Senior housing posted a positive total return of 0.91% in the second quarter of 2024, outperforming the broader NCREIF Property Index (Expanded NPI), which posted a total return of -0.22% in the second quarter. Positive income returns for senior housing (+1.29) were partially offset by negative appreciation (-0.38%), resulting in overall positive returns for the quarter.  Year-to-date , senior housing returned 0.81%, outperforming the Expanded NPI by nearly 200 basis points.

By senior housing property subtype, both independent living (+1.37%) and assisted living (+0.51%) posted positive total returns in the second quarter. Over the longer term, independent living has outperformed assisted living on a total return basis over the one-, three-, and five-year periods. This outperformance may be driven by higher margins typically generated in lower acuity settings such as independent living, which require less staffing and labor expenses than higher acuity settings such as assisted living.

The senior housing income return in the second quarter was 1.29%, in line with the residential sector (+1.11%) and the overall Expanded NPI (+1.18%). The senior housing appreciation (capital/valuation) return was -0.38% in the second quarter but better than the residential sector (-0.96%) and the overall Expanded NPI (-1.40%). The appreciation return is the change in value net of any capital expenditures incurred during the quarter. During the quarter, economic and capital market conditions drove negative appreciation returns in all sectors except for hotel (+0.18%). 

On a longer-term basis, the 6.63% annualized ten-year total return for senior housing was the strongest of the main property types, except for industrial (+13.45%) and self-storage (+12.09%), outperforming the Expanded NPI ten-year annualized total return of 6.17%. Income returns for senior housing (+4.91%) surpassed the Expanded NPI (+4.55%), as did appreciation returns (+1.67% vs +1.57%) over the ten-year annualized period.

The performance measurements cited above for senior housing reflect the returns of 215 senior housing properties valued at $11.39 billion in the second quarter. Overall, the number of senior housing properties tracked within the Expanded NPI has grown significantly from the 56 properties initially tracked beginning in the third quarter of 2003.

Demand for senior housing units continued to outpace new supply, with second quarter 2024 senior housing market fundamentals showing a continued recovery in occupancy rates in the 31 Primary Markets, according to data released by NIC MAP Vision. As a result, the occupancy rate for senior housing stood at 85.9%, up half a percentage point from the prior quarter.

There was a 0.7 percentage point increase in the independent living occupancy rate and a 0.5 percentage point increase in the assisted living occupancy rate, which was a change in pattern from prior quarters which had higher assisted living occupancy growth. Overall, the relatively steady improvement in market fundamentals coupled with a record number of occupied units illustrates that today more older adults than ever before are residents in senior housing properties.

Source:  NCREIF

Note: FTSE Nareit All Equity REITs returns as of July 31, 2024.

NIC’s Board of Directors is responsible for developing policies and guidelines that enable the CEO and NIC staff to facilitate the effective operation of the organization. Each Director brings extensive knowledge, experience, and passion to their work on the Board. The Board recently re-elected the following directors to serve a one-year term as officers on its Executive Committee:

• Susan Barlow, Chair – Cofounder and Managing Partner, Blue Moon Capital Partners LP
• Ken Segarnick, Vice Chair, Communications – CEO, Harmony Senior Services
• Fee Stubblefield, Vice Chair, Strategy – Founder & CEO, The Springs Living
• Imran Javaid, Treasurer – Managing Director, BMO Harris Bank
• Aron Will, Assistant Treasurer – Vice Chairman, CBRE
• John Rijos, Secretary – Co-founder & Operating Partner/CEO, CPF Living Communities, Chicago Pacific Founders
• Bre Grubbs, Assistant Secretary – Partner & Chief Strategy Officer, Leisure Care

Chair Susan Barlow shared her thoughts on serving: “As a capital provider, I am passionate about serving on NIC’s Board of Directors, especially as our industry is evolving in so many exciting ways. NIC provides the forum for capital providers and operators to participate in change making discussions relating to the rapid advancement in technology and innovative approaches to care delivery just to name a few of our focus areas. I am excited to work with the operators and other capital providers on the NIC Board to do what we can to expedite that change and innovation.”

NIC extends a heartfelt thank you to the officers and the entire Board for their commitment to serving our organization and the industry at large.

Economist Diane Swonk to present timely analysis at 2024 NIC Fall Conference 

Interest rates were kept unchanged at the most recent Federal Open Market Committee meeting (July 30-31). But as inflation eases and the labor market slows, an interest rate cut looks increasingly likely in September.  

