NIC MAP Vision clients, with access to NIC MAP^® data, attended a webinar in mid-July on key seniors housing data trends during the second quarter of 2022. Findings were presented by the NIC Analytics research team. Here are key takeaways from the data release.

2Q 2022 Key Themes

Key trends during the second quarter of 2022 for the seniors housing market include:

• Senior housing occupancy increased 0.9 percentage point to 81.4%.
• The number of senior housing units under construction across the 31 NIC MAP Primary Markets was the fewest since 2015.
• Assisted living’s occupancy is recovering faster than that of independent living, but both property types still require significant occupancy gains to fully recover to their respective pre-pandemic levels.
• Reflective of its faster recovery, the average asking rent for assisted living grew by 4.6% from year-earlier levels. This represents its largest annual increase since NIC MAP began reporting the data in 2005.
• The preliminary data shows the dollar volume of seniors housing and care property sales transactions during the second quarter totaled $2.0 billion.

Takeaway #1: Senior Housing Occupancy Improved Further in 2Q 2022

• The occupancy rate for seniors housing—where seniors housing is defined as the combination of the majority independent living and assisted living property types—rose 0.9 percentage point during the second quarter of 2022 to 81.4% for the 31 NIC MAP Primary Markets. This marked the fifth consecutive quarter where occupancy did not decline. At 81.4% in the second quarter, occupancy was 3.4 percentage point above its pandemic-related low of 78.0% recorded in the second quarter of 2021 but was still 5.8 percentage points below its pre-pandemic level of 87.2% in the first quarter of 2020.
• Demand as measured by the change in occupied inventory or net absorption was strong in the second quarter, increasing by more than 8,609 units in the Primary Markets. This was the strongest demand ever recorded by NIC MAP except for the post-pandemic boost in demand we saw during the last half of 2021.
• Since the recovery began in second quarter 2021, 35,544 units of the 45,525 units placed back on the market have been re-occupied, or 78% of those units.
• These improved supply and demand dynamics at midyear offer a positive outlook for 2022.

Takeaway #2: Units Under Construction Fewest Since 2015

• In the second quarter of 2022, the number of seniors housing units under construction in the 31 NIC MAP Primary Markets was the least since 2015.
• For assisted living, there were 19,162 units under construction, down about 1,000 units from the first quarter. Notably, this was the fewest units under construction since early 2015. As a share of inventory, this amounted to 5.7% but below its peak of 10.1% in late 2017.
• For independent living, there were 15,882 units under construction in the second quarter, equal to 4.5% of the stock of independent living, as compared to 6.7% in 1Q 2020.

Takeaway #3: Construction Activity Still Slow in Most Markets

• This heat map shows which metropolitan markets are experiencing the most construction activity. First, notice the generally blue tones on the right side of the chart indicating that construction activity is relatively “cool” in many markets.
• Looking at the right-hand part of the grid, those markets that are shaded brighter red are seeing the most construction as a share of inventory. This includes Miami where construction as a share of inventory amounted to 11.2% in the second quarter (2,885 units in 18 properties). This was the market’s second most ever (first was 2Q 2021 at 11.3%). And, at 9.8% of inventory, Portland, Oregon’s construction was at an all-time high at 2,093 units in 15 properties. Washington, D.C. (10%) was also high as seen by the red shadings.
• Atlanta stands out on this heat map, with its red shades, but construction as a share of inventory in Atlanta was relatively low for Atlanta in the second quarter at 7.3% (16 building and 1,876 units). This is well below the 17.4% share seen in Atlanta in mid-2017, when there were 31 buildings under construction (over 3,333 units). Since that time, the inventory of senior housing in Atlanta has increased by 33% (more than 6,300 units).
• On the other extreme is Pittsburgh where construction as a share of inventory was virtually zero in 2Q 2022. This is a dramatic shift from a share of 10% in 2019.
• For perspective, for senior housing, the 2Q 2022 construction level equals 5.1% of inventory for the Primary Markets, and it peaked at 7.7% in late 2017 and more recently at 7.7% in the pre-pandemic 1Q 2020.

