As Alan Weil, Health Affairs Editor-in-chief stated, “This is a pretty scary reality that’s coming towards us.” It was an appropriate sentiment, as the nation’s leading peer-reviewed health policy journal released a groundbreaking new study, commissioned and funded by NIC, and shared with the world its unsettling findings. Addressing a room full of media and policy makers, as well as hundreds of viewers on a live webcast, Weil introduced the study, titled “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources For Housing And Health Care,” and added that, “this is a topic that’s easy to set aside for other priorities, but hopefully it will yield additional discussions.” 

NIC founder and Strategic Advisor, Bob Kramer, in his opening remarks, emphasized that the study is a starting point for a discussion that the nation’s policy makers and industry leaders need to engage in. “This research just scratches the surface, lifting the curtain. To continue to ignore this is at the nation’s peril, seniors’ peril, and particularly at the peril of poorer elders,” he said.  

Study authors David Grabowski, Professor of Health Care Policy, Department of Health Care Policy, Harvard Medical School, and Caroline Pearson, Senior Vice President, Health Care, of NORC at the University of Chicago, presented the study’s methodology and key findings. Echoing Kramer, Grabowski introduced the study by saying, “Today is about beginning a dialogue and hopefully an agenda about targeting care and housing to this population.”  

In her presentation, Pearson walked through the methodology and choices that were made in order to understand the resources and demographic nature of middle-class baby boomers. The study was designed to focus on boomers who, when they are over the age of 75, will neither qualify for Medicaid nor be able to afford today’s private-pay seniors housing and care options. The minimum amount that seniors will need in order to afford assisted living as it is priced today, as well as out-of-pocket medical expenses is $60,000. Here are a few key findings: 

• The number of middle-income seniors will nearly double to 14.4 Million by 2029 (43% of all seniors) 
• Seniors will be more diverse and more educated than today’s cohort
• 67% will have3 or more chronic conditions 
• 60% will have mobility limitations
• 20% will be defined as “high needs”
• 7.8 Million (54%) will have less than $60,000 annual financial resources, even when including housing equity. This group grows to 11.6 Million (81%) when excluding housing equity.

Grabowski acknowledged that assisted living and independent living communities today can help balance tradeoffs between medical care, long-term care and social needs of seniors who can afford them. Financial resources, however, dictate their housing and long-term care options.  

Aging baby boomers’ demographics mean they will face more challenges than prior generations, as they begin to need care. They are less likely to have a spouse, have fewer children to serve as caregivers, and will have less in pension wealth and other savings than preceding generations. Their sheer numbers will also pose a very serious problem. In fact, the study only projects to 2029, the year in which the oldest boomer will only be 83 years old. Peak demand for seniors housing and care services comes from seniors in their mid- to late- eighties. This means this challenge will be significant over a two-decade period, until approximately 2050.  

When Grabowski commented “Good luck with Medicaid. We can’t rely solely on Medicaid as a solution,” a grim laugh rippled through the room. While it came up in the question and answer period, there seemed to be little debate on the ability of the government to handle these problems alone. 

Instead, the study’s authors and several of the panelists urged stakeholders in industry and on the policy side to discuss a range of solutions and to work together. Grabowski, addressing approaches to solutions, recommended, “Not just a private-sector or public sector solution, but a joint public-private partnership.” On the private side, he suggested a number of strategies that might help lower the cost of housing and care for the consumer. Mixed income communities, high tech solutions to lower labor costs, better leveraging family and volunteer caregivers and a la carte pricing were all mentioned. Grabowski went on to suggest, on the public policy side, blending housing and Medicare products, similar to the new flexibility that has just been given to Medicare Advantage plans, and allowing Medicaid to pay a percentage of all services for long-term care, including room and board. He also suggested extending subsidized housing to middle income seniors. 

In addition to the article on the study’s key findings, Health Affairs published two articles with further insight and commentary relevant to the study, as well as a Kramer-authored blog post on the meaning and implications of the study’s findings. Authors John Rowe, Mailman School of Public Health at Columbia University, and Jennifer Molinsky, Harvard University, spoke on their articles, “Challenges For Middle-Income Elders In An Aging Society” and “What Can Be Done to Better Support Aging in Community?” respectively.  

Rowe, commenting on his years of study on aging and society, said “In this town policy makers, when they think of aging, they think of Social Security and Medicare and there the discussion ends.” His presentation focused on the Hartford Aging Index, which measures a senior citizens’ productivity engagement, well-being, equity, cohesion, and security in a given society. 

