Where does the senior living industry now stand 18 months into a brutal pandemic? Matthew Ruark has a quick reply. “The sector may have been hit hard by Covid-19 , but it’s still standing. The fundamentals of the business are sound,” said the senior vice president of commercial and healthcare mortgage production at KeyBank Real Estate Capital Group.

As a lender, Ruark observed that the pandemic highlighted several industry dynamics: the importance of operations; the advantage of senior living’s needs-based nature; the labor shortage; a shift to short-term borrowing amid occupancy declines; and the necessity for an affordable senior housing option as the older population grows.

Long-term, Ruark said, “We are bullish on senior housing and care.” He added that KeyBank has been committed to the sector for over 30 years, providing a full suite of financing products.

Ruark is among the thought leaders attending the 2021 NIC Fall Conference in Houston. The Conference is NIC’s first in-person convening of leaders in senior housing and care since the pandemic began. Many industry leaders plan to attend the Conference to share ideas with others experiencing the same challenges, while also building relationships to help them succeed in the future.

“The sector may have been hit hard by Covid-19 , but it’s still standing. The fundamentals of the business are sound.”

As occupancies dropped because of the pandemic, project sponsors have been relying on more short-term, bridge financing. “Borrowers are looking for more flexible financing,” said Ruark.

Occupancies have started to inch up again, but are not yet at 90%, the traditional level of stabilization. As occupancies improve, Ruark expects investment sales activity to jump and borrowers to transition to permanent loan structures. “There is a lot of capital on the sidelines,” he said.

Some investors, especially those that had entered the market just prior to the pandemic, didn’t understand the operational intensity of senior living, Ruark noted. He thinks many of those investors will pivot out of the sector. “From a lender’s perspective, the pandemic reaffirmed the importance of a strong operator,” he said, adding that operators are better prepared now to deal with the Delta variant than they were for the initial COVID-19 outbreak.

The sector faces two big challenges: affordability and a labor shortage. A growing number of elders will need an affordable housing and care option. In 2019, NIC conducted a study, The Forgotten Middle, showcasing the need for more affordable senior living options. “If we don’t get out in front of this issue, it could be a real crisis,” said Ruark.

With great respect for the frontline workers and operators who care for the most vulnerable elderly, Ruark noted that the labor crunch has only gotten worse during the pandemic. The industry will need creative solutions that include education, talent development, and retention strategies. “Labor is the number one challenge facing the industry,” he said.

Overall, the needs-based nature of the sector is a big benefit. Senior living weathered the Great Recession and the COVID-19 healthcare crisis because senior housing is need-based driven. Also, senior living hasn’t suffered the pandemic-related rent delinquencies like those seen in the multifamily sector. The elderly typically have stable incomes unlike multifamily tenants who may have lost their jobs due to the pandemic.

Another big plus: the demographics of an aging population will support the industry in the long run. “We are true believers in the sector,” said Ruark.

Summary. The highest performing senior housing properties in 2Q20, as measured by occupancy, generally remained highly occupied a year later, while properties with the lowest occupancies in 2Q20 tended to remain in the bottom.

Properties in the middle of the pack in 2Q20 saw large drops

in occupancy over the one-year course of the pandemic studied in this analysis and had not shown signs of recovery as of 2Q21.

Methodology. We categorized seniors housing properties in the NIC MAP® Primary Markets that were open in 2Q20 and 2Q21 into occupancy cohorts to investigate how properties in different categories performed over the last year. The property count for this analysis totaled 5,072 properties. Notably, some properties closed since 2Q20, some are no longer seniors housing, or were temporarily under renovation in 2Q21. Those properties are captured in the n/a column in the table below. Rows in the table below represent the occupancy band of the corresponding properties in 2Q20 and the columns represent their 2Q21 band.

Highly occupied properties in 2Q20 tended to be highly occupied in 2Q21. Of the group that were 95%+ occupied in 2Q20, 30.0% were in that same occupancy band for 2Q21 and 28.2% were in the 90% to 95% category. This suggests that the high property level performers in 2Q20 tended to be fairly resilient (or did take occupancy hits but still were able to recover). However, even for that 95%+ cohort in 2Q20, 41.6% dropped to below 90% in 2Q21, so that group of properties wasn’t completely protected from pandemic-related occupancy declines with 13.2% slipping into the under 80% occupancy group.

Of the 340 properties that were at or above 95% occupancy in 2Q20 and 2Q21, two thirds of this group were majority assisted living properties, with the remaining one third being majority independent living. The average age of these properties was 26.4 years in 2Q21. The average size of these properties was 126 units, which is nearly the same as the average property size of seniors housing in the NIC MAP Primary Markets (128 units). The top 5 metros in which these 340 properties were located included New York (26 properties, 8.2% of open properties in the New York metro in 2Q20), Portland (23, 12.1%), Los Angeles (22, 6.9%), Minneapolis (22, 8.1%), and San Francisco (21, 13.5%).