Takeaway #4: Senior Housing Occupancy Up from Pandemic Low in All Markets

• The chart below provides more detail on market recovery patterns from the pandemic low by metropolitan market. The dash line shows the occupancy rate in 2Q 2022, and the top of the grey bar shows the 1Q 2020 occupancy rate and the bottom of the grey bar shows the pandemic-related low point which was 1Q 2021 for many markets, but some did not reach that point until later in 2021.
• Of note on the chart, all markets are above their pandemic-related low points. The market with the highest first quarter senior housing occupancy rate was Boston at 86.3%, followed by Minneapolis (85.1%), Portland, and Baltimore. San Jose fell from its second-rate position in the first quarter and its first-place position prior to that. The lowest were Houston (76.1%), Atlanta, and Cleveland.
• There is a 10.2 percentage point wide gap between the best and worst performing markets.
• Based on the length of the grey bar in the chart, you can see that San Jose, St. Louis, Los Angeles, Miami, and Sacramento saw the deepest drops in occupancy, all more than 12 percentage points. In contrast, Orlando, Portland, San Antonio, Detroit, Seattle, and D.C. all saw peak-to-trough losses of less than 8 percentage points.
• Regarding improvements from their respective low points, Riverside saw a jump of 7.1 percentage points from its low point to 81.6%, but its low point was very low at 74.5%. Miami saw a gain of 6.4 percentage points, an improvement from a low of 73.8% up to 80.2%. The smallest improvements occurred in Cincinnati, Seattle, and Chicago.
• For perspective, the aggregate Primary Markets’ occupancy rate was 81.4%, and it saw a 3.4 percentage point improvement from its low point.

Key Takeaway #5: Preliminary Closed Seniors Housing & Care Dollar Volume: $2.0 Billion for 2Q 2022

• According to the preliminary data, the number of closed deals and the dollar volume closed in the second quarter increased from the first quarter. The second quarter ended with $2.0 billion in closed transaction volume. If that figure were to hold, volume would be up 22% from the relatively weak first quarter as volume closed registered only $1.7 billion in 1Q2022.
• The number of transactions closed, a different measure in activity than dollar amount, increased from 68 deals closed in the first quarter to 80 deals in the second quarter, according to the preliminary figures.
• Of the $2.0 billion closed, the private buyers represented $1.5 million of that, or in other words, represented 73% of the closed volume in the second quarter. The private buyer category is comprised of companies that are not publicly traded—for example, a private REIT, single owner or partnership, family offices, etc. Private partnerships and family regional owner/operators have been a steady source of liquidity. However, we are now coming into a different paradigm in terms of the real estate investment markets as interest rates and inflation continue to pressure overall liquidity.
• Note that the transactions data discussed in this key takeaway include only the closed property sales transactions throughout the United States. It does not include deals that have been announced in the quarter and not yet closed. It is also important to remember that this data is preliminary for the second quarter of 2022, as data points could be updated with other deals being captured as we learn about their closings. These updates typically occur as public records become available and given slower recordings within public records it is possible this data is updated more so than usual, especially when it comes to single property transactions that are often under the radar from public announcement and reporting.

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In a new question in the Wave 43 survey, suggested by Wave 42 participants, respondents were asked how their organizations’ property insurance and professional liability insurance have changed, as compared with before the pandemic started. Across all care segments – independent living, assisted living, memory care, and nursing care – about 50% indicated their professional liability insurance has increased slightly, with an additional 30% of nursing care respondents indicating it has increased significantly. The findings are similar for property insurance, with approximately 50% indicating property insurance has increased slightly and between one-quarter and one-third indicating property insurance has increased significantly. Among the reasons cited for the increases are lack of competition in local markets, COVID concerns and litigation, increased frequency of natural disasters, and a nationwide increase in frequency and severity of claims.

–Ryan Brooks, Senior Principal, NIC

NIC’s Executive Survey of senior housing and skilled nursing operators was implemented in March 2020 to deliver real-time insights into the impact of the pandemic and the pace of recovery. In its third year, the “ESI” is transitioning away from the COVID-19 crisis to focus on timely industry topics. While some standard questions will remain for tracking purposes, in each new survey “wave,” new questions are added. 

This Wave 43 survey includes responses from June 27 to July 24, 2022, from owners and executives of 50 small, medium, and large senior housing and skilled nursing operators across the nation, representing hundreds of buildings and thousands of units across respondents’ portfolios of properties. More detailed reports for each “wave” of the survey and a PDF of the report charts can be found on the NIC COVID-19 Resource Center webpage under Executive Survey Insights.  

Across 43 Waves of the ESI, the pace of move-ins has closely corresponded with the broad incidence of COVID-19 infection cases in the United States. This is demonstrated in the timeline below that shows the share of organizations reporting an increase in the pace of move-ins during the prior 30-days. Data from Waves 42 and 43, conducted between May 31 and July 24, 2022, indicates a decrease in the share of operators reporting an acceleration in the pace of move-ins. This time period coincides with the highly transmissible BA.4 and BA.5 subvariants emerging as the dominant strains in the United States.