Molinsky’s presentation focused on the housing and community needs of aging seniors. She pointed out that by 2038 the number of 75-and-over households in America will increase from 14.1 to 28.2 million. Pearson et al.’s findings project that 20% of middle-income adults in this age group will have high needs that will make it difficult to remain at home, but Molinsky focused on the remaining 80%, many of whom will likely attempt to stay in their homes and communities for as long as possible. This group will need homes adapted to their care and well-being, as well as communities that are age-friendly. However, as she pointed out in her remarks, only 3.5% of today’s housing is accessible to scooters or wheelchairs.   

The final panel discussion, focused on policy, and moderated by Weil, featured Debra Whitman, Executive Vice President and Chief Public Policy Officer, AARP, Nancy Eldridge, CEO, National Well Home Network, Kai Hsiao, CEO, Eclipse Senior Living, and NIC’s Kramer. 

Hsiao pointed out that along with the challenges there are some real opportunities. “There’s a lot of opportunity out there. A question for the senior living sector is ‘why is our penetration rate static at 10%?’ Imagine our penetration rate if we built for this group.” 

Eldridge suggested a multi-faceted, broad-based approach to finding solutions: “We shouldn’t create a siloed intervention for this group. What we need for seniors today is nothing short of a robust system to support them. Bring down those silos, and work as a team. We need a lean program that’s very broad.” 

Whitman predicted that the shortage of care-givers would only worsen: “The only safety net for many is family. In 2010 there were seven unpaid caregivers (aged 45-64) for every person over 80. By 2030 there will be four, and by 2050 there will be only three. People today who are in their twenties and thirties have to step out of work to take care of a parent.” 

While the study’s findings shine a light on a substantial set of challenges, panelists expressed hope that, working together, public and private stakeholders would also be able to capitalize on real opportunities. As Kramer stated towards the end of the discussion, “At 10% penetration we’re not doing something right with the product. That’s a huge entrepreneurial opportunity.” 

Please visit https://www.nic.org/middlemarket for more information.  

NIC MAP® Data Service clients attended a webinar in mid-April on the key seniors housing data trends during the first quarter of 2019.  Key takeaways included the following:

Takeaway #1:  Seniors Housing Occupancy Was Largely Unchanged, but Remained Soft in Q1 2019

• Based on the quarterly patterns of inventory and absorption, the all occupancy rate for seniors housing, which includes properties still in lease up, inched up to 88.1% in the first quarter, up 20 basis points from the seven-year low of 87.9% in the second and third quarters of last year and up 10 basis points from the fourth quarter. It remained below year-earlier levels by 20 basis points, however.
• This placed occupancy 1.2 percentage points above its cyclical low of 86.9% reached during the first quarter of 2010 and 2.1 percentage point below its most recent high of 90.2% in the fourth quarter of 2014.
• It is notable that this was the second consecutive quarter where net absorption exceeded inventory growth (albeit by a small amount in the fourth quarter). This has not happened since late 2015.  Keep in mind that some of this is a timing issue, since new inventory is not instantly taken up and the leasing process is not instantaneous.

Takeaway #2:  Memory Care Occupancy Up from Record Low

• The slide below shows the supply and demand fundamentals for the memory care segment. This is a different categorization than the prior slide which showed majority property type.  Segment includes all memory care units that NIC tracks regardless of the property type in which they are situated.   For the 31 NIC MAP Primary Markets, there are a total of 87,035 units of memory care located in free-standing, stand-alone campuses or as part of a continuum of care in an assisted living, independent living or CCRC property.  Roughly one third of all memory care units are in free-standing properties.
• The occupancy rate was 83.3% in the first quarter, up from an all-time low of 82.7% in the second quarter, but still low. Since its most recent peak occupancy rate of 88.1% in late 2013, there have been nearly 30,000 memory care units added, 35% more than the market has been able to absorb on a net basis.  Note the gap between stabilized and total occupancy is 380 basis points highlighting the large number of units that have been added to inventory, but not yet leased.

Takeaway #3 Assisted Living Construction Starts Trending Lower

• Another key takeaway is the slowdown in the four-quarter moving sum of starts for majority assisted living. Indeed, in the first quarter, assisted living starts totaled 1,767 units, the fewest starts since the first quarter of 2014.  On a four-quarter aggregate basis, starts totaled 10,603 units, the fewest since 2014.  As a share of inventory, this amounted to 3.7%, marking the second consecutive quarter that it was below 4%. Other than last quarter, the last time it was below 4% was 2012.
• While this may look encouraging to those concerned about the construction cycle we are currently in, it is important to note that due to the nature of this data, it is often revised either up or down.
• For independent living, the pattern is not as clear. Starts on a rolling four-quarter basis, totaled 8,764 units in the first quarter.  As a share of inventory, this equaled 2.6%.