What will that mean for the senior housing and care market? What other factors are pressuring our sector? What strategies can owners and operators leverage to navigate a quickly changing economic landscape? 

Insights to these questions and more are on the agenda when KPMG Chief Economist Diane Swonk keynotes the main stage at the 2024 NIC Fall Conference (September 23-25) in Washington, D.C.  

The timing of Swonk’s Economic Outlook for Senior Living keynote could not be more salient. The Federal Reserve is scheduled to issue its next interest rate decision on September 18, just days before Conference.  

“This is our attendees’ opportunity to hear the latest take on the Federal Reserve’s actions,” said Ray Braun, president and CEO of NIC. “Ms. Swonk’s presentation will provide context for the factors influencing market trends and investor behavior, helping individuals and businesses make informed decisions.” 

After 10 interest rate hikes since 2022, the central bank is approaching its goal to reduce inflation to 2%. But it has expressed more worries lately about the strength of the job market. 

“The Federal Reserve’s July 31 statement indicated a more balanced approach to interest rate policy taking into account inflation and unemployment,” said Braun. “That suggests they may be more likely to consider rate cuts in the near future depending on what the data says.”  

Just three days later, additional data was released. A weaker than expected jobs report showed a 0.2% rise in the monthly unemployment rate to 4.3%, possibly foreshadowing an economic slump. 

Experts now believe a rate cut in September is inevitable and perhaps the drop could be as much as 50 basis points. The decision will depend on other upcoming metrics such as the August Employment Report.  

Swonk will address the impact of interest rates on the senior living market. Lower interest rates should reduce borrowing costs and interest expenses, boost valuations and encourage more transaction activity and capital expenditures.   

She’ll also take a deep dive into fiscal issues that impact the sector, such as regulatory pressures on regional banks, the flow of debt capital and the private credit market. 

“Attending Ms. Swonk’s session offers a valuable opportunity to gain fresh insights on the economic outlook for the industry,” said Braun.  “By staying informed, industry stakeholders can identify growth opportunities and potential risks.”  

Register here.  

Industry standards remain crucial

Faced with a complex patchwork of state and federal regulations, the senior housing and care industry is closely watching the aftermath of a recent decision by the U.S. Supreme Court. On June 28th, the Court overturned the so-called Chevron doctrine, a 40-year-old legal precedent that required courts to defer to regulatory agencies to interpret ambiguous laws. The decision means that the power to interpret regulatory questions lies with the courts, not the government agencies that impose the rules.

“There will be a shift in the way administrative regulations are interpreted,” said NIC President and CEO Ray Braun. “But it’s early. We don’t know yet how the decision will play out for the senior housing and care industry.”

According to the recent decision, the courts can still side with an agency’s interpretation of a law. Also, rulings in prior cases under the Chevron doctrine are still lawful but can be challenged. Observers expect stakeholders impacted by existing regulations to file numerous lawsuits. 

Regulatory efforts going forward are also expected to face more obstacles. The rule-making process by government agencies is likely to slow.

A high-profile issue for the senior housing and care industry that could be impacted is the new minimum staffing rule for nursing homes. Announced by the Centers for Medicare & Medicaid Services (CMS) on April 22nd, the staffing mandate requires that each resident receive a certain amount of care each day. The mandate also requires that a registered nurse be on site 24 hours a day. The implementation of the rule is staggered over a three-year period and does include some exceptions.

The staffing mandate for nursing homes could impact the senior housing labor market since both sectors compete for the same workers. But that scenario may not play out, according to NIC Co-Founder and Strategic Advisor Bob Kramer. “The likelihood that we will see staffing mandates at the federal level has decreased significantly,” he said.

Challenges to the minimum staffing mandate were already in the works when the Supreme Court overturned the Chevron doctrine. Several industry associations had filed lawsuits to stop the mandate. Those groups are now more optimistic about their chances of having the staffing mandate overturned because of the Supreme Court’s recent ruling.

The Chevron decision will not affect Medicare or Medicaid payments, according to Kramer. CMS still has the power to set standards for providers to receive payments, such as a requirement to submit certain reports.

