Of the 99 NIC MAP^® primary and secondary metropolitan markets that the NIC MAP^® Data Service reports on across the nation, 11 are in California.¹ Within these metropolitan markets, NIC tracks 937 seniors housing properties with 107,500 units, or nearly 12% of the seniors housing properties within the 99 markets. By coincidence, this share is comparable to California’s 12% share of the total U.S. population (39.6 million people live in California versus 327 million in the U.S. as of 2018). Within the state, performance measurements vary considerably.

California Markets – Seniors Housing | 4Q2019

No Two Metropolitan Markets are the Same.  Of the 11 California metropolitan markets in the NIC MAP 99 markets, 6 ranked in the top 22 best performing markets for occupancy as of the fourth quarter of 2019. These include top ranking San Jose, with an occupancy rate of 95.7%, the highest in the nation, Ventura at 92.2% (seventh of 99 markets), Modesto at 91.2% and San Francisco, San Diego and Fresno, all with occupancy rates above 90%. Three of the 11 had occupancy rates below the national average of 87.9% in the fourth quarter: Bakersfield and Riverside both at 87.3% and Stockton at 87.1%. Los Angeles and Stockton were in the middle of the pack.

Similarly, there is wide variation among penetration rates within California’s largest metropolitan markets. NIC defines the penetration rate as total inventory divided by the number of households older than 75 years of age. On average, the penetration rate among these Californian metropolitan areas is lower than the 99 Primary and Secondary markets average: 9.8% versus 11.2%, respectively. Within these 11 metropolitan markets, Bakersfield, Riverside and Los Angeles had penetration rates below 8% in the fourth quarter of 2019, while Stockton and San Diego exceeded 12%.

Construction Ebbs and Flows.  Three of California’s 11 markets have relatively much construction underway—Riverside, Sacramento, and Ventura. Construction as a share of inventory stood at 14.1%, 18.3% and 10.2%, respectively, in the fourth quarter, above the 99 Primary and Secondary markets pace of 6.2%. On the other hand, six of these California markets have virtually no construction underway—parts of the Central Valley (Bakersfield, Fresno, Modesto and Stockton) and the Bay Area (San Francisco and San Jose). Los Angeles and San Diego have 6.4% and 5.9% shares of inventory under construction as of the fourth quarter 2019, respectively.

Difficult zoning regulations and entitlement rules, and the subsequent barriers to entry imposed on new development, often mean that California’s construction activity remains relatively low for many of its metropolitan markets. While this is bad news for those trying to get into the market, it is decidedly good news for incumbents in those markets as well as those developers and operators that currently have projects underway.  

Asking Rents.  Coastal California’s higher cost of living and of doing business, as well as higher home prices, means asking rents for seniors housing in these markets (Los Angeles, San Diego, San Francisco, San Jose, and Ventura) were 30% higher, on average, than the 99 Primary and Secondary markets average asking rent, with San Francisco a full 43% higher and San Jose 36% higher as of Q4 2019. However, except for Sacramento which was 11% higher, the more centrally located Central Valley metropolitan markets in California (Bakersfield, Fresno, Modesto, Riverside and Stockton) had asking rents that were 8% less than the national average.   

What’s Ahead?  Looking ahead, it’s likely that San Jose will retain its title as among the highest occupied markets for some time. Construction as a share of inventory remains low at 3.3% (200 units). While more projects may be in the pipeline at this time, they have not yet broken ground. Given that the time from groundbreaking to opening has lengthened and assuming California’s construction cycle is similar to that of the nation, it will likely be two years or later for new competition to significantly affect incumbent operators. In addition, San Jose is a high-barrier-to-entry market which will limit the threat of new competition. 

In contrast, construction as a share of inventory totaled 18.3% (1,916 units) in Sacramento in the fourth quarter, the highest share in the nation. The completion and opening of these units will put downward pressure on Sacramento’s occupancy rate which has already been pushed lower by the completion of more than 1,000 units since 2016. Since then, the occupancy rate has fallen more than three percentage points from an all-time high of 94.0% in the third quarter of 2016 to 90.3% in the fourth quarter of 2019. For perspective, it has taken the market since mid-2012 to absorb on a net basis the equivalent 1,930 units. 

In summary, California is a big state. If it were a stand-alone nation, it would rank fifth in the world, with a “GDP” of more than $2.7 trillion. It is a state of multiple dynamics in terms of development and growth opportunities, population and demographic subtleties and lastly, consumer preferences. This is perhaps nowhere as evident as in the performance of its myriad seniors housing properties.

¹ Note that NIC MAP also tracks seven additional smaller California markets that are not included here. The data time series for these additional markets is not as long.

