NIC MAP Vision clients, with access to NIC MAP^® data, attended a webinar in mid-January on key seniors housing data trends during the fourth quarter and full year 2022. Findings were presented by the NIC Analytics research team. Key takeaways included the following: 

Takeaway #1: Seniors Housing Occupancy Rose 0.9 percentage points in 4Q and 2.8 percentage points in 2022 

• The occupancy rate for seniors housing—where seniors housing is defined as the combination of the majority independent living and assisted living property types—rose 0.9 percentage points to 83.0% from the third quarter of 2022 to the fourth quarter of 2022 for the 31 NIC MAP Primary Markets. This marked the sixth consecutive quarter of occupancy gains. At 83.0%, occupancy was 5.1 percentage points above its pandemic-related low of 77.8% recorded in the second quarter of 2021 but was still 4.2 percentage points below its pre-pandemic level of 87.1% in the first quarter of 2020.
• Demand as measured by the change in occupied inventory, or net absorption, was strong in the fourth quarter, increasing by 8,638 units in the Primary Markets after increasing by 8,513 units in the third quarter. For the full year 2022, net absorption totaled 27,845 units, which was the strongest annual demand ever recorded by NIC MAP Vision. 
• Since the recovery began in the second quarter of 2021, 52,189 units have been absorbed on a net basis, surpassing the negative absorption that occurred following the onset of the pandemic when 45,411 units were placed back on the market on a net basis.  
• For the full year 2022, following the record demand and strong net absorption, occupancy increased 2.8 percentage points from year-end 2021.  

Takeaway #2: Inventory Growth Dropped to Near 2014 Levels in 2022 

• Inventory growth has generally trended down from its high point of 21,440 units in 2018.
• Inventory growth in 2022 was a little under 11,000 units, a level of growth not seen since 2014.
• Between 2014 and late 2019 just before the pandemic began, inventory grew by an average of 18,056 units annually. The year 2022’s pace was down nearly 40% from those levels. 

Takeaway #3: Occupied Units in Secondary Markets Highest Level Ever 

• NIC MAP Vision defines Secondary Markets as Markets 32 through 99, or 68 large core based statistical areas (CBSAs) in the continental U.S. Each of these markets is generally smaller in population than any single one of the 31 Primary Markets.
• In 2022, occupied units in the Secondary Markets continued to increase, and in the fourth quarter reached an all-time high of 314,181, which was above their pre-pandemic high by 6,908 units.
• This trend shows that more older adults than ever before are residents in senior housing properties today, which speaks to the tremendous need for senior housing and care for aging adults, and the industry continues to meet that need. 

Takeaway #4: Asking Rent Highest on Record for Assisted Living and Independent Living 

• Same-store asking rates rose across NIC MAP’s Primary Markets by 5.5% from year-earlier levels for assisted living. This was the largest increase since NIC began reporting the data in 2005. Rates grew a bit less rapidly for independent living, but growth was still at a time-series high of 4.5% year-over-year.
• Third quarter wage rate data from the Bureau of Labor Statistics (BLS) show that average hourly earnings for assisted living employees increased by 9.0% from year earlier levels, much more than asking rent growth, but this 9.0% was down slightly from the roughly 10% year-over-year growth reported in the prior two quarters.  
• The divergence between rent growth and wage growth has put significant pressure on NOI for many operators, as are rising costs of other expense categories, although there are signs that these pressures may be easing. For example, the widely followed consumer price index (CPI) rose by 6.5% for the twelve months ending in December, which marked the sixth consecutive monthly deceleration since a mid-2022 peak of 9.1% in June. Overall, however, inflation remains well above the roughly 2% average inflation rate that occurred in the three years before the pandemic.  

Takeaway #5: Units Under Construction Least Since 2015 

• In the fourth quarter of 2022, the number of senior housing units under construction in the 31 NIC MAP Primary Markets remained near its lowest level since 2015. This number totaled 35,719 units.
• For assisted living, there were 19,165 units under construction, down roughly 2,000 units from a year earlier. Note that this was the fewest units under construction since mid-2015.  As a share of inventory, this amounted to 5.6%, which was well below its peak of 10.2% in late 2017.  
• For independent living, there were 16,554 units under construction in the fourth quarter, equal to 4.7% of existing inventory compared to 6.7% in 1Q 2020.
• Overall, both inventory growth as described above and units under construction were quite moderate, retreating to levels not seen in more than five years.

