“Due to growing cases of COVID-19 in many parts of the country, market conditions appear to be trending in a similar pattern to that seen earlier in the pandemic. More organizations in Wave 16 reported occupancy rate declines over the past 30 days in the segments serving residents with higher levels of care needs as the pace of move-ins has slowed. The deepest occupancy rate declines were in the nursing care segment, with about one-third of organizations with nursing care beds reporting occupancy declines of three percentage points or more. Residents moving to higher levels of care, cited by one-half of respondents, may be one of several possible factors in greater shares of organizations reporting an acceleration in move-outs for each of the care segments. As potential new residents wait on the sidelines and delay moving into properties, operators remain challenged to backfill newly available units. Recent announcements of vaccine approvals should help restore occupancy in the coming months.”

                                                                                                                                                                 –Lana Peck, Senior Principal, NIC

NIC’s Executive Survey of operators in seniors housing and skilled nursing is designed to deliver transparency into market fundamentals in the seniors housing and care space at a time when market conditions continue to change. This Wave 16 survey includes responses collected November 9- 22, 2020 from owners and executives of 87 seniors housing and skilled nursing operators from across the nation. Detailed reports for each “wave” of the survey, and access to the graphs included in this report, can be found on the NIC COVID-19 Resource Center webpage under Executive Survey Insights.

Wave 16 Summary of Insights and Findings

• The shares of organizations reporting month-over-month declines in occupancy rates increased for each of the care segments except for the independent living segment in Wave 16. Notably, the shares of organizations reporting declines in occupancy is the highest since Wave 8 (surveyed late-May to early-June) for the memory care and nursing care segments, and Wave 9 for the assisted living care segment (surveyed late-June to early-July). On the flip side, the shares of organizations reporting an increase in month-over-month occupancy is the lowest in since Wave 8 for the independent living and assisted living care segments, and Wave 7 for the nursing care segment (surveyed mid-May).
• The shares of organizations reporting an acceleration in the pace of move-ins in the past 30 days for independent living, assisted living and memory care were at or around their lowest levels since Wave 8 (surveyed late-May to early-June), while the shares of organizations reporting a deceleration in the pace of move-ins in the past 30 days for independent living, memory care and nursing care were at or around their highest levels since Wave 8.
• The slowdown in the pace of move-ins may be reflected in the growing share of organizations reporting residents waiting to move in. Now at the highest point in the survey, approximately one-third of respondents (34%) had a backlog of residents waiting to move in. This may suggest that once a vaccine is distributed, operators may see an increase in move-ins and occupancy rates.
• Presumably due to relaxation in resident visitation restrictions, safe visitation policies and procedures, and perhaps greater access to COVID-19 testing, resident or family member concerns cited as a reason for deceleration in the pace of move-ins and acceleration in the pace of move-outs were both down from the late summer months.
• One-half of operators with nursing care beds noted downward changes in occupancy rates, and greater shares of organizations with nursing care beds in Wave 16 noted declines in occupancy of ten percentage points or more than in the prior three waves of the survey. About one-third of organizations with nursing care beds reported occupancy declines of three percentage points or more.
• On the other end of the spectrum, the independent living segment saw a lesser degree of month-over-month occupancy change than the nursing care segment: one-quarter of organizations with independent living units in Wave 16 noted occupancy declines of up to 3 percentage points, and 15% saw increases in occupancy up to 3 percentage points. Just under a third of the occupancy declines reported for the assisted living care segment were in the 0.1 to 3 percentage point range (29%), although one-quarter (25%) reported declines of more than 3 percentage points. Only 5% reported declines of 10 percentage points or more.
• Looking at the week-over-week occupancy changes by care segment, the nursing care and memory care segments reported the largest shares of declining occupancy from one week prior (33% and 23%, respectively), suggesting the downward trend may continue.
• In Wave 16, accelerations in the pace of move-ins in the past 30 days generally matched decelerations in independent living and memory care. However, the assisted living segment and the nursing care segment saw greater shares of organizations reporting decelerations in move-ins than accelerations. While resident or family member concerns and slowdown in leads conversions/sales cited as reasons for deceleration in move-ins (61%) declined from Wave 15 (88% and 75%, respectively), about one-quarter of respondents cited an organization-imposed ban (24%).
• The shares of organizations with assisted living units reporting an acceleration in the pace of move-outs is at the highest level in the survey time series (29%) but at similar levels seen last in Waves 5 and 6, earlier in the pandemic (late-April to mid-May). About one-third of organizations with nursing care beds in Waves 15 and 16 report an acceleration in the pace of move-outs—the highest levels since Wave 5 (surveyed late-April to early-May).
• Respondents reporting ease in accessing PPE and COVID-19 test kits declined from the prior survey. Just under one-half of respondents (47%) found it easy to obtain COVID-19 testing kits, down from 59% in Wave 15. Respondents reporting easy access to PPE fell from 54% to 44% over the same time period. The Wave 17 survey, currently collecting data, will address challenges to organizations regarding access and cost of PPE.
• Similar to Wave 15, more than one-half of respondents in Wave 16 (57%), received their COVID-19 test results within 2 days, up from 13% in Wave 10, surveyed late-July to early-August. While somewhat encouraging, at this point in the pandemic, it is still taking 3 or more days to receive test results for a substantial proportion of respondents (43%).
• Although down slightly from Wave 14, most respondents (85%) were paying staff overtime hours—continuing to put strain on NOI. Organizations backfilling staffing shortages with agency or temporary staff is down from a high of 70% in Wave 15 to 62% in Wave 16.