More than 1500 industry leaders gathered in San Diego last week for the 2020 NIC Spring Conference. Under calm blue skies, attendees engaged in three days of active networking, deal making, thought-leadership, and discussion of critical trends. A focus on disruption and new partnerships in senior care augmented the annual event’s established focus on real estate debt, equity capital flow, valuations, market trends, and investments.

Educational Program

Building on the conference theme of Investing in Seniors Housing and Healthcare Collaboration, speakers and sessions highlighted the increasing role of healthcare in the seniors housing value proposition.

The first of two general sessions, “Join the Disruption: Convergence of Healthcare and Seniors Housing,” provided real-world examples of healthcare and seniors housing disrupting current models in an increasingly value-based world. The presentation focused on the opportunities that now exist to break down old silos, adapt, and partner to improve outcomes. NIC’s Bob Kramer noted that “In the future, a system focused on prevention and wellness will keep people out of hospital and acute care settings. We are moving from a curative model to a preventative model.”

Growth strategist Andy Waldeck presented a thought-provoking luncheon keynote titled, “Positioning for the Long Term: The Opportunity for Integrating Senior Care.” Waldeck argued that the unsustainable cost of the U.S. healthcare system has left it ripe for disruption, and that the seniors housing and care industry has an opportunity to reframe its role in the healthcare continuum, saying, “We are in the early innings of the industry transitioning to a new vision.”

With educational programming organized along three tracks − Real Estate Strategies, Healthcare Strategies in Real Estate, and Senior Care Collaboration − attendees could easily find sessions aligned with their interests.

Real Estate Strategies

Sessions in the Real Estate Strategies track offered insights on deal structuring and what to look for in a partner, managing margin compression across property types, rising costs of labor, cap rate drivers, capital flow into the sector and more − with all discussions run by leading operators, debt providers, and investors in the field.

Healthcare Strategies in Real Estate

In the Healthcare Strategies in Real Estate track, attendees heard how PDPM is working five months in, learned about care integration models, explored real-world vertical integration strategies, and were updated on key drivers for valuation. One session featured newly released data by ATI Advisory indicating that integrating healthcare services, such as primary care and nurse practitioners, into seniors housing can reduce costly ER visits and hospital stays by as much as 50%.

Senior Care Collaboration

Kicking off the conference, a panel of experts weighed in on the unsustainable cost of healthcare and trends impacting the senior living industry. Sessions offered thought-provoking evidence of the looming changes in the way healthcare is accessed and delivered. Attendees walked away understanding that changes in healthcare delivery, from telehealth to new models of risk sharing and new partnerships with healthcare providers are likely to have a lasting impact on their industry.

Other News

During the conference, NIC announced the certification of its fourth Actual Rates Software Partner. Clients of Medtelligent, the maker of ALIS software for assisted living, memory care, and behavioral health communities, can now use the software for automated, efficient participation in NIC’s powerful Actual Rates Initiative.

Stay Tuned

2020 NIC Spring Conference highlights will be available on nic.org in the coming weeks. In addition, video and audio recordings for most of the sessions will be made available to conference attendees.

Join us for the 2020 NIC Fall Conference, October 7-9 in Washington, DC.  

The Labor Department reported that there were 273,000 jobs added in February.  This was more than the consensus estimate of 175,000 and marked the 113th consecutive month of job gains. For all of 2019, average monthly gains were less at 178,000. For 2018, monthly gains averaged 193,000 and for 2017, monthly gains averaged 176,000.  The latter data points were revised from prior estimates.   

Revisions also added several jobs to the prior two months.  The change in total nonfarm payroll employment for December was revised up by 37,000 from 147,000 to 184,000 and the change for January was revised up by 48,000 from 225,000 to 273,000.  Combined, 85,000 jobs were added to the original estimates.   Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.  After revisions, job gains have averaged 243,000 over the last three months. 

Health care added 32,000 jobs in February and has added 368,000 jobs in the past twelve months.

The January unemployment slipped back to 3.5% in February from 3.6% in January. The underemployment rate was 6.9% from 6.7%.

Average hourly earnings for all employees on private nonfarm payrolls rose in February by nine cents to $28.52. Over the past 12 months, average hourly earnings have increased by 3.0%. For 2018, the year over year pace was 3.0% and in 2017 it was 2.6%. Reasons why wages are not growing faster include the retirement of highly paid baby boomers and relatively weak productivity growth.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work inched up to 63.4% in January from 63.2% in December, which had been the highest since August 2013.

Combined, the significant upward revision to the December and January jobs figures plus the strong February employment gains place the economy in a position of strength ahead of the potential and likely negative economic impacts associated with the Coronavirus. Despite the relatively good news on the job front, the market paid little attention to the report, with all eyes on the spread of illness across the globe. The Federal Reserve is expected to lower rates again as it shores up the economy, after the surprise 50 basis point decline announced earlier in the week. The timing is uncertain, but some expect another cut prior to the next FOMC meeting scheduled for March 17 – 18, 2020.