A Big Opportunity for the Industry

Kramer suggested that the Chevron decision presents the senior housing and care industry with an opportunity. “The federal government may be less aggressive in its ability to insist on certain standards,” said Kramer. “But the industry is making a mistake if it thinks the Chevron decision will provide relief from the need to define and demonstrate outcomes to our customers.”

The Court’s decision comes at a pivotal time as negative press coverage and new scrutiny by lawmakers has put the industry in the spotlight. Lawmakers, for example, are taking a hard look at the role of private equity and REITs in healthcare settings, including assisted living.

Added to that, today’s consumers want to know they’re getting value for their dollar. They expect quality standards and demand transparency of data they can trust to make informed decisions. Providers that prioritize quality and transparency are more likely to build trust and foster loyalty among their customer base.

“Our industry is a private pay market,” said Kramer. “Consumers want to know that they can trust the setting and why they should choose your community instead of staying at home.”

Transparency has another plus. Senior living providers can use data on outcomes to show healthcare payors that a community delivers real value by offering preventative care and chronic disease management. Senior living providers could benefit financially by reducing the insurer’s healthcare costs.

“We cannot be silent on quality,” said Kramer. “We have the opportunity to define what the consumer and the healthcare plans can expect. We have the opportunity to take the lead.”

The implications of the Chevron decision provide a timely backdrop for discussions at the upcoming 2024 NIC Fall Conference (Sept. 23rd-25th). The opening session will showcase new research by NORC at the University of Chicago demonstrating the value of senior housing, specifically, the cost savings that long-term care settings offer Medicare and other payors. This ground-breaking research has the potential to transform payments and margins in the senior housing and care industry.

Attendees can also expect to hear more about partnering for health in other educational sessions and during informal discussions with industry thought leaders. “NIC’s Fall Conference is a prime opportunity to gain insights into emerging industry trends,” said Kramer. Register here.

NIC’s Strategic Plan includes objectives to ‘expand the tent’ across five key focus areas – Active Adult, AgeTech, Capital for Operations, Middle Market, and Partnering for Health. Focus Area Committees (FACs) were formed to support these efforts. The Active Adult Committee is led by Chair Mitch Brown, Principal of Senior Housing Consulting. I had a chance to talk with Brown and hear his thoughts about this important committee.  

Clapp: How did you first get involved with NIC as a volunteer?

Clapp: You are the chair of the Active Adult Focus Area Committee. Can you tell us about the composition of the committee?

Brown: Our committee members are a diverse mix of investors, operators, developers and advisors. Several are “pioneers” of the segment including the founders of companies such as Clover Group, Avenida Partners, and Sparrow Partners, as well as our co-Chair, Jane Arthur Roslovic with Treplus Communities. We also have representatives from The Carlyle Group and Greystar who collectively own, manage, and/or operate the largest portfolios of Active Adult. We brought in expert researchers from conventional multifamily and “for sale” 55+ housing to get ideas and insights from these related segments.

Clapp: Why do you think it is important for NIC to focus on Active Adult?

Brown: For several years I served as Chair of the ULI Senior Housing Council and among our most active members were Beth Mace and Chuck Harry, both former NIC senior staff members. We all felt that Active Adult was a segment of senior housing that would emerge as an important new option for the millions of Baby Boomers who would soon be entering their early seventies and thinking about different lifestyle options. As the premier conference and data source for senior housing in the U.S., it is incumbent on NIC to provide the transparency and research for this new segment much as it did for Assisted Living as it emerged in the mid- to late-1990s.

Clapp: What does the Active Adult Focus Area Committee aim to accomplish in the next year?

Brown: Our mission is to provide input and guidance on Active Adult-related conference sessions, research, and learning opportunities whether through NIC Academy, webinars, or other formats. We are working on two sessions for the Fall Conference that will focus on challenges with scale as the growth of the segment continues to ramp up as well as a workshop on analytics for the 2025 NIC Data and Analytics Conference and a panel on Active Adult’s opportunity to enhance wellness and longevity for a younger cohort. We also have plans for research including an updated white paper, more great case studies, webinars – including one this September, and Boot Camps around future conferences. And an Active Adult specialty course will be available soon through NIC Academy.

Register now for the NIC Active Adult Market Update webinar being held September 4, 2024, at 2:00pm ET. Join Mitch, Greystar’s Adam Cohan, Kimberly Byrum of Zonda, plus NIC’s Lisa McCracken and Caroline Clapp for the latest data and insights on Active Adult.