NIC has a virtual treasure trove of data related to the seniors housing and care sector that can provide insights into operations for both operators and investors. In the coming months, as we begin a new year and decade, NIC’s Analytics and Research Teams will provide such insights. This is a condensed version of NIC’s first Actionable Insight article, published in the February NIC Insider newsletter, and serves as a preview of more to come. As always, we appreciate feedback and commentary on this article as well as our monthly NIC Insider articles and our two frequently updated blogs—NIC Notes Blog and Senior Care Collaboration Blog.

ACTIONABLE INSIGHT: For this article, NIC’s analysis shows that on a rolling four quarter basis, the average time to construct a new seniors housing property—either assisted living or independent living—takes nearly two quarters longer today than it did in 2014. This suggests that when underwriting a new seniors housing property development, a longer time frame should be considered between the time when a project breaks ground and the time when it is opened for occupancy.

EXECUTIVE SUMMARY: Construction, delivery pipelines, and development are hot topics in the seniors housing sector. Anecdotes abound regarding the time to opening from the time ground is broken on a new property. This commentary uses NIC MAP® data to investigate the anecdotal comments that new property development projects are taking longer today than they did in 2014. The reasons could include but are not limited to changing unit mix and complexity of projects, rising construction costs, changing regulatory environments, and limited availability of trained subcontractors—especially for those who specialize in subtrades that require more skill.

KEY FINDINGS: Key findings from NIC’s analysis include:

• The rolling four quarter average number of quarters between when a new property breaks ground to when it is open for occupancy has increased since 2014. Data from 1Q 2014 through 4Q 2019 for both majority independent living (IL) and majority assisted living (AL) properties for the NIC MAP® 99 Primary and Secondary Markets supports this anecdote.
  • • For majority IL properties, the analysis showed that the rolling four quarter average number of quarters from groundbreaking to opening increased by 1.7 quarters from 6.1 quarters in 1Q 2014 to 7.8 quarters in 4Q 2019.
    • For majority AL properties, the rolling four quarter average number of quarters from groundbreaking to opening increased by 1.6 quarters from 5.1 quarters in 1Q 2014 to 6.7 quarters in 4Q 2019.
• Over this time period for the 99 Primary and Secondary Markets on a rolling four quarter basis, majority IL consistently took longer on average from ground break to opening than majority AL did.
  

EXPLANATION OF FINDINGS: Potential factors affecting these observations include but are not limited to:

• Freestanding memory care (MC) properties are a subset of the majority AL properties. Freestanding MC properties tend to have smaller unit counts. If the size of a property is a contributing factor to how long it takes for a property to be built, freestanding MC properties may be a playing a role in majority AL averaging a shorter time to open than majority IL through the time series.
• Continuing care retirement communities (CCRCs, also known as life plan communities) also tend to be majority IL properties and tend to be larger properties. Again, if the size of a property is a driving factor in time to opening, CCRCs could be a contributing factor to majority IL properties having longer times to opening.
• Unit counts and/or unit sizes may be getting larger and elongating the construction process, thereby lengthening the time from groundbreaking to opening. Projects may be getting more complex in terms of having more amenities and finishes as well as more common space, therefore taking longer to construct. Additionally, it is common to have two to three product types in each building, which may add to the complexity of the project.
• In general, there are fewer majority IL properties opened in any rolling four quarter period during this time period than majority AL properties. Majority IL averaged 40.3 properties per rolling four quarter period since 1Q14 (i.e., on a quarterly basis, this averaged as 8.8 new majority IL properties per quarter). Majority AL averaged 195.2 properties per rolling four quarters (i.e., on a quarterly basis, this averaged 41.4 new majority AL properties per quarter).

Other external factors contributing to a longer length of time to opening may include:

• Rising costs of construction for all types of construction, residential and commercial, including seniors housing.
• Increased competition for construction labor, especially for the subtrades that require certain skills. During the Great Recession, some workers in the subtrades left the industry and have not come back. This has led to a shortage of trained workers and has made scheduling projects particularly challenging. Often one delay leads to others, as one’s place in the scheduling queue shifts.
• With some areas across the nation experiencing heightened volumes of construction activity and new supply, licensing, approval and regulatory departments have backlogs, which often contribute to delays in construction schedules. Anecdotally, it is becoming more common that a completed project can wait four to six weeks to open due to inspector delays.
• More recently, hurricane and natural disasters have also delayed certain projects for emergency work and repair, ex., electrical hook ups.

LIMITATIONS AND CAVEATS. It is important to note that construction data is revised. NIC occasionally finds out that a project has broken ground after it has done so or that a property indicated groundbreaking prematurely. Occasionally, a property will open sooner than estimated or indicate a shift in the open date. This means that over time there may be shifts to what cohort a property falls into or occasionally potential shifts to length of time under construction before being open for business.