Las Vegas ranks 31st of the NIC MAP^® 31 Primary Markets in size, with roughly 4,400 units situated in 36 properties. In the fourth quarter of 2019, it had a seniors housing occupancy rate of 84.1%, fourth lowest among the 31 markets (Phoenix, Atlanta and Houston were lower). Stabilized occupancy was considerably higher at 88.9%, pushing its rank to 20th among the Primary Markets, and Las Vegas’ median occupancy rate was even higher at 91.3%, giving it a rank of 18th among the Primary Markets. The wide disparity in occupancy rates reflects both the large number of units recently opened but that remain empty and some properties with very low occupancy rates that are dragging down the average.

The distribution chart below highlights some of these points. In the fourth quarter of 2019, 11 of 36 Las Vegas properties had occupancy rates between 95% and 100% while 10 properties had occupancy rates between 90% and 95%; this helped pull the median occupancy higher. On the other end of the spectrum, 7 properties had occupancy rates less than 80%, which pulled the average lower. For benchmarking purposes, some investors and operators prefer to measure themselves against the median occupancy rate, assuming that the properties that support a higher median rate are of higher institutional quality.

It’s notable that the difference between the median occupancy rate and average occupancy rate is more than seven percentage points in Las Vegas, more than that of the nation and further underscoring the wide disparity in property performance in Las Vegas. In Las Vegas, it’s a tale of many properties with two distinctly different occupancy performances within the metropolitan market.

Occupancy Distribution Varies Widely Across Las Vegas

It’s also interesting to note that Las Vegas is a market that tends to have significant vacant inventory. Its average occupancy rate has only been 83.2% since NIC MAP began reporting the data. In contrast, the Primary Market average has been 89.0%. This is important in developing business plans or in establishing plans for development and may influence assumptions related to stabilized property occupancy rates for a property. Historical average stabilized occupancy rates were a bit higher at 84.8% for Las Vegas, which compares with 90.3% for the Primary Markets, and 87.4% for median occupancy, which compares with 92.5% for the Primary Markets.

4Q 2019 Median Occupancy in Las Vegas was More Than Seven Percentage Points Higher Than Total Average Occupancy

However, there is room for improvement in the occupancy trends, and some of that improvement is already evident today. Indeed, in the fourth quarter of 2019, the average occupancy rate in Las Vegas was 84.1%, stabilized occupancy was 88.9%, and median occupancy was 91.3% − all better than the historical long-term 14-year averages.

On the surface, Las Vegas is a market that an investor, operator or developer may shy away from. It ranks near the bottom of the pack for average occupancy rates from a historic perspective as well as from recent data. But digging deeper reveals some interesting observations regarding occupancy rates.

The stabilized occupancy rate in Las Vegas ranks higher than does the average occupancy rate, and the median occupancy rate ranks significantly higher than the average occupancy rate. The distribution of occupancy rate skews right and toward properties with higher occupancy rates.

Further, and not mentioned in this blog, is the fact that population growth is strong − more than double the national pace. And importantly, demographic data from NIC MAP’s Site Information Report shows robust growth in the 75-plus cohort through at least 2024. In addition, construction activity has recently stalled. Market penetration rates are low. Rent growth is relatively robust, especially for some properties. Some properties are hitting it out of the park, while others…well, less so.

This analysis suggests that further investigation into what factors create a successful property in Las Vegas may be in order.

A No-Cost At-Home Pedicure for Mom?

Imagine a world where your mom could have regularly scheduled pedicures in her own home. Now imagine that there is no out-of-pocket cost for this service, as it is in fact a benefit provided to her by her insurance plan.

That doesn’t sound like the real world does it?

What I learned at The Third Annual Medicare Advantage Leadership Innovations conference last month is that this may not be such a fantastical idea. The insurance plan provides this special supplemental benefit because your mom is diabetic, and this regular check-in allows them to monitor and manage her diabetic foot pain in a way that they otherwise couldn’t. Medicare Advantage insurers are increasingly demonstrating their creativity as they continue to think about ways to establish touch points between their beneficiaries and their health providers.

Notice that I said health providers, and not healthcare providers. That’s because Medicare Advantage insurers are beginning to focus on population health, including social determinants of health like community environments and lifestyle behaviors. This is true now more than ever, with the rollout of of the CHRONIC Care Act’s Special Supplemental Benefits for the Chronically Ill. Because  population health is intrinsically a long-term strategy, these plan providers are beginning to think more like health managers than health insurers.

With the push for value-based care and a focus on preventing the need for expensive acute care settings, MA plan providers are deploying new tactics. These include strategic partnerships with home- and community based organizations, addressing food insecurity and social isolation, and cultivating a keen understanding of what supplemental benefits are desired and needed by their beneficiary populations.