Of respondents indicating a deceleration in the pace of move-ins, 76% indicate the deceleration is a result of a slowdown in leads conversions/sales, 18% report the deceleration is a result of an organizationally imposed ban, and 6% indicate resident or family member concerns as the driving factor. There were no reports of staffing shortages driving the deceleration in pace of move-ins, as compared to 16% of respondents in the Wave 42 survey conducted in June 2022.  

In the Wave 43 survey, reflecting operator experiences in July 2022, the pace of move-ins in the past 30 days remained steady for assisted living residences (50%), but declined for independent living residences (31%) and nursing care residences (29%). For nursing care operators, this marks the second consecutive wave where the shares of organizations reporting an acceleration in the pace of move-ins has decreased from the prior wave, down from 68% in Wave 41 and 37% in Wave 42. Conversely, it is also the second consecutive wave where the shares of organizations reporting a deceleration in the pace of move-ins increased, up from 7% in Wave 41 and 17% in Wave 42. Interestingly, with 48% of respondents reporting a decrease in the pace of move-ins, memory care properties rebounded from the significant decrease that was experienced in Wave 42.

As it pertains to the pace of move-outs, most survey respondents across all care segments reported no change in the pace of move-outs within the past 30 days, a consistent theme across the most recent four ESI Waves. In Wave 43, 77% of independent living operators, 74% of assisted living, 63% of memory care, and 58% of nursing care operators reported no change in the pace of their move-outs.

Property and professional liability insurance premiums have increased for the vast majority of respondents. In a new question in the Wave 43 survey, suggested by Wave 42 respondents, respondents were asked how their organization’s property and professional liability insurance have changed, as compared to before the pandemic started. Approximately half of respondents – across all care segments – indicate that their property insurance premiums have increased slightly. Roughly 24% of independent living, 32% of assisted living, 25% of memory care, and 27% of nursing care respondents answered that their property insurance has increased significantly. Only 6% of independent living, and 3% of assisted living and memory care operators reported a decline in property insurance premiums. When asked why premiums have increased, survey respondents indicate COVID litigation, increases in fire insurance, inflation on replacement costs, and insurance companies leaving the market resulting in a lack of competition from carriers in certain markets.

When asked how their organization’s professional liability insurance has changed, approximately 50% of Wave 43 respondents indicated their professional liability insurance premiums have increased slightly. Additionally, 14% of independent living, 26% of assisted living, 19% of memory care, and 30% of nursing care report that their professional liability insurance premiums have increased significantly, as compared to the pre-pandemic period. Only 3% of independent living respondents indicated a slight decrease in professional liability premiums. For assisted living, memory care, and nursing care, there were no responses indicating a decrease in professional liability premiums. Among the reasons cited for the increase in professional liability premiums were a nationwide increase in claims frequency and severity, a perceived risk associated with COVID-19 deaths, inflation, cost of care, and fewer carriers resulting in less competition.

The Wave 43 survey asked respondents whether they found the acuity of new resident move-ins to have increased, decreased, or stayed the same as compared to before the pandemic started. Increased move-in acuity, compared to pre-pandemic acuity, was reported by 66% of the respondents for assisted living, 56% in memory care, and 64% in nursing care. Only 36% of independent living reported increased resident acuity at move-in. 

Wave 43 Survey Demographics

• Responses were collected between June 27 and July 24, 2022, from owners and executives of 50 senior housing and skilled nursing operators across the nation. Owners/operators with 1 to 10 properties comprise roughly two-thirds (67%) of the sample. Operators with 11 to 25 properties account for 20%, and operators with 26 properties or more make up the rest of the sample with 13%.
• One-half of respondents are exclusively for-profit providers (52%), approximately one-third operate not-for-profit seniors housing and care properties (38%), and 10% operate both.
• 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), 23% operate nursing care properties, and 36% operate CCRCs – also known as life plan communities.

Owners and C-suite executives of seniors housing and care properties, please help us tell an accurate story about our industry’s performance. 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 contact Ryan Brooks at rbrooks@nic.org to be added to the list of recipients.

NIC wishes to thank respondents for their valuable input and continuing support for this effort to provide the broader market with a sense of the evolving landscape as we recover from the pandemic. This is your survey! Please take the Wave 44 survey and suggest new questions for Wave 45.

Over the past couple years skilled nursing properties have continued to see strong interest from investors in the sector. This has contributed to skilled nursing valuations becoming what some deem as elevated. However, others might argue differently. Regarding the overall skilled nursing market, many continue to see steady demand trends as the industry passes the inflection point where the growth of the senior population accelerates, and more people with higher acuity levels need care. There are headwinds as we are all aware, including the risk of Medicare reimbursement cuts, low occupancy rates, chronic underfunding of Medicaid reimbursement in many states, a staffing crisis, and ongoing elevated inflation including wage rate growth. Given the challenges that are present, why has skilled nursing property price per bed increased?