Of the 320 properties that were at or above 95% occupied in 2Q20 but dropped to between 90% and 95% in 2Q21, the average property age was 25.1 years old, and the average unit count was 162 units in 2Q21. Of this group 57% were majority assisted living and 43% were majority independent living. The top 8 metros these properties were located in included New York (24), Detroit (22), Minneapolis (20), Chicago (20), and San Francisco, Seattle, and Washington (17 each).

Of the 149 properties in that were in the 95%+ group in 2Q20 but declined to below 80% in 2Q21, the majority were majority assisted living (87%) with only 13% being majority independent living. The average property size was smaller at 91 units and the average age of property was 23 years old. Los Angeles was the metro area that had the most properties that dropped from the 95%+ group to the <80% group at 18 properties. The other four metros in the top five were Chicago (15 properties), Dallas (11), Miami (10) and San Francisco (7).

The middle of the pack in 2Q20 took some hits and haven’t quite recovered yet. For both the 85% to 90% and the 80% to 85% groups in 2Q20, the biggest shifts were into the < 80% category in 2Q21. The average age of property for the 313 properties in the 85% to 90% cohort that dropped into the < 80% group was 24.1 years in 2Q21 and the average property size was 116 units. For the 341 properties in the 80% to 85% cohort that dropped into the < 80% group the average age was 23 years old and the average unit count was 132 units. The 80% to 85% cohort that dropped to < 80% only had a 1% increase in inventory from 2Q20 to 2Q21 and the 85% to 90% cohort had less than 1%, so the declines in occupancy were due to negative absorption as a result from the pandemic rather than inventory growth from expansions.

Properties with low occupancy in 2Q20 tended to continue to have low occupancy in 2Q21. Of the <80% cohort in 2Q20, 80.1% of those properties remained in the under 80% cohort in 2Q21, continuing to struggle. Only a mere 2.3% of the <80% in 2Q20 cohort managed to grow occupancy to 95%+.

Of the 1,145 properties that were in the <80% group in 2Q20 that stayed in the <80% group in 2Q21 had an average age of 18 years, partially reflecting that properties that were still in lease up in 2Q20 most likely fell into this category. The average property size of this group was 115 units. They were also primary majority assisted living (80% of the properties) with only 20% being majority independent living. This group only had a mere 0.3% of inventory growth so inventory growth was not a contributing factor to these properties remaining low.

Removing the group of properties in the <80% group in both 2Q20 and 2Q21 that were under 2 years old in 2Q20 and looking only at the subgroup of properties that would meet NIC’s definition of stabilized in both 2Q20 and 2Q21, the occupancy of those properties dropped from 68.6% in 2Q20 to 64.6% in 2Q21. This shows that this group of properties is continuing to struggle in 2021.

Conclusions. Many of the highly occupied properties in 2Q20 were still highly occupied in 2Q21 and many of the lower occupied properties in 2Q20 still had low occupancy in 2Q21. Many properties in the middle bands for occupancy suffered occupancy declines and have not yet begun to recover.

Despite the challenges of the last 18 months, senior housing still offers investment opportunities. But market knowledge is key to success.

Industry veteran Robb Chapin understands the dynamics of today’s market. Chapin serves as a partner at Bridge Investment Group, a global real estate investment manager with $28.7 billion of assets under management. He is also CEO and Co-CIO of Bridge Seniors Housing Fund Manager, which is invested in 95 senior housing properties and 11,500 units, in 30 states. A third of the properties are operated directly by Bridge Senior Living, a leading senior housing operating company.

Chapin is among the thought leaders attending the 2021 NIC Fall Conference in Houston. The Conference is NIC’s first in-person convening of leaders in senior housing and care since the pandemic began. Many industry leaders plan to attend the Conference to share ideas with others experiencing the same challenges, while also building the relationships to help them succeed in the future.

“We believe there are opportunities to acquire high-quality, newer vintage assets below replacement cost from distressed sellers”

In advance of the event, NIC recently asked Chapin for his investment insights. Here’s a recap of the conversation.

NIC: What investment trends do you see in senior housing?

Chapin: The COVID-19 pandemic yielded the most significant downturn in the sector’s history and has placed a premium on operations. Poorly operated properties were disproportionately affected. While we’re still early in the recovery process, the sector has shown resiliency through a rebound of demand, move-ins, rent growth, and collections. We believe there are opportunities to acquire high-quality, newer vintage assets below replacement cost from distressed sellers. We believe vertically integrated operations are a major advantage to stabilizing staffing, improving quality, and rapidly growing occupancy and NOI. The sector is also attractive because of its “needs-based” character.