The most recent CMS data indicates that approximately 24 million seniors and people with disabilities are enrolled in such MA plans. Savvy seniors housing operators may be wondering how they can affiliate themselves with these insurers to provide both better care and a better experience to their residents. Bolder seniors housing operators may even find themselves starting their own MA plans, considering the ways in which they could oversee care delivery to their own residents and get ­­­­­direct access to the healthcare premium dollars.

In-Home Care Improves Outcomes and Reduces Hospitalizations

It’s commonly thought that one of the most vulnerable times for any patient is the transition home from the hospital. Several challenges might lie ahead. In the hospital, patients are checked on every two hours, but that ends at discharge. Transportation challenges such as getting to followup appointments and being able to pick up new medications can appear. There may be nutrition challenges such as ensuring the food in the refrigerator hasn’t expired or having access to fresh food. Mobility challenges exist such as navigating steps or simply getting into the bathroom or shower safely. All these challenges greatly increase the risk of rehospitalization to the patient.

Medicare Advantage insurers are now deploying home health aides to member homes within 24 hours following discharge from the hospital. Frequent check-ins by aides, with immediate, real-time reporting has been shown to improve health outcomes.

Medication adherence following hospitalization can be problematic. New medications are often prescribed, while previous ones are discontinued. New routines must be established to ensure all medications are taken on a timely basis. This challenge creates an amazing opportunity for these home health aides. While they aren’t “hand to mouth” pill givers, they can report on whether the patient is taking their medications. They can tell if patients are taking too much or too little of their medications. They are also often told by patients why they aren’t taking a medication, perhaps because of an unwanted side effect.

All the insights obtained during this face time with patients can be reported back as actionable information. These aides are helping to mend a fragmented care system and allow for more timely deployment of interventions to patients.

Addressing Food Insecurity

If Medicare Advantage insurers are really interested in preventing ED utilization and hospitalizations, starting with food insecurity can be a big win. Food insecurity refers to a lack of access to enough food for an active, healthy life and uncertain access to or availability of nutritionally adequate foods. A review of Feeding America’s“Mind the Meal Gap” food insecurity map shows that this problem exists in every community, and food insecure patients are more likely to develop chronic conditions, such as diabetes, hypertension, and cardiovascular disease. A recent JAMA publication shows that nearly 1 in 10 Medicare enrollees age 65 and over experiences food insecurity and that food insecure individuals often report making trade-offs between food and medication.

Humana decided to address the food insecurity problem after identifying that it was the leading cause of their members’ unhealthy days. What Humana understands is that by addressing the needs of the whole person, they can avoid the much costlier alternatives. By piloting programs early, creating physician toolkits to screen for food insecurity, and developing food insecurity predictive models, Humana was able to effectively reduce the acute-care utilization of its members. For each one-day change in unhealthy days, they realize a reduction of ten hospital admissions per 1,000 patients.

Addressing Social Isolation and Loneliness

Social isolation is second only to food insecurity in creating unhealthy days for MA plan members. Social isolation and loneliness can lead to increased disease burden (particularly Alzheimer’s disease), higher risk of depression, greater chance of premature death, and an overall increase in ED and hospital utilization. Yet, 43% of adults report being lonely.

Enter organizations like Papa. Papa pairs motivated college students with older adults and families who need companionship and assistance with everyday tasks. Papa partners with health plans not only to address loneliness, but to provide transportation for appointments, medication pick up, and church or gym attendance.

Some Medicare Advantage insurers have even used a “two birds, one stone” tactic to address both food insecurity and loneliness. Partnerships with organizations like Meals on Wheels or Hunger Action Alliance rely on meal deliverers to do more than simply drop food off. They engage with members, reporting back on home conditions, medication adherence, and other concerns identified during their visit. Making the most out of existing resources again demonstrates the out-of-the-box thinking being highlighted by the conference.

Takeaways

The Medicare Advantage landscape includes both seasoned insurers and new startups. Whether you are an insurer covering several million lives or several thousand, the key takeaway from my attendance at MA Leadership Innovations is that if you want to foray into the value-based landscape of Medicare Advantage, you must be prepared to address all of the contributing factors to health, not just those deemed to fall within the “healthcare” slice. Tactics must include strategic partnerships with home- and community-based health organizations, ways to address food insecurity and social isolation, as well as a keen understanding of what supplementary benefits are needed by your beneficiary population.

For senior living providers, the possibilities to bring care coordination and care delivery directly to your residents where they live are exciting. You can choose to partner with major Medicare Advantage plans or with health provider organizations that focus on high need, high cost seniors. Or, you can form your own MA plan with other senior living organizations. Each is an opportunity to have your residents receive benefits paid for by their health insurance, enabling them to stay out of the ED and the hospital and live longer in your community. That is a game changer!