Who, What, When, Where, Why. Those are the five basic questions vital to information gathering.  

The so-called five “W’s” are also a good place for owners and operators to start as they consider how to reposition a property amid occupancy challenges, changing demographics and an aging building stock.  

A panel of experts tackled the big questions on repositioning during an educational session at the 2022 NIC Fall Conference. The discussion, recapped below, was led by NIC Chief Economist Beth Mace.  

WHO is the customer? The senior housing customer mix is changing, Mace pointed out. The huge baby boomer demographic is on the cusp of senior living. Some are already moving to active adult communities. Panelist Chris Guay, CEO, Vitality Living, noted that boomers have champagne tastes, but beer budgets. “We have to set up expectations for success,” he said. Guay added that baby boomers tend to have close relationships with their children, and grandchildren, and want to retire near them. He expects those adult children to have more influence over parental housing decisions.

“In the Wave 49 survey, respondents were asked when their organization expected to return to pre-pandemic occupancy levels. Across all care segments the most common response was for occupancy to return at some point in the first half of 2023. Independent living (52%) and memory care (53%) operators were the most optimistic respondents, with more than half anticipating their organization’s occupancy levels would return to pre-pandemic levels within the next six months. 

Employee retention, on the other hand, is becoming increasingly challenging. On average, one-quarter (25%) of organizations kept more than 80% of new staff on the job after one month. This is down from the Wave 45 survey, conducted in August and September 2022 when just under one-third (29%) kept more than 80% on the job after one month, and down again from the Wave 39 survey, conducted in March 2022, when just under one-half (46%) had more than 80% retention after one month.  

–Ryan Brooks, Senior Principal, NIC 

This Wave 49 survey includes responses from December 12, 2022 to January 15, 2023, from owners and executives of 48 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. 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 Wave 49 survey, respondents were asked when their organization expected to return to pre-pandemic occupancy levels. Across all care segments the most common response was for occupancy to return at some point in the first half of 2023. Independent living (52%) and memory care (53%) operators were the most optimistic respondents, with more than half anticipating their organization’s occupancy levels would return to pre-pandemic levels within the next six months.

Despite optimism from the majority of respondents, a small portion of operators – mostly nursing care — anticipate it will take until 2025 or later before occupancy returns to pre-pandemic levels. One-fifth of nursing care respondents anticipate occupancy levels won’t return until 2025 or beyond. Few respondents from assisted living (3%) and memory care operators (3%) anticipate the recovery will take this long, while no independent living operators anticipate the recovery to take until 2025.    

As for predictions for the near-term, the share of assisted living (33%) and memory care (32%) operators reporting an acceleration in the pace of move-ins in the past 30 days fell to one-third of respondents. This marks the fourth consecutive wave with a decrease in assisted living and memory care operators reporting an acceleration in the pace of move-ins. For assisted living operators, there has been a consistent and steady decline in the share of respondents reporting an acceleration in the pace of move-ins, down from a series-high of 62% in Wave 39 conducted in March 2022. 

The share of operators reporting a deceleration in the pace of move-ins in the past 30 days tempered for independent living (18%), assisted living (12%), and memory care properties (12%). The share of nursing care properties reporting a deceleration in the pace of move-ins in the last 30 days moved to 17%, compared to 6% in Waves 48 and 47.* 

When asked about the biggest challenges currently facing their organizations, the most cited response was attracting community and caregiving staff (85%), followed by rising operator expenses (77%), staff turnover (69%), and low occupancy rates (40%). Additionally, more than 90% of respondents report currently experiencing a staffing shortage. 

Of operators reporting tapping agencies to supplement existing staff, two-fifths (42%) cite nurse aides to be the most common need, followed by one-third (34%) of nurses. Food service workers (14%) and plant operations roles (7%) also drive demand for agency utilization, but not nearly to same degree as nursing and nurse aide positions. 