NIC: Are there any specific geographies that are more desirable? Property types?

Chapin: We believe target markets for seniors housing are typically in the prime submarkets of the top 100 MSAs where age- and income-qualified demographics are the strongest. Local market demographics, labor availability, health trends, and competitive sets are key to the potential of a particular investment, but we also look to macro trends such as migration patterns, regional trends, economic drivers, and long-term supply/demand factors. We generally seek “modern” buildings with Class A potential, age-in-place acuity mix, desirable unit floor plans, and a full suite of amenities.

NIC: What about new development?

Chapin: In the near term, we believe opportunities to acquire newer-vintage low-occupied buildings below replacement cost can provide attractive opportunities with significantly less risk. However, the demographic trends for the next decade do support supply growth through development. We believe new developments could be attractive opportunities where strategically supported by future demand.

NIC: How has the pandemic impacted investment strategies?

Chapin: As mentioned, we believe the ability to execute on operations is key. Opportunities to leverage our deep relationships with our high-performing operating partners or to take over distressed operations with Bridge Senior Living allow us to optimize value and margins through hands-on operational lift.

NIC: What’s the biggest obstacle for the market?

Chapin: The effects of the Delta variant of Covid-19 on the seniors housing market are not completely known, but our operations are far less disrupted than last year and earlier this year. Achieving stabilized occupancy levels by historic standards will continue to be a primary focus. We’re also still challenged by the peak supply growth of 2017-2018 that pressured occupancy across many markets. Another obstacle is the labor challenge. Although it could be somewhat transitory, recruiting and retaining great staffs is always a significant focus. You have to get that right if you expect to be successful.

NIC: What’s the long-term outlook for senior housing?

Chapin: The age 80-plus population is expected to increase by 49% from 2020 through 2030. Also, construction starts have already decreased by 60% over recent peak levels due to the pandemic, and it will be several years before we return to historical inventory growth. We believe these factors can provide opportunities to invest in a market that is dislocated in the immediate-term but fundamentally sound in the mid- and long-term.

The path to recovery is never a straight line. While the Delta variant has changed the narrative once again and reportedly affected move-in rates in some seniors housing properties, overall occupancy and demand seem to be experiencing positive momentum.

[Note: this blog was updated as of September 17, 2021 to reflect revised data.]

Seniors Housing Intra-Quarterly Occupancy

The recently released NIC Intra-Quarterly Snapshot report shows that the overall occupancy rate for seniors housing increased to 79.9% in the August 2021 reporting period (June-July-August 2021) for the NIC MAP Primary Markets on a three-month rolling basis, according to Intra-Quarterly NIC MAP Data, released by NIC MAP Vision. This was an eight-month high and placed the all-occupancy rate 1.2 percentage points above its record low of 78.7% in the June 2021 reporting period. Notably, it was 7.5 percentage points below its pre-pandemic level of 87.4%, however.

Exhibit 1 below shows that between the reporting periods of April 2020 and March 2021, seniors housing occupancy decreased across most of the NIC MAP 31 Primary Markets, if not all. However, and similar to the annual absorption trend depicted in Exhibit 1, the pattern reversed in April 2021, when seniors housing occupancy measured higher or stable compared with the prior month (reporting period) across most of the NIC MAP 31 Primary Markets.

Unexpectedly, the pattern changed in June 2021 but quickly skewed towards markets with increasing occupancy rates in July 2021. This change in June 2021 was largely due to new supply outstripping demand across some of the NIC MAP 31 Primary Markets. The most recent data show that in the August 2021 reporting period, occupancy increased or was unchanged in 27 of the 31 Primary Markets for seniors housing compared with July 2021, while only four markets saw a decrease in occupancy over the same period.

To learn more about inventory growth and how select NIC MAP metropolitan markets have performed in August 2021, download the August 2021 NIC Intra-Quarterly Snapshot Report.

Exhibit 1 – Seniors housing intra-quarterly occupancy distribution

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 “The pace of move-ins has slowed as the COVID-19 delta variant spreads primarily among the unvaccinated. In Wave 32, about one-quarter of organizations with assisted living apartments and/or nursing care beds, and about one in five with memory care units reported a deceleration in the pace of move-ins across their portfolio of properties in the past 30-days. Nursing care occupancy has taken a jolt with nearly 40% of organizations indicating that occupancy declined.Respondents to the Wave 32 survey want prospective residents and their family members to know that senior living is safe. Much has been learned over course of the pandemic and operating with COVID-19 has become routine. Operators want the media to know that they are better equipped to care for residents than last when little was known about the virus—and infection mitigation protocols are working. Indeed, according to NIC data analyst Omar Zahraoui in a recent blog post, overall case counts within skilled nursing facilities relative to cases among the general population on August 1 remained low.”

