NIC recently relaunched its popular Leadership Huddle webinar series to address today’s evolving market conditions. In the first Leadership Huddle webinar of 2023, held on May 2, NIC Chief Economist, Beth Mace, presented the NIC Blue Book, addressing current trends, challenges, and opportunities in the senior housing industry. Mace provided insights on the broader economy, inflation, Fed policy, interest rates, the potential for a recession in the next twelve months, and the current job market.  

The Federal Reserve’s response to addressing the highest inflation rates in 40 years has been to push interest rates up quickly and steeply to avoid embedding inflation into the expectations of consumers and businesses. Mace pointed out the impact of the rising interest rates on GDP growth, which saw a significant deceleration in the first quarter of 2023. The labor market, however, has remained strong, with the unemployment rate hovering between 3.4% to 3.6% for the past several months. Nonetheless, cracks in the job market are starting to emerge, with job openings declining, quit rates dropping, and layoffs increasing. 

Mace noted evidence of improvements in the senior housing job market, with the use of temporary agency workers starting to decline, and the level of jobs in assisted living now above their pre-pandemic peak. However, jobs in skilled nursing are still well below where they were pre-pandemic, and the number of workers in skilled nursing has been declining for quite some time. 

Join the Complimentary NIC Leadership Huddle Webinar

The New Reality: 

A Conversation about Current Market Trends Affecting Senior Housing

May 23, 2023, 2:00 PM ET

While senior housing occupancy rates are still lower than pre-pandemic levels due to new supply coming into the market, the number of actual occupied units for senior housing is as high as it has ever been. The occupancy rate is still four percentage points below its pre-pandemic level, but net absorption has more than made up for the loss of occupied units experienced during the pandemic. Growth in wage rates is putting upward pressure on operators’ expenses, but positive revenue growth in asking rents for assisted living and independent living is providing some relief. To maintain a stable labor force, operators are focusing more on culture, loyalty, and education, among other strategies.  

The lending environment in the commercial real estate industry is becoming increasingly difficult as interest rates rise, bank borrowers face greater scrutiny, and banks address greater regulatory pressure. Construction financing is very difficult as well, and development has also been limited due to supply chain disruptions and a shortage of skilled labor. She noted that new development is likely to be limited in the near future, but that there could be opportunities for redevelopment and repurposing of existing properties. 

In addition, there is uncertainty around the cost and availability of agency debt, which has historically been a significant source of financing for the industry. Transaction volumes have been low in recent months, with many businesses waiting on the sidelines to see where values are going to end up.  

Despite today’s challenges, there is reason to be optimistic about the long-term prospects for the senior housing industry. Market fundamentals are improving, and demographics are favorable. Mace noted that the value proposition of senior housing has never been better, with more people focusing on wellness and being in an environment that supports wellbeing. She urged operators and investors to focus on the fundamentals of the market and to be patient in their approach. 

A replay of the May 2 Leadership Huddle webinar is available here.  

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Join us for the next Leadership Huddle webinar on Tuesday, May 23, at 2:00 PM as NIC Chief Economist, Beth Mace, leads a discussion on current market conditions with Aron Will, Vice Chairman and Co-Head of National Senior Housing at CBRE Capital Markets, Kris Woolley, Founder and CEO at Avista Senior Living, and Steve Blazejewski, Senior Portfolio Manager and Managing Director at PGIM Real Estate. Learn from these experts who work in the senior housing markets every day. Registration is complimentary. 

According to intra-quarterly NIC MAP^® data, released by NIC MAP Vision, the senior housing all-occupancy rate for the NIC MAP Primary Markets increased to 83.5% in the April 2023 reporting period, up 0.3 percentage points (pps) from the March 2023 reporting period on three-month rolling basis. From its time series low of 77.8% in June 2021, occupancy increased by 5.7pps, as evident in the exhibit below, with 20 of the 22 reporting periods showing positive gains (from June 2021 to April 2023).  

Strong demand suggests a positive outlook for senior housing. According to NIC’s Executive Survey Insights (ESI) for the month of April 2023, this positive trend is supported, with one-half of responding operators (52%) reporting an acceleration in the pace of move-ins, the highest share of operators reporting an acceleration since April 2022 when 54% of organizations reported the pace of move-ins to be accelerating. 