Regarding tenure of newly hired, full-time employees, on average, one-quarter (25%) of organizations kept more than 80% of new staff on the job after one month. This is down from the Wave 45 survey, conducted in August and September 2022 when just under one-third (29%) kept more than 80% on the job after one month, and down again from the Wave 39 survey, conducted in March 2022, when just under one-half (46%) had more than 80% retention after one month.  

Looking at longer-term retention, on average, just 5% of organizations retained more than 80% of new staff after one year. This metric is also down from the Wave 45 survey, conducted in August and September 2022, when just over one-tenth (12%) of organizations retained more than 80% of new staff at the one-year mark. Despite the indicated challenges with staff retention, two-thirds (67%) of respondents expect their agency staff utilization to decrease in the next six months, while just one-third (31%) expect their agency utilization to remain the same.  

Respondents were also asked whether their organization expected to increase or decrease specific care segments in their portfolio of properties over the next 12 months. For the first time since this question was introduced to the Executive Survey Insights, there were operators reporting expected decreases in memory care and assisted living properties over the next 12 months. Compared to Wave 47 conducted in October and November 2022, fewer operators expect to increase care segment growth of active adult within their portfolio of properties, down from over one-half (53%) to under one-third (31%). Opposingly, more operators expect to increase nursing care segment within their portfolio of properties.  

Wave 49 Survey Demographics 

• Responses were collected between December 12, 2022 and January 15, 2023, from owners and executives of 48 senior housing and skilled nursing operators across the nation.
• Owners/operators with 1 to 10 properties comprise roughly one-half of the sample (52%). Operators with 11 to 25 properties account for one-quarter and operators with 26 properties or more account for another one-quarter.
• More than one-half of respondents are exclusively for-profit providers (65%), one-quarter operate not-for-profit seniors housing and care properties (27%), and 8% operate both.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, three-quarters (77%) of the organizations operate senior housing properties (IL, AL, MC), 29% operate nursing care properties, and 35% operate CCRCs – also known as life plan communities. 

As we approach Wave 50 of Executive Survey Insights, the ESI 2023 questionnaire will move to a monthly cadence. We want to tell an accurate story about our industry’s performance and current challenges, so in each new survey, you may see new questions added based on respondents’ suggestions. 

Wave 50 of the Executive Survey Insights will open on January 23, 2023 and will be collecting responses through February 2023. If you are an owner or C-suite executive of senior 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 thank survey respondents for their valuable input and continuing support for this effort to provide the broader market with a sense of the evolving landscape as we recover from the pandemic.

* Commentary revised Jan. 24, 2023

Playing off the catch phrase “winter is coming,” popularized in the medieval fantasy drama Game of Thrones, senior living investors and operators should be warned that “ESG is coming.” 

That’s not a bad thing, however, according to a panel of experts at the 2022 NIC Fall Conference held last September in Washington, D.C. They discussed the growing importance of the Environmental, Social and Governance (ESG) framework in an educational session titled, “Calling All Capital Providers and Operators: What Senior Living Needs to Know About ESG.” 

Decision makers, capital sources and investors are embracing ESG as a new way to evaluate the impact of business strategies on employees, consumers, and the global community. Likewise, senior living providers need to understand ESG and why it’s important.  

“It’s best to start now,” advised panelist Greg MacKinnon, who used the Game of Thrones analogy. He is director of research at the Pension Real Estate Association (PREA), which provides information and research to the institutional investment community.  

Panel moderator Isela Rosales kicked off the well-attended session. “Where to begin?” asked Rosales, managing director and head of ESG & Sustainability at Bridge Investment Group.  

The panelists agreed on some basic definitions. Environmental covers the physical aspects of the building, such as lighting, energy usage, emissions and sustainability initiatives. Social includes factors that impact residents, employees, and the wider community. Governance involves transparent management and accountability to various stakeholders. 

ESG is a differentiator at investment management firm Harrison Street, according to panelist Jill Brosig, managing director and chief impact officer at the firm. Like other senior housing investors, Harrison Street focused first on the environmental aspects of ESG. Practical solutions around energy efficiency, for example, are relatively easy to quantify.  