Wave 16 Survey Demographics

• Responses were collected November 9-November 22, 2020 from owners and executives of 87 seniors housing and skilled nursing operators from across the nation. Just under half of respondents are exclusively for-profit or nonprofit providers (44%, respectively), and 12% operate both for-profit and nonprofit seniors housing and care organizations.
• Owner/operators with 1 to 10 properties comprise 69% of the sample. Operators with 11 to 25 properties make up 17% of the sample, while operators with 26 properties or more make up 14% of the sample.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 70% of the organizations operate seniors housing properties (IL, AL, MC), 30% operate nursing care properties, and 38% operate CCRCs (aka Life Plan Communities).

Key Survey Results

Pace of Move-Ins and Move-Outs

Respondents were asked: “Considering my organization’s entire portfolio of properties, overall, the pace of move-ins and move-outs by care segment in the past 30-days has…”

• Showing the most recent waves of survey data in the chart below, the shares of organizations reporting no change in the pace of move-ins in the past 30-days remained high but declined from Wave 15 for the independent living, assisted living and memory care segments—ranging from 49% to 52% in Wave 15 to 42% to 47% in Wave 16.
• In Wave 16, reports of accelerations in the pace of move-ins generally matched decelerations in independent living and memory care. However, the assisted living segment and the nursing care segment saw greater shares of organizations reporting decelerations in move-ins than accelerations.

• The shares of organizations reporting an acceleration in the pace of move-ins in the past 30-days for independent living, assisted living and memory care were at or around their lowest levels since Wave 8 (surveyed late-May to early-June). On the flip side, the shares of organizations reporting a deceleration in the pace of move-ins in the past 30-days for independent living, memory care and nursing care were at or around their highest levels since Wave 8.

Reasons for Acceleration or Deceleration in Move-Ins

Respondents were asked: “The acceleration/deceleration in move-ins is due to…”

• The shares of organizations citing increased resident demand as a reason for acceleration in move-ins in Wave 16 remained high (84%); up from a low of 66% in Wave 10 (surveyed mid-July to early-August) but down from a peak of 88% in Wave 12 (surveyed mid- to late-September).
• As shown in the chart below, resident or family member concerns and slowdown in leads conversions/sales cited as reasons for decelerations in the pace of in move-ins in the past 30-days (61%) declined from Wave 15 (88% and 75%, respectively). In Wave 16, about one-quarter of respondents cited an organization-imposed ban—an increase from the prior wave (17% to 24%), and up from 0% in Wave 14 (surveyed mid- to late-October).

• In Wave 16, the shares of organizations reporting an acceleration in the pace of move-outs exceeded the shares reporting a deceleration in move outs for each of the care segments. However, between roughly two-thirds and three-quarters of respondents in Wave 16 with independent living, assisted living, and/or memory care units noted no change in the pace of move-outs in the past 30-days (61% to 79%).
• While smaller shares of organizations with independent living units reported deceleration in move-outs than in the prior three waves of the survey (7%), greater shares of organizations with assisted living and memory care units than in recent waves of the survey reported acceleration in the pace of move-outs (29% and 22%, respectively).