Future analyses could investigate questions around unit mix, frequency of phased openings, and other questions around inventory trends like the relationship between project size and time to opening. Future analyses could also investigate whether the trend observed in the current data continues over time.

CONCLUSION: The rolling four quarter average length of time from a new seniors housing property breaking ground to having open units has increased since 2014 for both majority IL and majority AL in the 99 Primary and Secondary Markets. As of 4Q19, majority IL properties have a rolling four quarter average of 7.8 quarters from ground break to opening. Respectively, majority AL properties have a rolling four quarter average of 6.7 quarters from ground break to opening. These numbers reflect the aggregate trend for the 99 Primary and Secondary Markets, and there is likely variability at the metropolitan market level. Some markets may not be not seeing an elongation of the construction cycle, while other markets are possibly experiencing longer delays (potentially markets with a larger number of projects underway). When putting together plans for development, it makes sense to consider today’s environment of a more elongated construction cycle.

As the medical needs of residents grow increasingly complex, seniors housing owners and operators are forging more partnerships with healthcare providers and networks.

The collaborative approach already shows promise to reduce resident hospitalizations, increase assisted living length of stay, improve resident satisfaction and provide support to overstretched staff.

For example, the big real estate investment trust Welltower (NYSE: WELL) has taken several steps to partner with healthcare organizations as part of its seniors housing strategy.

In 2019, the company partnered with the nonprofit health system ProMedica to acquire the HCR ManorCare portfolio of skilled nursing and senior living communities. ProMedica offers a Medicare Advantage insurance plan for residents, allowing the provider to more closely manage and coordinate their care.

Last September, Welltower formed a partnership with insurer Anthem and its affiliate CareMore Health. Residents who enroll in the Medicare Advantage insurance plan have access to teams of medical professionals who provide care on site at Welltower-owned buildings.

Also, Welltower recently announced its intention to form a partnership with Philadelphia-based Thomas Jefferson University and Jefferson Health. Expected to be finalized in the next 90 days, the agreement will create a joint venture in which Welltower would acquire a stake in certain Jefferson real estate assets.

Additionally, Jefferson’s clinicians would provide care at Welltower senior housing, assisted living and memory care communities throughout the region as well as future ones the organizations could build together.

“These partnerships with CareMore, ManorCare and the impending partnership with Jefferson Health are about making our real estate more consequential to where and how healthcare is delivered, and working in partnership with best-in-class payors, providers and innovators to achieve strong health outcomes and reduce the overall cost of care,” said Mark Shaver, senior vice president, business strategy and health systems initiatives, Welltower.

Partnership Provides Easy Access to Medical Services

The CareMore partnership is already producing results.

CareMore’s senior living solution—called “Touch”—has been rolled out to a handful of Welltower communities operated by Belmont Village Senior Living and SRG Senior Living. Most of the communities are in California.

In 2020, Welltower plans to expand the CareMore program to five more states with five additional operators. CareMore is based in Cerritos, California, and has operations in nine states and the District of Columbia.

SRG Senior Living introduced the Touch program last August at six of its buildings. The company plans to offer the program at another six buildings early this year.

“We are extremely happy with the program,” said Isaac Hagerman, vice president of health and quality at SRG, Solana Beach, California. “The program is a more cost-effective insurance solution for residents.”

Residents who are enrolled in the program have easy access to medical services. “There’s no more waiting,” said Hagerman. CareMore’s nurse practitioner sees residents on site. Mobile lab tests and x-ray units are brought into the community. Hagerman said the CareMore model is a good solution for assisted living because it cuts the red tape and provides immediate care for residents.

Belmont Village has offered the CareMore program at two of its communities for about 18 months. The program is being expanded to two Belmont properties in Houston, and three in the Los Angeles area.

“We’ve learned a lot,” said Sheri Easton-Garret, senior vice president of clinical services at Belmont Village. She emphasized the collaborative nature of the program which involves building staff and CareMore practitioners.

CareMore currently provides healthcare services through its Touch program for 7,000 senior living residents in California, Arizona and Nevada. Most are insured through an Anthem Medicare Advantage plan. CareMore expects to expand this year to 17 markets in seven states.

In addition to general medical care, CareMore offers services such as behavioral health, podiatry, dental and social work services as well as a pharmacy team to review medications, dependent on the location. The CareMore team can also directly admit a resident to a skilled nursing facility in its network.

The CareMore program works best when at least 30% of residents sign up for the Medicare Advantage plan, according to Jim Lydiard, general manager of CareMore’s Touch program. “That’s when we become a difference maker,” he said.