Occupancy Recovery by Majority Property Type. At 85.3%, the all-occupancy rate for majority independent living (IL) properties for the NIC MAP Primary Markets edged up 0.1pps from the March 2023 reporting period on a three-month rolling basis but remained 4.4pps below the March 2020 level. For majority assisted living properties (AL), the all-occupancy rate for the NIC MAP Primary Markets was up 0.5pps to 81.7% from March 2023 and is now 2.8pps below March 2020 levels. Despite the faster improvement in assisted living, the overall occupancy rate is still lower than that of independent living. 

From its pandemic related low (June 2021), the all-occupancy for majority assisted living increased by 7.8pps, 4.2pps more than for majority independent living (up 3.6pps since June 2021). Occupancy for assisted living continued to recover relatively fast compared with independent living despite the relatively large inventory growth since the onset of the pandemic. However, in the past 12 months, assisted living inventory was less than that of independent living. The inventory of independent living and assisted living for the NIC MAP Primary Markets increased by 1.7% and 1.5%, respectively, from year-earlier levels in the April 2023 reporting period.  

Occupancy Recovery Across Select Metropolitan Markets. In 11 of the 31 NIC MAP Primary Markets, assisted living occupancy rates have either returned to pre-pandemic March 2020 levels or exceeded them, with some markets being within less than 1pps from returning to their March 2020 levels. Notable examples include Dallas, where occupancy stands at 83.1%, surpassing the March 2020 level by 2.9pps, and Kansas City, with occupancy at 85.4%, exceeding the March 2020 level by 1.9pps. Other markets such as Phoenix, Orlando, Denver, Detroit, Tampa, Cleveland, Atlanta, San Antonio, and Portland have also demonstrated notable recovery in assisted living occupancy rates. Additionally, 20 of the 31 Primary Markets saw assisted living occupancy rates above 80% in April 2023. 

For independent living, out of the 31 NIC MAP Primary Markets, only four have returned/exceeded March 2020 occupancy levels, or are within less than 1pps of reaching that benchmark. Some of these markets include San Antonio (87.0%, 1.8pps above March 2020 level), and Pittsburgh (89.7%, 0.6pps above March 2020 level). While the majority of the 31 NIC Primary Markets still have independent living occupancy rates differing by more than 1pps, it is important to note that all markets currently maintain occupancy rates above 80% (ranging from Houston at 80.1% to Boston 93.4%). This highlights the overall resilience and strength of independent living, even amidst varying levels of recovery.  

Keep track of the most timely comprehensive review of the sector’s market fundamentals and trends. The NIC Intra-Quarterly Snapshot monthly publication, available for complimentary download on our website, continues to provide a powerful and closely watched means to stay ahead of industry trends, even as senior housing markets sustain a fast pace of evolution and adaptation, amidst an apparent recovery.   

The May 2023 Intra-Quarterly Snapshot report will be released on our website on Thursday, June 8, 2023, at 4:30pm.  

Interested in learning more about NIC MAP Intra-Quarterly data? To learn more about NIC MAP Vision data, schedule a meeting with a product expert today. 

NIC Analytics released the 4Q 2022 NIC Lending Trends Report today. The quarterly report, available complimentary to NIC constituents, includes data trends over six years for senior housing and nursing care construction loans, mini-perm/bridge loans, and permanent loans, from 3Q 2016 through 4Q 2022. 

Takeaways from the 4Q22 NIC Lending Trends Report 

After a sharp decline in the third quarter 2022, the issuance of mini-perm/bridge debt for senior housing bounced back in fourth quarter 2022 to levels seen earlier in the year. The use of mini-perms and bridge debt reflects difficulties in sourcing permanent debt, given the challenges in the overall capital markets and lending environment. Specifically, the jump in mini-perm/bridge loans for senior housing suggests that some borrowers are opting for mini-perm loans over permanent loans for some deals, likely due to elevated interest rates, inflation, and moderately low occupancy rates in general. 