• About one-third of organizations with nursing care beds in Waves 15 and 16 report an acceleration in the pace of move-outs—the highest levels since Wave 5 (surveyed late-April to early-May).
• The shares of organizations with assisted living units reporting an acceleration in the pace of move-outs is at the highest level in the survey time series (29%) but at similar levels last seen in Waves 5 and 6 earlier in the pandemic (late-April to mid-May).
• As shown in the chart below, resident deaths (unspecified reason) continued to be cited most frequently as a reason for acceleration in the pace of move-outs in the last 30-days (77%). This is up from 61% in Wave 13 but below the peak of 85% reached in Wave 6 (surveyed in early-May). Residents moving to higher levels of care was cited by one-half of respondents (51%)—the highest since Wave 7 (surveyed mid-May). Resident or family member concerns cited as a reason for acceleration in the pace of move-outs was 40% in Wave 16—down from 63% in Wave 10 (surveyed late-July to early-August).

Change in Occupancy by Care Segment

Respondents were asked: “Considering the entire portfolio of properties, overall, my organization’s occupancy rates by care segment are… (Most Recent Occupancy, Occupancy One Month Ago, Occupancy One Week Ago, Percent 0-100)”

• In Wave 16, the shares of organizations reporting month-over-month declines in occupancy rates increased for each of the care segments except for the independent living segment. Between 42% and 54% of organizations with assisted living units, memory care units and nursing care beds reported downward changes in occupancy in the past 30-days.
• The shares of organizations reporting declines in occupancy is the highest since Wave 8 (surveyed late-May to early-June) for the memory care and nursing care segments, and Wave 9 for the assisted living care segment (surveyed late-June to early-July).
• The shares of organizations reporting an increase in month-over-month occupancy is the lowest in since Wave 8 for the independent living and assisted living care segments, and Wave 7 for the nursing care segment (surveyed mid-May).

• The chart below breaks out the rates of change in occupancy by care segment with greater granularity. The blue and orange-hued stacked bars correspond to the solid bars in the chart above indicating the degree of change by the saturation of color.
• The chart above illustrates that In Wave 16, 50% of operators with nursing care beds noted downward changes in occupancy rates. The chart below describes the degree of those occupancy rate changes: greater shares of organizations with nursing care beds in Wave 16 noted declines in occupancy of ten percentage points or more than in the prior three waves of the survey (greater shares of organizations also reported increases of ten percentage points or more). Additionally, the chart shows that about one-third of organizations with nursing care beds reported occupancy declines of three percentage points or more.

• On the other end of the spectrum, the independent living segment saw a lesser degree of occupancy change than the nursing care segment: one-quarter of organizations with independent living units in Wave 16 noted occupancy declines of up to three percentage points, and 15% saw increases in occupancy up to three percentage points.
• Just under a third of the occupancy declines reported for the assisted living care segment were in the 0.1 to three percentage points range (29%), although one-quarter (25%) reported declines of more than three percentage points. Only 5% reported declines of ten percentage points or more.
• Regarding the change in occupancy from one week ago, between 62% and 87% of organizations with independent living, assisted living and memory care, and 50% of organizations with nursing care beds reported no change. Organizations with independent living units saw the smallest changes in week-over-week occupancy rates (7%, decreased and 7% increased). However, the nursing care and memory care segments reported the largest shares of declining occupancy from one week prior (33% and 23%, respectively).

Organizations Currently Offering Rent Concessions to Attract New Residents and Organizations Experiencing a Backlog of Residents Waiting to Move-In

Respondents were asked: “My organization is currently offering rent concessions to attract new residents,” and “My organization is experiencing a backlog of residents waiting to move-in”

• Fewer organizations in the Wave 16 survey sample were offering rent concessions to attract new residents than in the prior three waves of the survey. Organizations offering rent concessions (51%) is down from a high of 61% reached Wave 14 (surveyed in the latter half of October). It should be noted that the concept of “rent concessions” is broad and may include non-monetary benefits.
• Approximately one-third of respondents (34%) indicated that their organizations had a backlog of residents waiting to move in. This has increased to the highest point in the survey.

Improvement in Access to PPE and COVID-19 Testing Kits

Respondents were asked: “Considering access to PPE (personal protective equipment) and COVID-19 testing kits, my organization has experienced that access has improved… Very little, it is still difficult to obtain enough PPE/testing kits in most markets/Somewhat, in some markets it is easier to obtain PPE/testing kits than in others/Considerably, we typically have no difficulty obtaining PPE/testing kits, regardless of market”

• Respondents reporting ease in accessing PPE and COVID-19 test kits declined from the prior survey. Just under one-half of respondents (47%) found it easy to obtain COVID-19 testing kits, down from 59% in Wave 15. Respondents reporting easy access to PPE fell from 54% to 44% over the same period.