For a more detailed discussion on the CareMore’s Touch program, see the February NIC Insider newsletter. CareMore’s Lydiard will be featured on two panel discussions at the upcoming 2020 NIC Spring Conference, March 4-6 in San Diego: “What’s the Physician’s Role in the Value Equation?” and “Planning for the Care Needs of the Forgotten Middle.” For details and to register for the conference, visit nicevent.org.

The Labor Department reported that there were 225,000 jobs added in January. This was more than the consensus estimate of 165,000 and marked the 112th consecutive month of job gains. For all of 2019, average monthly gains were less at 175,000. 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 November was revised up by 5,000 from 256,000 to 261,000 and the change for December was revised up by 2,000 from 145,000 to 147,000. Combined, 7,000 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 211,000 over the last three months.

Health care added 36,000 jobs in January and has added 361,000 jobs in the past twelve months. Ambulatory health care services added 23,000 jobs during the month and hospitals added 10,000.

The January unemployment increased to 3.6% from 3.5% in December when it was at a 50-year low. The underemployment rate was 6.9% from 6.7%.

Average hourly earnings for all employees on private nonfarm payrolls rose in January by seven cents to $28.44. Over the past 12 months, average hourly earnings have increased by 3.1%. 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.

The January employment report will support the Fed’s “on hold” stance, at least for the time being. In December, the Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping the Fed and its policies on the sidelines during the election year.

Recent changes demonstrate that healthcare delivery and payment models have entered a period of disruption. While this may not yet be a top concern for everyone, many industry leaders have already begun to consider, and even embrace, the effects these changes will have on seniors housing and care.  

Traditional players in the healthcare system are looking to provide better outcomes for lower cost and are rethinking their models — particularly as they relate to caring for an aging population. Healthcare players traditionally involved in creating networks to provide acute care are increasingly emphasizing wellness, care coordination, and management of chronic conditions in order to reduce and prevent acute care episodes.

This shift creates new opportunities for seniors housing and care providers who are willing to adapt. As new entrants and unusual partnerships continue to emerge, the walls separating healthcare and seniors housing are breaking down.

The 2020 NIC Spring Conference, held in San Diego next month, invites attendees to learn more about the disruption occurring as seniors housing and healthcare begin to converge.

During the conference morning general session: “Join the Disruption: Convergence of Healthcare and Seniors Housing,” a panel of experts will discuss why changes in healthcare delivery and payment models are occurring; how partnerships can slow the rising trajectory of healthcare costs and improve healthcare outcomes for high-need, high-cost frail elders; and how partnerships with healthcare providers and payors can generate revenue for seniors housing providers while improving resident quality of life and length of stay. NIC Founder & Strategic Advisor, Bob Kramer will be joined by keynote speakers David Nash, M.D., founding dean emeritus, College of Population Health at Thomas Jefferson University, Will Shrank, M.D., chief medical officer at Humana, Inc., and Dan Lindh, president & CEO, Presbyterian Homes & Services, for this highly enlightening discussion.

In addition to thought-provoking educational programming, the NIC Spring Conference offers a unique opportunity to make connections with other leaders in the field while gaining the latest data-driven industry insights. Bringing together more than 1,700 owners, operators, and capital providers, — plus numerous healthcare leaders — the upcoming NIC Spring Conference is a must-attend event for decision makers across the sector. Learn more about the conference.

In evaluating the attractiveness of a market for seniors housing investment or development, supply and demand metrics are fundamental data to examine, and layering on an assessment of rent growth and occupancy may provide additional insight. The following analysis shows the relationships between average occupancy rates and rent growth patterns for assisted living over a four-year timeframe—from 3Q 2015 through 3Q 2019—for the NIC MAP® 31 Primary Markets in aggregate—and then looks at the relative performance of individual markets.

The four-year timeframe provides a recent look-back at the time series’ peak assisted living rent growth, inventory growth and absorption, and the time series’ low occupancy rate. The abbreviated time frame seeks to mitigate any potential confounding effects of the Great Recession on the market fundamentals. As the data is considered, it is important to note that the results would differ if the study took a one-year, two-year, or ten-year look-back, with greater or lesser fluctuations in market dynamics on display with various timeframes.

Market-level occupancy and rent growth performance

As shown in the following chart, data was plotted for the four-year timeframe (3Q 2015 to 3Q 2019) to understand the relative performance of rent growth and occupancy trends for each of the 31 NIC MAP Primary Markets. The chart displays each market’s performance relative to each other and to the Primary Markets’ average for annual same store asking rent growth and average occupancy for this four-year period (for the Primary Markets, rent growth averaged 3.0% over this period, while the occupancy rate averaged 86.5%). The differing colors for the markets’ marks is simply to help distinguish each market’s plotting relative to that of the others.