Closed new permanent loan volumes increased to levels seen earlier in 2022 but remained well below those levels seen in 2018 and 2019. For the sample of lenders in the Lending Trends Report, new permanent loans closed for nursing care was 38% less than that of senior housing.  

Separately, senior housing new construction loan closings inched up slightly in the fourth quarter of 2022 but were generally weak by historic standards. Only two other periods in the time series were as low — the third quarter of 2022 and the first quarter of 2021. The issuance of construction debt for nursing care was almost negligible, in line with its pattern of limited debt financing for new nursing care property construction since NIC began collecting the data in 2016. In general, there has been limited development of new nursing care properties for the past several years.

The total balance of delinquent loans for senior housing inched higher in fourth quarter 2022, but was well below the high levels seen in 2020. Delinquencies as a share of total loans increased to 1.3% for senior housing from 1.2% in the third quarter. For nursing care, the delinquency rate slipped to 1.1%. Note that loans in forbearance are reported in the delinquent loan data for some debt providers. Notably, some foreclosures were reported for the sample in fourth quarter 2022 for senior housing. 

As background, the Fed raised interest rates by 1.25 percentage points (pps) to 4.25%-4.5% in the fourth quarter of 2022 (+0.75pps in November 2022 and +0.5pps in December 2022). Subsequently, the annual inflation rate in the U.S. slowed for a sixth straight month to 6.5% in December 2022, down 2.6pps from the highs seen in June 2022 (9.1%). Meanwhile, senior housing construction starts remained relatively low in the fourth quarter of 2022, and the number of senior housing units under construction in the 31 NIC MAP Primary Markets remained near its lowest level since 2015, according to data released by NIC MAP Vision. 

Download the complimentary 4Q 2022 NIC Lending Trends Report for full details on these and other trends in senior housing and skilled nursing lending. 

Note: These data are not to be interpreted as a census of all senior housing and skilled nursing lending activity in the U.S., but rather reflect lending activity from participants included in the survey sample only. 

The 1Q2023 NIC Lending Trends Report is scheduled for release in mid-August 2023. 

Interested in participating? The NIC Lending Trends Report helps NIC Analytics to deliver on NIC’s mission to enable access and choice by further enhancing transparency of capital market trends in the senior housing and care sectors. We very much appreciate our data contributors. This report would not be possible without them. 

If you would like to participate and contribute your data, please contact us at analytics@nic.org. As a courtesy for providing data, data contributors receive this report early before publication on the website. The information provided as part of the survey will be kept strictly confidential. Individual answers will be combined with the answers of all other respondents. Data acquired from this survey will only be reported in the aggregate, and therefore, the resulting aggregated data will not be attributed to you or your company upon distribution. 

The Bureau of Labor Statistics (BLS) reported that the unemployment rate slipped back to 3.4% in April from 3.5% in March. This places it at the same level as in January at 3.4%, which was its lowest level since 1969. It has been hovering in a narrow range for many months now and underscores the ongoing tightness of the labor market.  

Separately, the BLS also reported that nonfarm payrolls rose by 253,000 in April 2023, below the monthly pace of 290,000 over the prior six months, but still strong. The three-month average gain in nonfarm payrolls was 222,000 as of April, below the 295,000-pace seen in March and the 430,000 pace in February. Market expectations had called for a gain of 185,000 jobs. Of note, revisions subtracted 149,000 positions to total payrolls in the previous two months.

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.16 in April to $33.36 or up 0.5% from the prior month, the largest monthly gain in the past year. This was an increase of 4.4% from year-earlier levels, slightly more than in March at 4.3% (revised from 4.2%). The average hourly earnings data suggest that wage pressures are not easing rapidly. Earlier this week, the BLS released the employment cost index (ECI) which also showed that underlying pressures on inflation remain. Wages and salaries paid to workers rose 5.1% in March from a year earlier.

Today’s report shows the labor market remains tight, with the economy still creating jobs at a solid, albeit slowing pace. Notably, the gain occurred despite the turmoil in the banking sector. In fact, financial sector payrolls rose by 23,000 and professional and business services increased by 43,000. Employment in health care rose by 40,000 in April, compared with the average monthly increase of 47,000 over the past six months. Employment in nursing care facilities grew by 2,600 jobs from last month and 55,100 from year-earlier levels and stood at 1,397,300 positions. Jobs increased by 3,800 positions in CCRC and assisted living facilities and were up by 60,700 from year-earlier levels to 946,500 jobs. 