• The next survey, Wave 17, will address challenges to organizations about access to and cost of PPE.

Time Frames for Receiving Back COVID-19 Test Results

Respondents were asked: “Regarding COVID-19 test results (either for staff, residents or prospective residents) results typically come back within…”

• Like Wave 15, more than one-half of respondents in Wave 16 (57%), received their COVID-19 test results within 2-days, up from 13% in Wave 10, surveyed late-July to early-August. At this point in the pandemic, it is still taking 3 or more days to receive test results for a substantial proportion of respondents (43%).

Labor and Staffing

Respondents were asked: “My organization is backfilling property staffing shortages by utilizing … (Choose all that apply).” Note: this question was asked in Wave 3, and then again in Waves 10-16.

• Although down slightly from Wave 14, most respondents in Wave 16 (85%) were continuing to offer staff overtime hours. Just under two-thirds of respondents were using agency or temp staff to fill staffing vacancies—62% up from 36% in Wave 3 but down from 70% in Wave 15.

Owners and C-suite executives of seniors housing and care properties, we’re asking for your input! By providing real-time insights to the longest running pulse of the industry survey you can help ensure the narrative on the seniors housing and care sector is accurate. By demonstrating transparency, you can help build trust.

“…a closely watched Covid-19-related weekly survey of [ ] operators
conducted by the National Investment Center for Seniors Housing & Care…”
Wall Street Journal | June 30, 2020

The Wave 17 survey is available until Sunday, December 13, and takes just 5 minutes to complete. If you are an owner or C-suite executive of seniors housing and care and have not received an email invitation to take the survey, please click this link or send a message to insight@nic.org to be added to the email distribution list.

NIC wishes to thank survey respondents for their valuable input and continuing support for this effort to bring clarity and transparency into market fundamentals in the seniors housing and care space at a time where trends are continuing to change.

In “Dramatic Moments in History: Another Period of Disruption,” Kurt Read, Chair of the Board of Directors, NIC; and Principal, RSF Partners; provided attendees of the 2020 NIC Fall Conference with a review of the seniors housing and care industry’s performance characteristics since NIC was founded in 1991. This is the third and final post in our blogging series that provide the key takeaways from that session which reviewed the past 30 years of investment in seniors housing and care. In this post, we touch upon NIC’s role through those years, and look to the years ahead, with thoughts from a new generation of leaders sitting on NIC’s Future Leaders Council. 

The Current Disruption 

Heading into the current period of disruption, Read looked at a number of factors impacting the market. The first factor Read looked at was the cost of capital. Looking at cap rates, he showed that the cost of capital has been going down, through the second quarter of 2020. In seniors housing, compared to apartments, the risk premium on seniors housing has been dropping, particularly since the last recession, indicating that investors, prior to the COVID-19 pandemic, were viewing the sector as less risky. “I’m not sure investors are going to agree with that premise in a post-pandemic environment,” Read opined. 

Looking at NCREIF annualized total investment returns, ten-year and five-year returns are still close to 10%. However, Read points out, the one- and three-year returns are now more in line with other real estate asset types. “We’ve gone from being the darling to one of the team,” he said. Transaction volumes, which for the past eight or nine years have been strong, have now stalled. Comparing 2020 with 2008 and 2009, and referring to his discussion on distress cycles, Read pointed out that, “We’re in that time period where there’s very little price discovery.” 

Looking at occupancy decline, Read emphasized the importance of context. He explained how occupancy decline is partly a function of length-of-stay averages, which vary depending on property type. A CCRC, with a ten-year length-of-stay average, will see occupancy drop far more slowly than an assisted living property with a one-year average length-of-stay. Current data reflects this relationship in today’s occupancy decline numbers, by property type. 

NIC’s Role 

Read concluded his review of the seniors housing and care sector by reflecting on the role of NIC during the past 30 years. “All along that time, a small sector, trying to get capital, needed to grow up. How do you grow up when you’re a sector? You get data, and you get together great leaders who challenge each other to get better. That’s what NIC has been about all of these years.” For the remainder of the session, Read introduced NIC leaders, past, present, and future, to share, in their own words, why NIC was founded, what it is working towards today, and where it will lead in coming years.  