• Nine markets in the upper right quadrant had higher than average annual rent growth (ranging from 5.6% in San Jose to 3.0% in New York City) and higher than average occupancy (ranging from 93.3% in San Jose to 88.3% in San Diego).
• Eleven markets in the lower left quadrant had lower than average rent growth (ranging from 1.5% in Detroit to 2.7% in Denver) and lower than average occupancy (74.6% in San Antonio to 86.2% in St. Louis).
• Six markets in the upper left quadrant had lower than average rent growth (ranging from 2.5% in Tampa to 3.0% in Minneapolis) and higher than average occupancy (89.4% in Pittsburgh to 86.9% in Tampa and Riverside).
• Five markets in the lower right quadrant had higher than average rent growth (ranging from 3.3% in Phoenix and Cincinnati to 3.0% in Houston) and lower than average occupancy (ranging from 86.1% in Cincinnati to 77.9% in Las Vegas).

  

The strongest performing markets—those with the highest assisted living average annual asking rent growth rates and highest average all occupancy rates for the four-year timeframe included San Jose, Portland, Sacramento, New York City, Los Angeles, San Francisco, Baltimore, Seattle and San Diego. Many of these markets have limited supply due to constraints such as significant land development regulations, physical constraints on geographical expansion, and extended entitlement processes and/or premium prices on land due to scarcity. Building seniors housing may also not be considered the highest and best use of land, with other types of real estate taking priority. Investors and developers in markets with these characteristics tend to have a long-term hold strategy and are typically rewarded with the ability to maintain or command higher rents because of relatively more restricted competition.

The weakest performing markets—those with the lowest assisted living average annual asking rent growth rates and lowest average all occupancy rates for the four-year timeframe included Detroit, Orlando, Miami, San Antonio, Dallas, Chicago, Kansas City, St. Louis, Atlanta, Philadelphia, and Denver. What do these markets have in common? A simple answer may not be enough as there may be a variety of influences, including but not limited to, demand fluctuations, several consecutive quarters of sustained construction, price pressures from new seniors housing inventory competition or oversupply, lost market share to alternative options for housing and/or care such as age-restricted multifamily apartments, home health services, co-housing, aging-in-place technology, and adverse local economic conditions.

The table below describes the commonalities of each quadrant in the scatterplot chart discussed above for the four-year timeframe. In addition to the assisted living all occupancy rates and average annual same store asking rent growth rates that were diagrammed in the scatterplot chart, stabilized occupancy (defined by NIC as properties that have been open for at least two years or, if open for less than two years, have already reached a 95% occupancy), the percent difference (i.e. “gap”) between the all and stabilized occupancy rates (which denotes the percentage of units still in lease-up), average age of properties in the market, net annual absorption growth, net annual inventory growth and construction as a share of inventory were examined for each of the 31 Primary Markets to suggest potential patterns for further exploration.

Source: NIC MAP^® Data Service

Despite the recent softening in assisted living occupancy and rent growth over the four year timeframe, some markets have experienced high rent growth matched with high occupancy, some have seen low rent growth matched with low occupancy, and others have experienced high occupancy and low rent growth, or low occupancy and high rent growth. What are some of the potential connecting factors?

Markets with either (1) strong absorption of new inventory, (2) a lull in cyclical construction, and/or (3) high barrier to-entry markets with limited new stock often have higher occupancy rates and can typically command higher rates of annual rent growth. In contrast, saturated markets—and markets with sustained construction cycles—may experience suppressed rent growth and lower occupancy rates for multiple years until demand catches up with supply. Under such conditions, operators may struggle to attract enough residents to fully lease-up a market’s new and existing units and may react to occupancy pressures by wholesale reductions in asking rents, and/or by offering point of sale concessions to offset and moderate revenue lost to vacancies.

Indeed, this analysis and blog post has only scratched the surface. Several questions may need to be answered with further research to understand what the key drivers of rent growth at the market-level are, including but not limited to:

• Influence of market saturation
• Age of inventory
• Timing of the construction cycle
• Geographic economic conditions
• Staffing costs
• Rising or falling target market income and home values
• Quantity and quality of existing and new inventory competition
• Consumer attitudes and awareness of seniors housing options
• Availability of alternative options for housing and/or care
• Demographic growth in age- and income-qualified households
• Changing resident acuity
• Levels of and duration of rent concessions

This blog has pointed out the wide differences in market performance by occupancy and rent growth and has suggested possible explanations for some of the disparities. However, to more fully understand rent and occupancy performance by market, an exploration of local market conditions and individual market dynamics should be considered.

If you’d like to learn more about the NIC MAP® Data Service, click here to visit our NIC MAP website.