Key Takeaway #4:  Under Construction Shows Distinct Cycles By Market

• This chart shows a heat map of seniors housing construction as a share of inventory for each of the 31 Primary markets. The scale ranges from 0% — the darkest blue shades—to 22%–the deepest reds.  The chart shows distinct development cycles among the Primary markets.
• In looking at the far right of the slide for the Q1 2019 period, the five markets with the highest shares of inventory under construction are: Atlanta, Sacramento, Houston, Denver and Phoenix while San Francisco and Seattle are the least active as identified by the darker blue shades.
• For a deeper dive into one market, Atlanta had 15.1% of its stock under construction as of the first quarter of 2019, the most of any one of the 31 Primary markets, but down from a peak of 17.3% in the third quarter of 2017. This equated to 3,125 units, also the most of any market apart from Chicago (3,139) and NY (3,937), two markets with twice the size of inventory, however.  As an aside, with 3,937 units, NY’s construction vs. inventory ratio is 9.7%, the highest ever.

Takeaway #5:  Wage Growth Exceeds Rent Growth

• Same-store asking rent growth for seniors housing was unchanged in the first quarter, with year-over-year growth of 3.0%. Asking rent growth for assisted living (orange line) was 2.4% for the first quarter, the lowest rate growth since late 2015.  For independent living (blue line), rent growth accelerated back to 3.4% from 3.2% in the fourth quarter.
• This quarter, we’ve compared asking rent growth to the changes in average hourly earnings for assisted living workers, figures that are tracked and monitored by the U.S. Bureau of Labor Statistics. Average hourly earnings were up 4.6% for assisted living employees as of Q4 2018 (most recent data available), almost twice that of asking rent growth. Together, these lines show the pressure operators may be having as expense growth has been pressured higher, while rent growth has been easing.  For many operators, labor expenses amount to 60% of their expenses.

Key Takeaway #6:  Seniors Housing and Nursing Care Transaction Dollar Volume Down in 1Q 2019

• Preliminary data shows that seniors housing and care transactions volume registered $2.7 billion in the first quarter of 2019. This includes $1.4 billion in seniors housing and $1.3 billion in nursing care transactions.  The total volume was down 26.5% from the previous quarter’s $3.6 billion and down 27% from the 1st quarter of 2018 when volume came in at $3.7 billion
• The rolling four-quarter total seniors housing and care volume was down close to 7% from the prior quarter to $13.8 billion.
• The first quarter of 2019 marks the 22nd consecutive quarter of 100 or more deals closing.
• Smaller deals of $50 million or less dominated the quarter as they represented 91% of the total.
• Private buyers made up the majority of dollar volume. Over the past 23 quarters, the private buyer has closed on over $1.0 billion in transactions in every quarter except one which was in the second quarter of 2018. The private buyer represented 55% of all the $2.7 billion in volume closed in the first quarter. However, its volume was down 24% from the fourth quarter of 2018 and down 7% from a year ago in the first quarter of 2018 when volume registered $1.6 billion.

It’s no secret that the U.S. population of seniors living with dementia is expected to grow in the coming years and thus the demand for memory care (MC) services is expected to increase as well. As a result of anticipated demand, there has been notable growth in memory care units, especially between 2011 and 2016. This has occurred in freestanding memory care properties as well as in properties that offer memory care as part of a continuum of service offerings.  This blog post explores these trends and looks at how well demand has held up and its resulting effects on occupancy. Read further for a deeper dive into memory care in the Primary Markets. 

What Do We Mean by Freestanding Memory Care? 

Freestanding memory care communities offer memory care as the only level of care, whether these properties have a single building, or several. Because many freestanding memory care properties have smaller unit counts than other seniors housing properties, NIC tracks those that have 16 or more units, rather than the 25 or more units and/or nursing care beds that we require at other types of properties. 

The community type data cut was first introduced to the NIC MAP® portal in 2016, partially in response to a growing request from our client base to be able to separate out properties that had a majority of memory care units or properties that were freestanding memory care. As of 1Q2019, 89% of the memory care communities that were open for business in the Primary Markets were freestanding, meaning only 11% were combined properties, and none were continuing care retirement communities (CCRCS). CCRCs are distinct from all other community types using this categorization and require both independent living and nursing care to exist on the same property. Additionally, 97% of all the open MC communities in the Primary Markets were operated by for-profit operators in 1Q2019.  

Freestanding memory care communities are relatively young among the community types that NIC tracks, with a median age of having been open for 16 years versus 19.5 years for independent living communities, 20 years for assisted living communities, 40 years for nursing care communities, and 35 years for CCRCs for the Primary Markets as of 1Q19. This reflects freestanding memory care being the newest product type offered among the group. 