The first to speak was NIC Founder & Strategic Advisor; and President, Nexus Insights; Bob Kramer, who said, of the founding of NIC, “The goal was to provide investors with insights and transparency comparable to that which was available for the major commercial real estate property types.” Looking to the future, Kramer said, “NIC has an extraordinary opportunity to provide leadership, both within and outside our industry, on the resetting of the relationship between ‘where I live’ (housing), ‘what keeps me healthy,’ (health), the where and how of healthcare services delivery, and personal care.” 

Data and Transparency 

In his introduction of Kathryn A. Sweeney, Co-founder and Managing Partner, Blue Moon Capital Partners, Read explained that, as NIC got started in the 1990s it became clear to investors that seniors housing and care lacked the data available to investors in other asset types. Sweeney explained why she and others at NIC piloted and launched what is known today as the NIC MAP^® Data Service. “The seniors housing industry suffered a high cost of capital due to the lack of transparency. Institutional investors saw more risk until the industry could be compared to all commercial real estate types,” Sweeney explained.  

NIC launched a NIC MAP pilot, looking at the Charlotte, NC market. NIC convened a task force of operators and investors and also hired ProMatura Group to collect and tabulate the data. Task force members also worked their relationships with operators in the space to get their participation. The result “wasn’t pretty,” said Sweeney, “but we worked out the bugs and launched in the top 31 markets.” Sweeney concluded with the statement, “Today, NIC MAP is recognized as the most trusted data source for a wide range of metrics, information, and insights. Importantly, the lower cost of capital objective was met.” 

Next to speak was NIC Chief Economist, Beth Mace, who discussed not only the NIC MAP Data Service’s offering of data and analysis, but also the many current initiatives, publications, research, and outreach conducted by NIC. “All of these efforts have resulted in making the seniors housing and care sector more accessible, transparent, and easy to understand. It has allowed more institutional capital to come into our sector, which has helped drive down the price of capital and help create more housing options for seniors.”  

Thought-Leadership 

The final two speakers were introduced by Read as, “innovative thought leaders that are pushing all of us, and pushing our industry to push ahead.” First to speak was Dana Scheppmann, Senior Vice President, Capital One Healthcare Real Estate, and leader of NIC’s Future Leaders Council. She pointed out that, as healthcare providers move from fee-for-service to a more “outcomes-based model”, they are challenged both to control patient behavior outside of their care, and to track and quantify outcomes.  

Scheppmann relayed a vision in which the seniors housing and care sector could help resolve both issues. “What NIC can do, to help push this initiative along, is to connect these healthcare providers with these owners, with these operators, to make sure we are pitching to them. We can help them with this initiative.” In partnership with healthcare providers, the sector could help ensure better outcomes for healthcare patients, while potentially also attracting more residents coming from the healthcare system. 

On the potential for facilitating such partnerships, the final word belonged to Kelsey Mellard, CEO, Sitka: “NIC’s greatest success in the future will be their ability to continue to convene and drive a data-informed conversation about the intersection of seniors housing and healthcare delivery.” In thanking both young leaders for their contributions, Read reflected on the future of NIC, saying, “As always, it’s incredibly inspiring to me to see the passionate talent that is attracted to NIC and to our industry.” 

Toward the beginning of the COVID-19 public health crisis, I authored a blog post highlighting some of the strategies that seniors housing and care operators were implementing to maintain resident wellness and engagement. Subsequently, I had the opportunity to present on this topic at the 2020 NIC Fall Conference. While preparing, it struck me how much these strategies have evolved over the course of just a few months as operators stepped up to the challenge of delivering an ever-greater sense of connectedness to their residents in this time of a global pandemic.

The most common strategies implemented early in the pandemic frequently involved a simple barrier of sorts, whether that was the window of a building or a plastic “cuddle curtain” for receiving a hug. These tactics gave residents the opportunity to see family and friends and to approximate the physical contact that residents and family members crave. In select communities, essential caregivers can have regular contact and visitation with residents, but when that isn’t possible, adoption of virtual reality, robotic technology, and other creative ways to facilitate companionship are becoming more common. Below, I comment on some of these.

Virtual Reality Technologies

Ten months into the pandemic, virtual reality (VR) companies have established a foothold in the seniors housing and care sector. Virtual reality creates opportunities for socialization that are both digital and physical at the same time. These experiences can provide a 360° video inside a headset, delivering a panoramic view that moves with the viewer. In some instances, virtual reality cameras can be provided to family members so they can film weddings, reunions, vacations, and other family gatherings. These are then stored as part of a content package residents can immerse in, allowing them to feel like a participant, as opposed to simply a viewer.