But Harrison Street has since moved into the social impacts of the ESG framework. “It’s not just a feel good thing,” said Brosig. “The product performs better from a financial perspective.” 

MacKinnon added that ESG is not about being an “environmental warrior.” Instead, ESG incorporates factors into decision-making on what properties to acquire and where to invest CapEx for better returns. “It’s about dollars and cents,” he said. 

As an operator with 35,000 employees, Brookdale groups its associates under the “social” label, according to panelist Kathy MacDonald, senior vice president of investor relations at the company. Diversity, equity, and inclusion (DEI) initiatives at Brookdale also fit under the social category. 

ESG Evolution 

Like other acronym-laden frameworks, ESG continues to add new letters. Some businesses are attaching an “R” for “resiliency.” Investors, for example, want to know how resilient buildings are to climate risk.  

After recurring floods and wild fires, Harrison Street found its stakeholders were concerned about the risk of sea level rise, storms and heat waves. The firm now analyzes buildings from a resiliency standpoint as far out as two investment hold periods to determine if mitigation is needed. “It’s a huge issue now,” said Brosig.  

Canadian and European investors are about 10 years ahead of their U.S. counterparts on ESG. “U.S. investors are trying to figure out what to require from their partners,” said MacKinnon.  

Investors are giving U.S. property owners and operators some leeway for now, the panelists said. But institutional investors expect to see a commitment to ESG and some progress toward implementing the framework.

Measuring and reporting on ESG initiatives is key. Harrison Street published a climate action plan. The 2025 target is to reduce carbon emissions by 70%. An impact dashboard is updated every quarter. “It’s a lot of work, but it’s important to be transparent,” said Brosig.     

The emerging standard of institutional investors is the Global Real Estate Sustainability Benchmark (GRESB). It assesses ESG performance of real estate assets globally. 

The Pension Real Estate Association developed a user-friendly web-based list of key performance ESG indicators. “It’s a good roadmap of where to start and what to measure,” said MacKinnon.  

Sound overwhelming? The panelists noted that consultants can be helpful to start the ESG process. Harrison Street at first relied on consultants to help with strategy. Now the company has an ESG team, though a consultant helps with the GRESB submissions.  

Still early in its ESG journey, Brookdale decided what to measure and in-house departments then did the work. Human resources, for example, focuses on the social aspects while legal counsel handles governance. The accounting department fact checks the data.  

Brookdale’s human resources department has also incorporated DEI elements into its recruiting practices. “We spend more time on development and retention of associates,” said MacDonald.  

The panelists discussed the value of various healthy building certifications. They agreed that it can help to differentiate a property and also attract employees and residents. Also, older buildings may be eligible for so-called “green” financing programs at low interest rates to improve energy efficiency. “It saves money,” said Brookdale’s MacDonald. 

Healthy buildings, such as those with a Fitwel or LEED certification, can command higher rents, according to PREA’s MacKinnon. There’s a growing realization that adhering to healthy building standards is not only better for tenants but also for the next buyer. “You have to worry about the next buyer who will look at the building’s environmental credentials,” said MacKinnon.  

Where is ESG headed in the next 5-10 years? 

Expect more regulations, especially at the municipal level. Investor interest in ESG will only continue to grow. “Get ahead of it now,” advised MacKinnon. “ESG is coming.” 

Surprises happen.

Despite plenty of headwinds—a labor shortage, challenged occupancies and rising expenses—the price of skilled nursing facilities continues to climb. The average price per bed in the third quarter of 2022 was $106,340, up from $95,657 during the same quarter in 2021, an 11% increase.

Of course, the details matter, a lot. Fewer deals are getting done given the tightness of the lending market because of higher interest rates. The deals that do close at higher prices have a significant impact on average prices. 

“Pricing is picking up,” said NIC Senior Principal Bill Kauffman, who moderated a panel discussion on skilled nursing properties at the 2022 NIC Fall Conference in Washington, D.C. “The price per bed, however, varies a lot.” 

Kauffman was joined by several experts during the educational session, “Valuing Skilled Nursing and Sourcing Capital in a Turbulent Market.” The discussion covered a range of topics from wages and the rising cost of capital to government reimbursement levels. 