Has occupancy hit the bottom for freestanding memory care in the Primary Markets? 

The chart above shows market fundamentals for freestanding memory care communities in the Primary Markets since 2006 when NIC began reporting the data. The broad trend since then has been falling occupancy rates as inventory growth outpaced demand (as measured by net absorption). Occupancy reached a recent low of 81.5% in the second quarter of 2018 as historical inventory growth dwarfed net demand by more than one third (11,743 units of inventory growth versus 8,438 units of net demand from Q1 2006 to Q2 2018).  Since then, freestanding memory care occupancy has increased by 120 basis points to 82.7% in Q1 2019. Stabilized occupancy stood at 85.7% in 1Q2019, 300 basis points higher than total occupancy, reflecting many units that have been opened, but not yet leased.    

The occupancy improvement reflects a strong year for freestanding memory care communities with 1,360 net units absorbed in 2018. The strongest recorded quarterly absorption for these communities was 611 units in 3Q2018. The strongest recorded quarterly inventory growth occurred in 1Q2018 with net 588 units coming online.  

By Segment, Annual Inventory Growth meets Annual Absorption in 1Q2019. 

Freestanding memory care communities only account for 29.3% of the open memory care units in the Primary Markets. Looking at all memory care as a segment (i.e.: all open memory care units regardless of the property in which they are located), total open inventory in 1Q2019 equaled 87,025 units versus 25,472 units in freestanding memory care.   

The same broad trends of declining occupancy rates as inventory growth outpaced demand occurred for memory care as a segment.  The occupancy rate in the first quarter was 83.3% compared with 82.7% for stand-alone memory care units.   

It’s notable that net demand in the first quarter was stronger than in freestanding memory care (where net absorption was negative 1 unit), with 674 units absorbed in the memory care segment in the Primary Markets. That figure is down 541 units from 1,215 in the fourth quarter of 2018 but is up from 525 a year earlier in 1Q2018. Interesting to note is the recorded high of 1,778 units for memory care absorption for the Primary Markets in 3Q2018.  

Inventory growth of memory care units for the Primary Markets for 1Q2019 totaled 489 units, the fewest since 3Q2010, and 1,001 units less than 4Q2018’s inventory growth of 1,490 units. The recorded high for memory care inventory growth for the Primary Markets was 2,097 units in 2Q2018. 

The chart below shows annual absorption (year-over-year percent change in occupied units) and annual inventory growth.  Both demand and supply show upward trends in the years since NIC has been reporting the data. The annual absorption and annual inventory growth for memory care for 1Q2019 were both 7.2%. This made 1Q2019 the first quarter where the annual inventory growth rate didn’t outpace the annual absorption rate since 3Q2014.  

Opportunity exists for seniors housing. 

Data through the first quarter of 2019 suggests that the bottom may have been reached for occupancy for both stand alone and continuum memory care units. Nevertheless, with occupancy still in the low 80% range, the sector faces challenges as operators and investors seek to meet their business plan requirements and pro formas. Although the first quarter of 2019 had some softer absorption and inventory growth, record high inventory growth and absorption occurred for both freestanding memory care communities and memory care as a segment in 2018.  The market will need some time to better establish an equilibrium position. Because of current predictions of rising dementia rates, and the special considerations associated with serving this population, operators who offer memory care should not only anticipate potential changes in demand when planning their offerings but also how to recruit and keep excellent employees who understand the needs of this population. While some investors prefer to partner with best-in-class operators with strong experience in stand-alone memory care with focused memory care offerings, others prefer operators with properties that offer multiple care levels to serve a wider range of needs (often AL and MC).   

The long-awaited results of “The Forgotten Middle:  Middle Market Seniors Housing Study” will soon be released, in conjunction with two upcoming events. A peer-reviewed manuscript, two perspective articles, and two blog posts, all to be published by Health Affairs, will be released at the upcoming Health Affairs policy forum in Washington, D.C. on April 24^th. The complete study will be released at the upcoming NIC Investor Summit in New York on May 21^st.

Funded by a grant from NIC and conducted by NORC at the University of Chicago, the groundbreaking study defines and quantifies the middle-income seniors’ cohort by its demographic characteristics such as gender, race/ethnicity, education and marital status.  It overlays care needs on top of these demographics and quantifies what portion of the cohort will have cognitive impairment, chronic conditions and mobility limitations.  Thus, the study provides a glimpse into what the housing and care needs will be for this group of seniors today and in the year 2029.   It then provides an assessment of what portion of this population will have the financial resources available to pay for their needs.  The study does not provide solutions to housing and care options for this burgeoning cohort but shines a spotlight on the need for finding solutions for workforce housing for seniors.

