Average seniors housing price per unit reaches over $200,000 for first time.

There was no shortage of activity in the U.S. seniors housing and care transactions market in 2019. The story of abundant liquidity continued throughout the year with the number of closed transactions reaching a time-series high going back to 2008. Indeed, there was no sign of reduced interest from investors and the transaction market continued to show significant activity once again which, barring any economic or capital market shocks, is most likely to continue into 2020.

Seniors housing and care closed transactions volume in 2019 registered $15.7 billion, which includes $11.1 billion in seniors housing, and $4.7 billion in nursing care. The total volume was up nearly 6% compared with 2018 volume of $14.9 billion. However, the yearly comparison  differs when looking at the sectors separately as seniors housing dollar volume was up and nursing care volume was down compared to 2018. Seniors housing saw a 19% increase in volume from $9.3 billion in 2018, and nursing care volume was down 17% from $5.6 billion last year.

For closed transactions, the yearly count reached a time-series record going back to 2008. The number of deals closed in 2019 totaled 617, which was up 15% from the 535 closed in 2018, and up 22% from the 505 transactions closed in 2017. This new record of transactions closed is another indicator of the high level of interest from investors, especially the private buyers in the market.

In the bar chart below, note that the private buyer has been consistent in terms of closed transaction dollar volume over the past three years, ranging from $6.1 billion in 2018 to $7.1 billion closed in 2019. This buyer type registered a solid year in 2017 as well with $6.3 billion in closed transactions. The private buyer represented almost half of the dollar volume in 2019 with 45% of closed volume, up from the 41% share of volume in 2018. The 2019 private buyer volume was up 16% from 2018 and 13% from 2017.

Not many significant-sized transactions, for example over $500 million, were tallied. But many transactions closed for smaller portfolios and single properties within the private buyer category, which can include owner/operators, family offices, and other private partnerships whose primary focus is operating, developing, and/or investing in real estate.

Seniors Housing and Care Pricing

Seniors housing pricing had been trading in a range capped at the $180,000 mark since 2015.  But in the second half of 2019 that changed as the third quarter of 2019 saw a price per unit over $200,000 for the first time in the time-series since 2008. In the fourth quarter, price per unit increased 2.6% from $204,300 to finish 2019 at $209,600.

The blue colored line at the top of the graph below shows the uptick as 2019 closed. On a year-over-year comparison, seniors housing price per unit was up significantly as it increased 29.5% from $161,800 in the fourth quarter of 2018.  Also, worth noting is that from its low point, in 2010 of $58,500, price per unit is up over 250%.

In terms of nursing care pricing, represented by the orange line on the bottom, the story is much the same for increases in 2019. The price per bed is now back above $80,000 for the first time since the second quarter of 2018 when pricing took its latest downturn. Price per bed increased in the fourth quarter 2019 by 4.3% from $77,800 in the third quarter to end 2019 at $81,100. On a year-over-year comparison, nursing care price per bed was up 23% from $65,900 in the fourth quarter of 2018. From its low point in 2009 of $48,700, pricing per bed is up only 65%, which underscores the volatility in nursing care, as seen in the line graph below, especially in 2011.

In summary, pricing in both seniors housing and nursing care have seen a very positive upswing in 2019, based arguably on the stabilization of fundamentals for both, especially on the occupancy front. Labor continues to be a challenge for both, but absent a significant shock in 2020, for example a significant increase in interest rates or an economic downturn, we expect the fundamentals to continue to stabilize which should bode well for pricing. Of course, capital availability is a key driver as well, though that seems plentiful for now.

Scott Brinker, president and chief investment officer of Healthpeak, the nation’s third largest healthcare REIT, recently expressed frustration with the limitations of seniors housing data, that fails to provide insights into rate discounting. In Healthpeak’s fourth quarter, 2019 earnings call, Brinker said, “From where we sit today, occupancy across the sector is generally flat, which is certainly an improvement from where it’s been the past three years or four years. But too often, I think that occupancy is coming at the expense of discounting and incentives, and those aren’t being picked up by the [National Investment Center for Seniors Housing & Care] {asking rate} data that a lot of people like to focus on.”

During a time in which the market pressures Brinker describes are challenging investors, the meaningful transparency that actual rates data provides could hardly be more important to the sector. Brinker’s comments serve to underscore the importance, therefore, of NIC’s Seniors Housing Actual Rates Initiative, a program several years in the making, that is now beginning to report out exactly the type of local market data that seniors housing investors need to develop proformas, underwrite transactions, develop business plans and monitor portfolios.

For several years, NIC has been reporting seniors housing actual rates data at the national level, but in the past few months NIC’s data team has begun to roll out this data at the metropolitan level. Now, NIC MAP^® clients and providers of actual rates data can access key data on the actual rates residents are paying for their units, along with move-in and move-out rates, in Atlanta, Philadelphia and Phoenix. This new data provides investors, owners, operators, developers, and other stakeholders a powerful new metric to benchmark, analyze, and improve property underwriting and assessment within these markets. In Atlanta, for example, a market that has seen extensive new supply coming on line, Actual Rates data reveals discounting on assisted living units equivalent to two months’ rent upon move-in as of December 2019.

NIC Data Principal Brian Connolly has been working on the Actual Rates Initiative since coming to NIC over four years ago. In the early days, the effort faced a couple of major challenges. “When we came into this, there was a lot of collaborating with each operator to get their data reported in a standard format so NIC could process it and put it into an aggregate data set for analysis,” said Connolly. That wasn’t the only potential roadblock. “Asking for the specific rates actually being paid for individual units is sensitive. That was a bit of a challenge to overcome. Knowing that the data contributors are kept confidential and that the data is reported only in the aggregate, however, has alleviated such concerns among the data contributors,” he explained.

To facilitate easier and more efficient participation by operators in contributing their data, NIC decided to approach software providers in the space for help. “We wanted to work with them, so that they could program, on behalf of their respective clients, the standardized data contributing reports required by NIC. Then, an operator could simply go into a familiar software system they already use, download a report, and hit a button to submit it to NIC,” explained Connolly. The certification of Yardi as NIC’s first Actual Rates Partner, was followed by the additions of Matrix Care Senior Living and Point-Click-Care, and more will follow. “Now, any operator using software from one of our partners can, after an initial configuration, click a button to contribute their actual rates data to NIC. That really makes it easier for NIC to recruit more operators.”

As more operators participate, more metropolitan markets will meet NIC’s threshold for property participation, which ensures confidentiality. Once enough properties in any given metropolitan market are reporting their data, NIC will begin to report on that market. That reality, combined with the relative ease of reporting, will hopefully encourage more operators to participate in this initiative, in order to gain valuable tools and insights where they operate.

NIC’s intention is to provide data down to the metropolitan market level. As Connolly sees it, “Our ultimate goal is that this Actual Rates data will be available from nationwide coverage to specific markets, enabling data users to benchmark to market averages and compare trends across markets.” With Atlanta, Philadelphia, and Phoenix already reporting metro-level actual rates data, NIC is on its way to achieving that vision, which should encourage investors and capital providers such as Healthpeak’s Brinker – and motivate operators to participate.

Look for the expanded article on this topic in the upcoming NIC Insider newsletter, published monthly on nic.org.

To learn more about participating in NIC’s Actual Rates Initiative, visit www.nic.org/actual-rates or contact bconnolly@nic.org.

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.