Facilitated Companionship

Socialization and interaction are key value propositions of senior living. Achieving these value propositions has been made that much more difficult during the pandemic when mask-wearing and physical distancing are known steps for disease prevention or slowdown. In the age of COVID-19, facilitating companionship in any way possible is key for residents.

Pre-pandemic, some forward-thinking Medicare Advantage operators were using a “two birds, one stone” tactic to address both food insecurity and loneliness. Partnerships with organizations like Hunger Action Alliance and Meals on Wheels rely on meal deliverers to do more than simply drop food off. They engage with members, report back to care teams on home conditions, medication adherence, and other potential concerns identified during their visit.

Senior housing operators also use this strategy, recognizing that every touch point is an opportunity for socialization. While the necessary safety measures must still be implemented, each medication distribution, meal delivery, and clinical check-in can be viewed as a chance to engage with residents.

Outside of a property itself, other opportunities exist to facilitate companionship. One such opportunity and organization is Papa which, in the pre-pandemic era, paired motivated college students with older adults and families who needed companionship and assistance with everyday tasks. Papa partnered with health plans to not only address loneliness, but to also provide transportation to appointments, medication pickup, and church or gym attendance. Times are different now, and in the pandemic era, Papa has focused on offering virtual companionship. Interested parties can still sign up for free and request a “papa pal,” to provide company virtually and share an uplifting conversation.

Robotic Animal Companion Pets and Social Robots

Robotic animal companion pets are also used to address issues of social isolation and can be a creative fit to brighten up the days of a resident. These robotic pets respond to both touch and motion and provide a realistic animal experience. The genuine feel and sound of a cat purring and soft fur mimics a live animal, without the need for trips outside or refilling the water bowl. The realism and interactive play provided by these robotic pets combats the feelings of loneliness amongst older adults.

For those looking to go even deeper into the realm of robotics, there is Pepper, the first social humanoid robot. Originated in Japan by SoftBank Robotics, Pepper can recognize faces and basic human emotions and engages with people through conversation and a touch screen. This robot can offer proactive engagement by calling residents by name, initiating interaction, and proactively moving toward residents to start conversations. Another major benefit is Pepper’s ability to speak multiple languages, which can help with residents who are forgetting native languages due to lack of use.

Creatively Utilize Existing Resources

With all the challenges posed by the pandemic and its impact on resources, it is more important than ever to utilize existing resources to their fullest capacity. This could mean taking advantage of creative chefs and kitchen staff. For example, operators may consider implementing a virtual teaching kitchen with the ability to televise a chef cooking a favorite recipe. It would be even better if the chef can tie that recipe to wellness and use the experience as an opportunity to educate residents about nutrition. This could be something as simple as a mocktail that touts the health benefits of ginger. Mocktail kits can be created in advance and distributed to residents for their enjoyment.

The challenges created by the COVID-19 pandemic have been many. Among them is the need to maintain interaction and socialization opportunities for residents. Seniors housing and care operators have embraced the opportunity to tackle this issue by continuously evolving their strategies to mitigate the side effects of social distancing and isolation. Time, creativity and imagination will no doubt spawn further ideas to combat this very important pandemic-related challenge.

In “Dramatic Moments in History: Another Period of Disruption,” Kurt Read, Chair of Board of Directors, NIC; and Principal, RSF Partners; provided attendees of the 2020 NIC Fall Conference with a review of the seniors housing and care industry’s performance characteristics since NIC was founded in 1991. This is the second of a series of three NIC Notes posts that provide the key takeaways from that session which reviewed the past 30 years of investment in seniors housing and care. 

Development Cycles 

Another way to look at the past 30 years, is to see how this relatively new industry has development cycles, driven by the need to meet growing demand. Read analyzed three distinct cycles, which have occurred since 1991. During the savings and loan boom, cash flowed into real estate. Seniors housing developed at more than double the pace of preceding years. While the boom created oversupply, it also fueled entrepreneurial efforts to improve seniors housing models and products.  

Read recalled a meeting with Bill Colson and Norm Brenden, in 1991, just as the crisis hit, and capital was fleeing the sector. Their company, Holiday Retirement, was looking for capital. “Oh my goodness, did they have a great product. They had consumers, during this time period, during a recession, moving into their properties…they were developing at a 90% occupancy to a 15% unlevered return on cost.” Although other investors “beat us to the punch” on the opportunity, he pointed to this as an example of how, “During a period of disruption, if you have a great product that can earn a really good return for the risk, you’re going to raise capital.” He pointed out that other great companies in the space, such as Sunrise Senior Living and Erickson Living, were able to access capital in the late ‘80’s and early ‘90s, launching their rise, even amid a major disruption in the space. 

