” explored how seniors housing providers can profit by assuming some of the healthcare risk for their residents. Panelists noted the need to prove value through data and outcomes.

“Recruit, Retain and Profit with a Top of License Workforce.” The panelists discussed scheduling flexibility, rewards, recognition, and a career path as retention tools. Referrals are the best source of qualified new workers. Attendees broke into small groups to share best practices.

“Real Estate Secured and Cash Flow Lending: Navigating Financing Options to Meet Your Business Needs” mapped out financing options. Debt financing is readily available from traditional sources such as Fannie Mae and Freddie Mac. Panelist Adam Sherman of Live Oak Bank highlighted loan programs that get overlooked from the SBA and USDA.

In “The Boomer Hackathon: Creating Models That Work for Boomers and Investors,” three teams – and those in attendance – brainstormed innovations in seniors housing appropriate for incoming Baby Boomers. A standing-room-only crowd participated in the highly engaging event, which featured a panel of boomer judges, two minute project pitches, and projected financials to consider.

“It’s Not Room Service, It’s Healthcare… Or Is It? Forging Partnerships in a Value-Based World.”  New technology and new building designs are morphing hospitality and healthcare into a new seniors housing model. Panelists discussed how their properties blend hospitality and healthcare into a “perfect marriage.”

“Path to Healthcare Risk: Do You Have a Decent Roadmap and Proper Footwear?” Owner and operator Lynne Katzmann and consultant Anne Tumlinson gave a brief presentation about the core issues facing operators considering the formation of an I-SNP. Attendees broke into small groups to address key questions, sharing their observations on how an I-SNP may be an opportunity for a property to differentiate itself from the competition.

Day 3

“Implications of PDPM for Skilled Nursing.”  Steven Littlehale of PointRight addressed an engaged audience of investors and operators eager to understand the ramifications of the new Medicare reimbursement system. Bottom line: Lenders and capital partners should be meeting with operators to determine their readiness for the changes which will require improved patient assessments, coding accuracy and better data capture. “Skilled nursing will be seen as the best place for quality outcomes,” said Littlehale. “Make sure you are a winner.”

“A Post-Acute Survival Guide: Real Strategies and Real Results for Increased Occupancy.” Strategic up- and down-stream networks are critical for survival for post-acute providers. Payors and hospital systems use data to select those they invite into their network. Panelists noted that operators must “lean in” and engage with them for continuous improvement.

“Location Matters: Winners and Losers in Local Markets.” NIC chief economist Beth Mace highlighted the latest NIC MAP® data and key findings, including which markets performed well and which ones did not meet expectations. NIC senior principal Lana Peck introduced the new rate tier report and walkability score data, now on NIC MAP, along with a deep dive on local markets.

“Current Market Conditions Impacting Seniors Housing & Care.” NIC chief economist Beth Mace presented an analysis of macroeconomic conditions. Concerns about the economy have recently been tempered by a halt in the rise of interest rates. Seniors housing new supply is still outpacing demand, but she noted a significant uptick in demand. Occupancy rates are expected to increase with a slowdown in construction. Referring to an apparent pull back by developers, she said, “The message got out there.”

Mark Your Calendar

2019 NIC Seniors Housing Bootcamp, Wednesday April 10, Charlotte, N.C.

2019 NIC Fall Conference. September 11-13, Chicago

Private Buyers Remain Very Active 

There may have been some challenges in the seniors housing and care markets in 2018 but it is safe to say that liquidity did not seem to be one of those challenges based on the latest sales transactions data. Indeed, not only was there strong dollar volume registered in terms of closed sales transactions, but the sheer number of transactions closed was greater than in 2017. 

In terms of the number of deals closed, a measure different than dollar volume, we saw continued signs of a very strong transaction market.  There were 514 deals closed in 2018 of which 85 were portfolio transactions and 429 single property transactions. That compares to the 502 transactions closed in 2017 of which 101 were portfolio and 401 were single property transactions.  Portfolio transactions have consistently represented about 20% of overall closed transactions when looking at the past few years, including in 2015 when the public buyer type, namely the publicly traded REITs, were more active with larger deals. However, 2018 saw portfolios represent closer to 16%, highlighting the fact that single property transactions are very important to the market in terms of the flow of transactions closing. We have seen 21 consecutive quarters of more than 100 total deals close. 

As far as the size of the deals, small deals of $50 million or less dominated in the fourth quarter, which is typical with every quarter given the large percentage of single property deals, representing about 89% of all deals closed.  Over the past few years we have seen a significant decrease in large deals of $500 million or more.  In 2015 we saw 10 transactions of $500 million or more and only 10 combined in 2016 and 2017, and only 1 in 2018.  However, we did see a significant pick up in deals between $250 million and $500 million as only 2 were closed within that range in 2017, but 7 were closed in 2018. 

To take a deeper look at the activity, let’s dig into the annual trends of who the buyers were for 2018. 

Private Buyers Still Very Active 

As far as the trends in buyer activity in 2018, one notable trend is the institutional buyer decreased significantly from 2017 to 2018 as a share of volume and the public and private buyers increased as a percentage of closed volume.  The public buyer category is just that — any publicly traded company. The private type is any company that is not publicly traded—for example, a private REIT or single owner or partnership. The institutional type is usually the equity funds that manage pension money or other types of institutional money. 

The institutional buyer type represented only 19% of the $13.9 billion in closed transactions in 2018 as its total closed dollar volume decreased by 48% from 2017 when it represented 32% of volume and closed $5.2 billion in transactions.  However, 2017 was represented in a significant way by Blackstone, within the institutional category, when they closed some larger deals over $500 million.  For additional comparison purposes, the institutional buyer closed $3.9 billion in 2016 representing 27% of closed volume that year.  The institutional buyer has averaged $3.9 billion in closed transactions per year over the last three years. 

From the public buyer side, its representation of volume increased from 25% in 2017 to 29% in 2018.  In terms of the dollar volume, it held relatively steady as the public buyer closed $4 billion in both 2017 and 2018.  In 2018 the volume was really carried by the Welltower/QCP deal and in 2017 it was carried by the Sabra/Care Capital Properties deal.   The public buyer has also averaged $3.9 billion in closed transaction per year over the last three years. 

The private buyer (see chart below) continues to be the most consistent and steady source of capital as it registered close to $6 billion in closed transactions in 2018 at $5.9 billion.  It represented 43% of all volume in 2018 which was up from 34% in 2017 when it closed $5.5 billion in transactions.  Over the past three years the private buyer has averaged $5.7 billion and it has closed above $5 billion in transactions for five straight years.  

Lastly, just to touch on cross-border activity as we have seen a steady decrease in that dollar volume ever since the 2015-time period when it registered $2.1 billion.  It has averaged about 5% of volume over the past three years and only closed $500 million in 2018 which was down from 2017’s $900 million.