—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 as market conditions continue to change. This Wave 32 survey includes responses collected August 9 to September 6, 2021, from owners and executives of 92 small, medium, and large seniors housing and skilled nursing operators from across the nation, representing hundreds of buildings and thousands of units across respondents’ portfolios of properties.

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.

Wave 32 Summary of Insights and Findings

• As shown in the timeline below, across the survey time series from March 24, 2020 to September 6, 2021, NIC’s Executive Survey Insights results have shown clear trends that have corresponded with the broad incidence of COVID-19 infection cases in the United States. By Wave 18 (in the latter half of December), the COVID-19 vaccine had begun to be distributed across the country through the Long-Term Care Vaccination Program and more and more respondents noted that the pace of move-ins accelerated in Waves 19 through 31. In Wave 32, the shares of organizations reporting an acceleration in the pace of move-ins in the past 30-days dropped notably, presumably due to the spread of the COVID-19 delta variant primarily among the unvaccinated.

• Between roughly 30% and 40% of organizations report that the pace of move-ins accelerated in the past 30-days—compared to roughly 55% and 60% in Wave 31. Of note, about one-quarter of organizations with assisted living apartments and/or nursing care beds, and about one in five with memory care units reported a deceleration in the pace of move-ins. However, more than half (59%) of organizations with independent living residences reported no change in the pace of move-ins.
• Currently, about 20% of respondents note that their organization has a backlog of residents waiting to move in, up from about 10% in Wave 28 (5/3-5/16, 2021), but down from about 35% in Wave 16 (11/9-11/22, 2020). Furthermore, one-third of organizations reported a decline in lead volume in the past 30-days specifically due to COVID-19 and new variants (32%).

• In Wave 32 between roughly 45% and 55% of organizations with independent living, assisted living and/or memory care units reported an increase in occupancy across their portfolios of properties in the past 30-days. However, only about one-third (32%) saw an increase in nursing care occupancy. This is down significantly from Wave 30 (6/14-7/11) when three-quarters of organizations with nursing care beds saw occupancy increases in the 30-days prior (76%).
• Indeed, of each of the four care segments, nursing care occupancy has taken a jolt with nearly 40% of organizations indicating that occupancy declined across their portfolios of properties in Wave 32 (and about 20% reported a decline in occupancy of 3-percentage points or more).

• The chart below shows the shares of organizations with nursing care beds that saw an increase, decrease or no change in occupancy, across their portfolio of properties in the past 30-days, across 32 waves of survey data since near the beginning of the pandemic.
• The shares of organizations with nursing care occupancy declines in the Waves 31 and 32 surveys show a similar trend compared to Waves 11 and 12 (8/17-9/27, 2020) leading up to the Fall surge in COVID-19 cases across the country. Whether or not the pattern of declining occupancy rates will continue to trend is uncertain until the delta variant spread is muted by increasing vaccinations and natural immunity from prior infection.

• A new question was asked in Wave 32: “A year and a half into the pandemic, my organization wants (a) prospective residents/family and (b) the media and others to know ___ about seniors housing…” Regarding what operators want prospective residents/family to know, most respondents cited senior living is safe/being better than being isolated at home. Most respondents want the media to know that they are better equipped to care for residents than they were last year, and infection protocols are working. Some select quotes from respondents are shown below:

Wave 32 Survey Demographics

• Responses were collected between August 9 and September 6, 2021, from owners and executives of 92 seniors housing and skilled nursing operators from across the nation. Owner/operators with 1 to 10 properties comprise roughly two-thirds (63%) of the sample. Operators with 11 to 25 and 26 properties or more make up 20% and 16% of the sample, respectively.
• Approximately one-half of respondents are exclusively for-profit providers (51%); more than one-third operate not-for-profit (37%) and 12% operate both.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 66% of the organizations operate seniors housing properties (IL, AL, MC), 23% operate nursing care properties, and 37% operate CCRCs (aka Life Plan Communities).

Referenced by The Wall Street Journal on August 31 — Senior Housing Industry Faces Higher Costs as It Plays Lead Role in Vaccine Mandates — NIC’s Executive Survey Insights continues to be closely watched by the media, and we ask for your continued support.

The current survey is available and takes under ten 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 contact Lana Peck at lpeck@nic.org to be added to the list of recipients.

NIC wishes to thank survey respondents for their valuable input and continuing support for this effort to bring clarity and create a comprehensive and honest narrative in the seniors housing and care space at a time when trends are continuing to change in our sector.