During the IPO boom of the mid ‘90s, capital was again flooding into the sector. Read recalled hearing IPO pitches for “newfangled” assisted living properties. “When they got to the part about their growth plans, I could tell this was not going to end well.” Companies were planning to open new properties at an unrealistic pace, and the result, according to Read, was, “too many properties, being built too quickly, in too few markets. We had a huge overhang from that.” As was the case in the previous crisis, new supply fell off dramatically as a result. 

Going into the Great Financial Crisis, there was less supply growth. “That was part of the story for why we had such great performance, relative to other real estate asset classes,” explained Read. New inventory volumes dropped again in 2010-2012. “That set us up for a wonderful period of outperformance. We had better returns than other asset classes. We had demand growth. Capital was available, and here we go – another development boom.” As more new properties came on the market, through the end of the decade, occupancy rates grew, then flattened, then softened on a national basis. Despite record demand, absorption couldn’t keep up with the burgeoning supply.  

Buying Low 

Looking at all three of the economic crises outlined in our first NIC Notes post, Read observed three distinct opportunities to buy quality properties at lower prices. “You put periods of disruption together with a highly cyclical development flow and money flow into our space, and what you get are some really interesting opportunities.” In the savings and loan crisis, many opportunities existed to buy quality assets at low prices. Read’s company acquired a public company, the Forum Group, with “wonderful Class A assets, 26 of them, they had just been built during the easy money times. They were a creation of a firm you may have heard of: Drexel Burnham Lambert.” That company, run by the now infamous Michael Milken, had over–financed the senior living company which had developed most of its properties.  “Financing new development with current pay junk bonds was not a recipe for success.” Recapitalized, the properties were able to get through the recession. “It was a very successful investment for us,” said Read.  

The healthcare real estate crisis also produced buying opportunities, generated by oversupply and a disrupted revenue model in skilled nursing. As C-corps and REITs suffered low occupancy rates, missed lease-up targets, and, simultaneously, skilled nursing operators began to miss lease payments, investors saw opportunities to buy stocks, bonds, bank debt, assets, and companies. As in the former crisis, development fell off significantly. In that environment, many companies were able to acquire assets at low prices and achieve great success. “It was a terrific time to be buying brand new, disrupted private-pay senior housing. Some of the best institutional investors made really great use of this time period and developed incredible track records as savvy purchasers, owners, and managers of senior living assets at this time.”  

Keep Your Eye on Capital Flows 

During the broad financial disruption of the Great Financial Crisis, the senior living industry looked very strong, relative to other real estate asset classes. “The healthcare REIT sector of public REITs was the largest sector by market cap during this time. Bigger than malls, bigger than office buildings, because we were doing so well relative to the other real estate asset classes. This really set up a period of outperformance for our industry. We had demand growth, we had reasonable supply/demand balance, we had good returns, we didn’t suffer during the GFC. Wow, this looked like a great place for people to rotate their capital to, and indeed they did.” 

According to Read, “the takeaway from this is, keep your eye on capital flows into our industry. It’s really a small industry relative to other real estate asset classes. When you see that supply curve bending up and to the right, you’ve got to put your radar up, because we’ve had big cycles in this space. If you think about it, we’re a real estate sector, we’re a healthcare sector, and we’re a hospitality sector. You put those three things together and there are more chances for disruption over a long period of time than there are for a more simple asset class, like industrial, to pick one.” 

Be Patient 

Looking at the NCREIF market value index over all three recessions, Read illustrated how much time it took to recover from each. Investors affected by the savings and loan crises didn’t gain back the value lost until eleven years later. He pointed out it also took 4-5 years to hit bottom. “You’ve got to be patient,” he said, “it was not a good idea to be wandering into the U.S. real estate market, buying a bunch of real estate in the first couple of years of the savings and loan crisis…you had to wait until you got to 1992 before you could plow in.” The Great Financial Crisis, despite sharp declines, took two years to bottom out. “You hear pontificators talk about a “V” shaped recovery, ‘we’ll be back by Christmas’, all this nonsense, that’s not how real estate works,” said Read, “any crisis that affects real estate takes a while.” 

To further illustrate that point, Read examined distress cycles, revealing the lengthy process, from “shock and triage,” through a “price discovery” period, and then workouts and resolutions via distressed property transactions. “It takes time,” Read summarized, “It’s complicated and slow.” 