Before answering that question, let’s look at the pricing trends. Below is a chart that shows private pay seniors housing price per unit and nursing care (a.k.a. skilled nursing) price per bed. For this article, pay attention to the nursing care price per bed trendline. In late 2019, specifically the fourth quarter of 2019, nursing care price per bed was $80,000 and in the first quarter of 2020 it was at $78,550. It then proceeded to decline to $74,900 in the third quarter of 2020, its pandemic low. The decline made sense as many assets were struggling during the pandemic. However, the price per bed remarkably increased to $95,600 by the first quarter of 2021 during a period of very low occupancy levels. Occupancy is still challenged as of the second quarter 2022 but price per bed remained in the $95,000 range. Specifically, it was at $95,800 as of the preliminary data for the second quarter, which is 19.6% above the level in the fourth quarter of 2019 before the beginning of the pandemic.

There is not simply one answer as to the reasoning behind why skilled nursing price per bed is relatively high, given the challenging operating fundamentals. There are likely many factors involved.

First, both monetary and fiscal policy created a tremendous amount of liquidity and as a result most asset prices, e.g., real estate and public equities, increased significantly during the pandemic. Furthermore, the government made a commitment to help the skilled nursing industry during the pandemic. This was evident by many Paycheck Protection Program (PPP) loans, Medicare prepayments, Medicaid rate increases, and other forms of aid at the state levels. Second, the Patient Driven Payment Model, implemented before the pandemic, can compensate for higher care levels unlike the previous model but operators need to be able to code their systems accordingly to get paid. Hence, buyers can justify paying higher prices per bed if they are estimating higher cash flow.

In addition, owners with more properties can benefit from scale in certain geographies and potentially have other benefits like staffing flexibility. Therefore, some owners have planned to grow by acquisition and can justify higher prices paid if they own more properties in a certain area. Another reason is the opportunity for growth in other ancillary businesses. These businesses can include in-house dialysis, contract therapy, wound care, pharmacy services or an on-site diagnostic lab, among other businesses. Also, there is the dynamic that the number of skilled nursing property buyers seemingly were outnumbering the seller supply, at least for now.

Lastly, there is the yield spread vs. other real estate asset types. If skilled nursing properties are selling for cap rates at, say, 11%, investors still have significant cushion if they have debt cost of capital in the 5% range and a loan-to-value in the 90% range. In addition, from an overall real estate investment perspective when measuring against other real estate asset types, 11% cap rates look very attractive.

In conclusion, skilled nursing property pricing has been stronger than many would have expected during a pandemic for various reasons. However, the risk of higher rates and labor market challenges could give more reasons for sellers to come to market, which would increase the number of properties on the market. In addition, if the cost of capital continues to increase as well, the price per bed increases may be limited in the near-term.

The COVID-19 Pandemic.

NIC Co-Founder and Strategic Advisor Robert Kramer has identified “Six Key Drivers” that will shape the senior living industry over the next 10 years. Kramer is also Founder & Fellow at Nexus Insights, a think tank to advance the well-being of older adults through innovative models of housing, community, and healthcare. NIC Notes will publish a bi-weekly series detailing each key driver. View the introduction to the series. What follows is an analysis of the first key driver: the pandemic.

The pandemic has had a major impact on the senior living industry. Beyond lower occupancies and added expenses, the crisis has changed the way the industry is perceived and operates.

Certain trends have been accelerated such as the greater use of technology. At the same time, the pandemic has exposed the limits of our healthcare system, dramatically worsened the labor shortage, and underscored the crushing effects of isolation experienced by many of our elders.

The wide-ranging consequences of the pandemic will play out over the next decade. Here are six ramifications of the crisis that will change the senior living industry.

1. A loss of consumer trust in our setting, leading to a demand for transparency.

   
   

   The loss of trust is not the same as the consumer who hopes to avoid senior living altogether. Rather, there is a real concern about the health threat of a congregate setting. Is it dangerous for me to put my mom in your building? We’ve never experienced that before. Transparency is key to reestablish trust. We must obviously provide transparency around health, infection control and prevention. This should include COVID-19 vaccination and booster rates in our buildings. More transparency in other areas is needed too. For example, operators should consider posting details on pricing and be prepared to share information on staffing levels, especially for night and weekend shifts. Consumers are also starting to ask about wage levels for the hourly staff. They want to know how you care for your staff because that serves as a proxy for how you will care for them or their loved ones.