The middle market includes Americans whose financial resources disqualify them for government support programs such as Medicaid but are not enough to pay most private pay options for very long.  Those who have spent their careers as healthcare workers, teachers, government workers and trade union members are counted among the many in this middle-income segment.

In addition to providing data to inform housing and healthcare policy, this research provides insights for institutional investors, capital providers and operators.  We hope it serves to spark a national discussion among policy makers and private sector entrepreneurs on how housing and services can be provided to the underserved middle-income senior.

The results of The Forgotten Middle:  Middle Market Seniors Housing Study are being presented at two events:

Health Affairs Policy Forum –OPEN TO THE PUBLIC

• April 24, 2019 policy briefing at the Capital Hilton in Washington, DC
• Release of Health Affairs manuscript by David Grabowskiof Harvard University, Caroline Pearson of NORC at the University of Chicago, Charlene Quinn of the University of Maryland and others
• Release of two Perspectives articles:
  • John Rowe, Mailman School of Public Health at Columbia University, on “Facilitating Societal Adaptation to Aging”
  • Jennifer Molinsky, Harvard University, on “What Can Be Done to Better Support Aging in Community?”
• Blog posts by Bob Kramer, Founder and Strategic Advisor, NIC and Anne Tumlinson of ATI—Anne Tumlinson Innovations
• Event sponsored by NIC with the SCAN Foundation, John A. Hartford Foundation, AARP and the AARP Foundation
• To learn more, visit the Health Affairs website

NIC Middle Market Investor Summit –EVENT FULL

• May 21, 2019 investor briefing at the Yale Club in New York City
• Release of full study with an executive summary, detailed charts and interactive tool
• Analytic file for further research
• Event sponsored by NIC with Institutional Real Estate, Inc. (IREI) and Real Capital Analytics (RCA)
• To learn more, contact NIC at middlemarket@nic.org

Join the discussion.  Together, let’s figure out housing and care options that meet the needs of our middle-income seniors.

Please visit natinvcenterdv.wpengine.com/middlemarket to access content related to the study, which will be added April 24^th and May 21th, in conjunction with the two briefing events.

As a mission-driven, non-profit organization, NIC is committed to supporting and developing the future leaders influencing seniors housing and care. In its selective process, NIC objectively chooses accomplished young professionals in the seniors housing and care and finance sectors to form the NIC Future Leaders Council (FLC). While gaining valuable experience developing their leadership skills, FLC members further NIC’s mission of enabling access and choice in seniors housing and care by contributing to NIC initiatives, committees, task forces, and publications.  

In addition to developing leadership through its FLC, NIC is also a proud co-sponsor of this year’s National Emerging Leadership Summit for Health and Aging Services Executives (NELS). Over three days in Washington, D.C., NELS provides up and coming professionals with opportunities to meet industry leaders, develop their leadership skills, learn about advocacy, connect with fellow rising stars, and contribute to creative solutions for advancing the field of health and aging services.  

Attendees typically hold property-level positions in skilled nursing facilities, assisted living and independent living communities, CCRCs, rehabilitation hospitals, affiliated organizations, and home- and community-based services. In the early stages of their careers, NELS attendees find the event uniquely geared to their needs. The summit offers an engaging, interactive experience focused on professional growth and crafting solutions to improve the field of health and aging services. 

Summit proceedings, outcomes, and key conclusions from each year are published in a white paper that is available for download on the NELS website. The white paper for the 2018 Summit details three primary action plans that attendees worked on throughout the year. A Recruitment and Retention Strategies group created a “recruitment and retention toolbox” with materials and strategies to help address the growing need for engaged workers in health and aging services. A Policymaking Group produced information on how to understand legislative and regulatory processes and how to contact government officials and policymakers. The Educating Consumers Group focused on educating new consumers and family members about the options and resources available when moving to a SNF, assisted living community, or other residential community for the first time. 

Attendees for the 2019 NELS event will similarly identify areas of importance that they will work on over the period of a year to improve the future of professions in health and aging services as well as enrich the lives of residents, patients, and their families. 

This year marks the 10th anniversary of NELS. For this major milestone, former NELS participants and alumni will be networking and mentoring the new class of attendees. Applications to attend NELS will start being reviewed on Friday, April 19th, 2019 with a hard deadline for application of Friday, May 24th, 2019. Scholarships to attend NELS are also available on a competitive basis. Approximately 19 NAB-approved continuing education units (CEs) are available to participants. NIC encourages you to send your best and brightest (or yourself) to NELS in 2019 by applying here.