The Fed is not likely to be heartened by the report in terms of observing a slowdown in the economy and inflation pressures. Earlier this week, the Fed raised interest rates another 0.25 percentage points to a range of 5.0-5.25% to its highest fed funds rate in 16 years as it continues to combat inflation. The Fed is looking for evidence of a softer labor market to help ease wage pressures and prevent a wage/price inflationary spiral from occurring.

Other employment data reports are starting to show a slightly slowing labor market, however. 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 ratio of job vacancies to unemployed—a measure that Fed Chair Powell frequently references—was 1.64 in March from 1.68 in February. It has trended lower from an all-time high of 2.01 in March 2022 but remains higher than the 1.19 average in 2019, ahead of the pandemic. Total separations, which includes quits, layoffs and discharges rose by 91,000 in March to reach 5.9 million. 

In the household survey, the jobless rate slipped 0.1 percentage point to 3.4%, down from 3.5% in March. Both months’ unemployment rates were well below the 14.7% peak seen in April 2020. The drop in the jobless rate reflected a decline in the civilian labor force (43,000) coupled with a relatively small rise in household employment (139,000). The underemployment rate was 6.5% versus 6.7% in March.

Among the major worker groups, the April unemployment rates were 3.1% for adult women, adult men (3.3%), teenagers (9.2%), Whites (3.1%), Hispanics (4.4%), Blacks (4.7%), and Asians (2.8%). 

The labor force participation rate inched up to 62.6% in April, unchanged from March and 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 1.2 million in April. These individuals accounted for 20.6% of all unemployed people.

“When aggregated across all care segments, one-half of responding operators (52%) report an acceleration in the pace of move-ins in April 2023. This marks the highest level of operators reporting an acceleration since April 2022, when 54% of organizations reported the pace of move-ins to be accelerating. However, this is still below the peaks experienced from April to July 2021, when approximately 60% of operators reported an acceleration in the pace of move-ins. 

The higher cost of debt is having an influence on organizations’ development pipeline. More than one-half of independent living operators (57%) report the higher cost of debt is having a significant impact to their development pipeline, followed by one-half of memory care (50%) and assisted living (49%) operators. Just under one-third of nursing care operators (29%) report the higher cost of debt having a significant impact on their development pipeline.”

 –Ryan Brooks, Senior Principal, NIC

This ESI survey includes responses from April 1, 2023, to April 30, 2023, from owners and executives of 45 small, medium, and large senior housing and skilled nursing operators across the nation, representing hundreds of buildings and thousands of units across respondents’ portfolios of properties. The number of properties owned or operated by survey respondents in the April 2023 ESI ranges from one to as many as 400. More detailed reports for each “wave” of the survey and a PDF of the report charts can be found on the NIC COVID-19 Resource Center webpage under Executive Survey Insights. 

In the April 2023 ESI, the share of operators reporting an acceleration in the pace of move-ins in the past 30 days has increased across all care segments. More than one-half of assisted living (56%), memory care (56%), and independent living (52%) operators report an acceleration in the pace of move-ins. For independent living operators, this marks the third consecutive month with an increase, up from 37% in March 2023 and from 27% in February 2023. Slightly fewer than one-half of nursing care operators (44%) report acceleration in the pace of move-ins, up from 28% the previous month.

When aggregated across all care segments, approximately one-half (52%) of operators report an acceleration in the pace of move-ins in April 2023. This marks the highest level of operators reporting an increase since April 2022, when 54% of organizations reported an increase. However, this is still below the peaks experienced from April to July 2021, when approximately 60% of operators reported an acceleration in the pace of move-ins. 

The increasing proportion of organizations reporting an acceleration in the pace of move-ins is creating optimism with regard to the anticipated timeframe for occupancy to recover to pre-pandemic (March 2020) levels. Across all care segments, almost two-fifths of operators (38%) anticipate occupancy to recover in 2023, while one-quarter (25%) anticipate the recovery won’t occur until 2024. Only 6% of operators anticipate it will take until 2025 or later for occupancy to recover.