   
   

2. Forced entry into the 21st century world of digital.

   
   

   Healthcare has notoriously lagged behind other major sectors in its adoption of technology and senior living has lagged far behind the healthcare sector. COVID-19 quickly forced senior living into the 21st century digital world. The old ways of doing things didn’t work anymore. Modes of communication with residents, families and staff changed. We couldn’t ship residents out to hospitals or take them to doctors’ offices. Those were dangerous places that didn’t want them. So, we had to learn new ways to deliver care. Our multipurpose room was closed. Our van was going nowhere. So, how were we going to engage our residents when they were in their rooms? What about sales and marketing? The tours, lunches, and in-person appointments couldn’t happen. The change impacted pretty much every aspect of the business with the emergence of telehealth, Zoom calls, and virtual programming and tours. We were forced to enter the 21st century digital world and there is no return.

   
   

3. Mental and behavioral health emerged from the shadows and will not fade away.

   
   

   The pandemic has exposed issues around mental and behavioral health. This is true for society at large, as well as for our workforce and our residents. They have suffered greatly from stress, anxiety and fear. Many residents, in particular, have endured isolation and loneliness, a risk factor for cognitive disorders and other mental disturbances. The need to address mental health issues will not recede. Programs to address mental and behavioral health for staff and residents will be necessary.

   
   

4. The moat around our buildings has collapsed.

   
   

   What do I mean by that? During my entire career in the industry, particularly in private pay senior living, and especially with lawmakers in Washington D.C., a moat has encircled our buildings. We didn’t admit that any healthcare happened inside our buildings. Therefore, there was no need for the federal government to take an interest in our industry and regulate us. After 30 years of advocating that position, the two largest private pay senior living associations quickly did a 180-degree turn when the pandemic hit. They pointed out the frailty of our residents and that senior living is the front line of defense of the entire healthcare system in the face of a virus to which frail, older adults are the most vulnerable. If the government didn’t help us to meet our residents’ healthcare needs, the hospital ICUs would be overwhelmed.

   
   

   It was a tough sell at first because Members of Congress said, “We just thought wealthy, healthy, older seniors lived in your buildings, played golf and had fun. What do you mean they’re frail, and have all these ADLs and chronic conditions?” Senior living is now considered part of the healthcare continuum, which will impact the industry.

   
   

5. Infection control and prevention are the new table stakes.

   
   

   The bar has been raised. It will never be lowered again. People won’t move in because of your infection control and prevention programs, but they will not move in if their concerns about infection control are not addressed. So, good infection control is necessary, but not a sufficient condition for a move. There’s going to be a flu season every year, complicated by the ongoing pandemic. Consumers want to know what protocols are in place. How does the community plan to handle mom’s engagement in the middle of flu season or when a new wave of COVID hits?

   
   

6. COVID has punctuated the end of the 2nd generation of senior housing and care.

   
   

   From 1960 to 1990, we had the first generation of product. Primarily, these were not-for-profit retirement communities or board and care homes, driven by a mission. The Great Society legislation of 1965 launched Medicare and Medicaid. The explosive construction of nursing homes took off, and half of those homes are still in operation today, some with three and four bed wards. From 1990 to 2020, we saw explosive growth of independent living, assisted living and dedicated memory care properties driven by the entry of countless for-profit providers into the industry.

   
   

   A few senior living pioneers opened properties in the ‘70s and ‘80s, such as Bill Colson at Holiday Retirement and the Klaassen’s at Sunrise. But the industry really took off in the ‘90s because of baby boomer daughters. Prior to this time, long lived elders were cared for by their adult children, usually their daughters. But for the first time, most of these daughters were in the workforce. The Klaasen’s, for example, realized they weren’t marketing to the mother. They were marketing to the daughter, and she wasn’t going to put mom in a nursing home. The daughter saw the chandelier, the Queen Anne furniture, the curved stairway and assisted living took off.

   
   

   The 3rd generation of senior living, from 2020 to 2050, will have new products and new leaders. About 70% of all not-for-profit providers in the country expect their leadership to change in the next three to five years. The for-profit space will see a lot of acquisitions and changes in operational leadership. The 3rd generation of senior living will also have a new kind of customer. This new consumer is one of the “Six Key Drivers Shaping the Future of Senior Living.” A future blog post will detail our changing customer profile and what these consumers expect from senior living.

   
   

Next Up—Key Driver #2: The Endemic Staffing Crisis. The labor shortage will continue. How can providers recruit and retain the best workers?

Fundamentals continue to improve, but rising costs, inflation and interest rate hikes are tempering enthusiasm even as seniors housing continues to bounce back from COVID-induced disruptions.

This article was originally published on WealthManagement.com.