While much of the programming for the recent 2020 NIC Fall Conference focused on the pressing issues of today, particularly during a time of COVID-19, economic and political uncertainty, and disruption, one session stepped back, and looked at what is happening today through a lens that stretches back to 1991. This is the first of a series of three NIC Notes posts that share the key takeaways from that session which reviewed the past 30 years of investment in seniors housing and care. 

In “Dramatic Moments in History: Another Period of Disruption,” Kurt Read, Chair of Board of Directors, NIC; and Principal, RSF Partners; provided a review of the seniors housing and care industry’s performance characteristics over those last three decades. Following his professorial, yet highly practical, and accessible retrospective presentation he introduced past, present, and future leaders of NIC, to comment on what the organization has achieved over its nearly 30 year history – and where it is leading the industry in coming years.  

Crammed with original charts, and many examples pulled from his own experiences as a long-time investor in the industry, Read’s presentation was a guided tour, pointing out key facts and figures through recessions, building booms, floods of capital both into and out of the industry, major disruptions, and the current worldwide pandemic. The overall effect was of a master class, not to be missed by anyone with an interest in the sector.  

Rising Demand and Falling Rates 

“When you do something for 30 years, it gives you a chance to accumulate a lot of experiences,” Read said, as he launched a series of slides outlining the history of seniors housing and care since 1991, when NIC was founded. He relayed plenty of those experiences as illustrations and examples, throughout the presentation of data, lending a human aspect to the events of the past three decades. He began his remarks with two theses for investment in the sector: “This is a space that benefits, very simply, from increasing demand…and the ‘lucky’ trend that…interest rates have declined over the last 30 years.” The chart showed the rise of the 80+ population from 7 to nearly 14 million over that time, and the 10-year treasury yield over the same period, dropping from over 8.5% to under 1%. Noting the ups and downs of the interest rates over time, as well as the multiple recessions, he said, “It’s not easy, it’s never smooth, but that volatility and those periods of disruption provide for both great challenges and opportunities.” 

In addition to reviewing how disruptions and recessions have yielded opportunities for investors, Read said he also wanted to dig into the characteristics of a disruption, “particularly as it pertains to an illiquid, lumpy asset class like real estate and seniors housing and care as a subset of that.” One of Read’s goals for the presentation was to ask whether the things the industry was “saying and doing right before the pandemic started” were still true today. Another goal, Read explained, was to “spend time with the leaders of NIC over the years and going forward…hear directly from them, in their voices, why they believe NIC is really the collective expression of all of our passion and dedication to this industry, in our effort to provide great environments, and to provide great care to our nation’s elders.” 

Four Major Disruptions 

He started with the four major disruptions which have occurred over the last 30 years, observing that, “there are exogenous factors, government actions, that disrupt markets, that have direct consequences, and indirect consequences.” In the savings and loan crisis of 1986 to 1995, in an effort to stamp out high inflation, the government raised interest rates. “On paper that bankrupted the savings and loan industry almost overnight,” Read said. Ultimately, hastened by the government’s actions to try to help the savings and loans, the real estate industry saw “a torrent of capital into the real estate business, that quickly became speculative.” That lead to a bubble, which then burst, and took investors many years to recover from. 

Ten years later, from 1998 to 2001, in the healthcare real estate crisis, skilled nursing was disrupted by a major shift to the fee-for-service reimbursement model, which was poorly managed by the government. A simultaneous boom in IPOs caused a glut of new construction in assisted living. “Those two forces collided to disrupt both C-corps and healthcare REITS, many of which were public.” The crisis played out in the public markets, in real time. “It was immediately apparent that there was enormous distress in the markets.” Confidence in senior living dropped and capital fled the sector. “This led to a number of very interesting opportunities, but it was a period of great pain and disruption for our industry.” 

In the great financial crisis of 2008 to 2009, overinvestment and excessive leverage in residential and commercial real estate caused a bubble. When the bubble collapsed, the government stepped in to help stabilize financial markets. There were fewer mark-to-market opportunities as a result. “It gave us an opportunity to shine. We looked pretty good, relative to the rest of the real estate world.” 

On the current crisis, Read said, “Here we are in a healthcare crisis, prompting incredibly uneven effects across our industry, as skilled nursing facilities are effected dramatically differently from other types of facilities in our space. We are just at the beginning. It’s very unclear where we are going to go from here.”