Perhaps predictably, the needs-based settings are the most optimistic about the occupancy recovery timeline, with almost one-half of nursing care (46%) and two-fifths of assisted living (41%) and memory care (40%) operators anticipating occupancy recovery in this calendar year. Conversely, for the wants-based setting of independent living, only one-quarter of operators anticipate occupancy to recover to pre-pandemic levels in 2023.

Despite optimistic occupancy recovery timelines, difficulties persist on the labor front. Attracting community and caregiving staff is cited as the biggest challenge by respondents (78%), followed by rising operator expenses (76%) and staff turnover (67%). The proportion of organizations reporting more than 25% of full-time, open positions across their organization has more than doubled – to 12% — since the last time this question was asked in November and December 2022, when only 5% of organizations reported more than 25% of full-time positions as open.

These openings are a leading cause of operators experiencing a staffing shortage and greater than 90% of operators report experiencing a staffing shortage in April 2023. Among these operators, just under one-tenth (8%) indicate the shortage to be severe. Three-quarters (75%) of respondents indicate their staffing shortage to be moderate, followed by one-sixth (17%) who indicate the shortage to be minimal.

Agency staff is still being used to supplement job roles, with nurse aides (38%) and nurses (33%) being the roles that are most often being supplemented. Food services employees (13%) and plant operations employees (10%) follow as the next most likely job roles to be supplemented by agency staff. 

Even with the open, full-time positions being high in April 2023 and attracting community and caregiving staff being cited as the biggest challenge, almost one-half (48%) of operators believe staffing challenges will improve in 2023, followed by one-quarter (28%) of operators who anticipate seeing improvements in 2024, and the remaining one-quarter not anticipating seeing improvements until 2025 or later. 

New questions to the ESI survey ask about the impact of the current operational environment (occupancy rates, operating expenses, inflation, etc.) on the ability to service debt as well as the impact of the higher cost of debt on their organization’s development pipeline. 

With regards to the impact of the current operational environment on the ability to service debt, half (50%) of nursing care operators reported there was no impact, followed by just under one-half of assisted living (46%), independent living (43%), and memory care operators (41%). Comparatively, just under one quarter of nursing care operators (23%) reported the current environment had a significant impact on their ability to service debt, while one-sixth of memory care operators (17%), and one-tenth of independent living (11%) and assisted living operators (10%) reported a significant impact. 

While most respondents indicate the current operational environment is having no impact to their ability to service debt, the higher cost of debt is having an influence on organizations’ development pipeline. More than one-half of independent living operators (57%) report the higher cost of debt is having a significant impact to their development pipeline, followed by one-half of memory care (50%) and assisted living (49%) operators. Just under one-third of nursing care operators (29%) report the higher cost of debt having a significant impact on their development pipeline. 

Despite the impact of higher debt costs, two-fifths of operators are still considering diversifying their product offerings in 2023. Among organizations who are considering product diversification, three-quarters plan to diversify into lower acuity settings (76%), while only one-sixth plan to diversify into higher acuity settings (18%). A small portion of responding organizations (6%) plan to expand into both lower and higher acuity settings.

April 2023 Survey Demographics

• Responses were collected between April 1 and April 30, 2023, from owners and executives of 45 senior housing and skilled nursing operators across the nation.
• Owners/operators with 1 to 10 properties comprise roughly one-half of the sample (56%). Operators with 11 to 25 properties and operators with 26 properties or more account each account for roughly one-quarter (22%) of respondents.
• More than one-half of respondents are exclusively for-profit providers (58%), one-third operate not-for-profit seniors housing and care properties (33%), and 9% operate both.  
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, three-quarters (71%) of the organizations operate seniors housing properties (IL, AL, MC), 22% operate nursing care properties, and 36% operate CCRCs – also known as life plan communities.

The May 2023 ESI survey is currently open and will be collecting responses through May 31, 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 of surveys. We have surveyed through numerous challenges — COVID-19, threats of a looming recession, labor shortages, inflation, and rising expenses — many of which still persist. As we continue to navigate through 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. Thank you.