Property valuations depend on the product type or patient quality mix in the building, according to Amy Sitzman, senior director, Blueprint Real Estate Advisors. Transitional rehab facilities with Medicare patients trade at higher prices than long-term care buildings with Medicaid patients.

Medicare offers a higher reimbursement rate for patients than Medicaid. In the latest skilled nursing monthly report release by NIC MAP Vision, Medicare fee-for-service revenue per patient day was $583. That compares to $465 for managed Medicare; and $263 for Medicaid. 

Sitzman pointed out that the buyer’s intent can impact valuations too. For example, a building for short-stay or transitional Medicare patients was troubled by low occupancies. Potential buyers planned to add Medicaid beds lowering the building’s income which reduced the valuation from about $14 million to $8 million. “It all has to do with reimbursements,” said Sitzman.

Expenses Climb

The panelists addressed the question of wage growth and how to underwrite rising operating expenses. Labor costs are up 12% over the last year and up nearly 20% over the last two years. 

Wage costs can be lowered by limiting the use of expensive staffing agencies, the panelists said. For example, Cascadia Healthcare prefers turnaround acquisitions, according to Steve LaForte, director of corporate affairs and general counsel at Cascadia.

The company acquired a skilled facility in Idaho with 95% agency staffing. A shift in culture improved retention, dramatically reducing the number of agency workers. “It took 18 months to turn around the culture,” said LaForte. But, he added, “The financials flipped and profitability flipped.” 

Maintaining a culture with a focus on retention can be more difficult as a company grows. LTC Properties, a REIT with 30 operating partners, invests with regional operating companies. “We want to know what they are doing for employees,” said panelist Clint Malin, co-president and chief investment officer at LTC. 

LTC acquired four transitional care facilities in Texas that were 50% occupied. Patient care was reimbursed by Medicare. LTC partnered with Ignite Medical Resorts as the operator. “They brought their culture into the building,” said Malin. Ignite raised occupancy to 90% in less than a year. “If you have the right fit and culture, you can drive performance,” said Malin.

Small changes can have a big impact. Panelist Zach Bowyer, senior managing director, Cushman & Wakefield, noted that adding just five Medicare-reimbursed residents in a building with a mixed reimbursement profile can drive up income and valuations. “You need the right operator,” he said.

On the transaction side, the vast majority of buyers are private owners and private equity groups. After several very difficult years, small owners are selling. REITs are mostly on the sidelines, though LTC is focused on newer assets.

Rising Rates Impact Market 

Capital is available, but at a higher cost. Lender relationships are key. Also, lenders are concerned about bridge loans and how high rates will be in two or three years when borrowers seek permanent loans from Fannie Mae or Freddie Mac. 

“The biggest thing we will see going forward is refinancing,” said Malin. He explained that a lot of properties need to refinance and won’t be able to afford the cost of higher debt. There may be more assets for sale,” he said.

Investors and owners are hitting pause on new construction due to the rising cost of materials and labor. For example, bids on one new project originally came in at about $13 million. Recent bids were in the $16 million range.

Pricing expectations between buyers and sellers are gradually coming into alignment. After the recent interest rate hikes, skilled property prices are lower anywhere from 2% to 17%, according to panelist Aaron Becker, senior managing director at Lument, a lender. Older properties have the steepest discounts. “The market is getting its arms around pricing,” he said.

The panelists noted that pricing can change from the time of underwriting to closing based on updated financials. Instead of selling a challenged property, some owner/operators are switching from skilled nursing to behavioral health services.

The panelists don’t expect more federal government assistance as a result of the pandemic. But they are watching individual states and the reimbursement environment.

“State budgets have been strong,” said Malin. LTC acquired three properties in Florida. Staffing requirements have been reduced in the state which has also increased its reimbursement rate. “It’s a big boost to the bottom line,” he said. 

LaForte added: “Operators need to stay ahead of political discussions on reimbursement. It’s a huge issue going forward.”

For more on the latest skilled nursing and Medicare trends, plan to attend the 2023 NIC Spring Conference, March 1-3, 2023 in San Diego.