The senior housing sector posted a total return of 0.11% in the first quarter of 2023, up from a decline of -0.88% total return in the prior quarter. Short-term total returns for senior housing outperformed the broader NPI, which posted a total return of -1.81% in the first quarter. Positive income returns for senior housing were partially offset by negative appreciation, which reduced the overall investment return. In comparison, negative appreciation for the NPI more than offset positive income returns, driving negative total returns for the quarter. 

The senior housing income return in the first quarter was 0.88%, stronger than the hotel (0.82%) and industrial (0.83%) sectors, but below the overall NPI (1.01%). The senior housing appreciation (capital/valuation) return was negative for the third consecutive quarter at -0.76% but improved from the prior quarter’s return of -1.75% and better than the apartment sector’s appreciation return of            -3.05%. Overall, current economic and capital market conditions drove negative appreciation returns in all sectors except hotel (+1.47%). Further, many investors have reduced their appreciation expectations for senior housing as the sector has not yet recovered to its pre-pandemic occupancy rate. The appreciation return is the change in value net of any capital expenditure incurred during the quarter.   

On a longer-term basis, the ten-year return for senior housing (9.33%) was the strongest of the main property types, except for industrial (15.64%), and outperformed the NPI ten-year annualized total return of 8.34%. Income returns for senior housing (5.17%) surpassed the NPI (4.64%), as did the appreciation return (4.02% vs 3.58%). 

The performance measurements cited above for senior housing reflect the returns of 205 senior housing properties valued at $11.15 billion in the first quarter. This was the highest property count and market value in the NCREIF time series for senior housing. It is notable that the number of properties tracked by this index has grown significantly since the beginning of the pandemic, up from 134 properties in the first quarter of 2020 that were valued at $6.3 billion. The additional properties may be influencing the overall performance returns of the index. 

First quarter 2023 market fundamentals data for senior housing showed a continued recovery in senior housing occupancy rates in the 31 Primary Markets, according to NIC MAP® Data powered by NIC MAP Vision, as demand for senior housing units outpaced new supply during the first quarter. As a result, the occupancy rate for senior housing stood at 83.2%, up 0.3 percentage points from the prior quarter and 5.4 percentage points from its low point, but still 4.0 percentage points below its pre-pandemic level of 87.2% in the first quarter of 2020. Overall, the relatively steady improvement in market fundamentals against a backdrop of significant volatility in other parts of the economy illustrates the needs-driven demand among older adults for housing and care that the senior housing industry continues to meet. 

Source:  NCREIF, NIC Analytics 

Source: First Quarter 2023 NCREIF Performance Report, NIC Analytics

The Bureau of Labor Statistics (BLS) reported that nonfarm payrolls rose by 339,000 in May 2023, in line with the average monthly gain of 341,000 over the prior 12 months, but above the upwardly revised gain of 294,000 in April and 217,000 in March. Market expectations had called for a gain of 195,000 jobs. Of note, revisions added 93,000 positions to total payrolls in the previous two months.

Healthcare added 52,000 jobs in May, like the average monthly gain of 50,000 over the prior 12 months. Employment in nursing care facilities grew by 2,900 jobs from last month and 54,000 from year-earlier levels and stood at 1.402 million positions. Jobs increased by 1,700 positions in CCRC and assisted living facilities in May and were up by 55,600 from year-earlier levels to 946,600 jobs. 

Separately, the BLS also reported the unemployment rate rose to 3.7% in May, up from 3.4% in April when it stood again at its lowest level since 1969. The May level was the highest since October of 2022, but notably, the rate has hovered between 3.4% and 3.7% since March 2022. The increase in the jobless rate reflected an increase in the civilian labor force (130,000) coupled with a decline in household employment (310,000). The unemployment rates peaked at 14.7% peaked in April 2020 at the height of the pandemic.  

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.11 in May to $33.44 or up 0.3% from the prior month. This was an increase of 4.3% from year-earlier levels, slightly less than in March at 4.4%.  

Today’s report is a bit mixed, with wage growth moderating, but still strong, the labor market weakening per the rise in the unemployment rate but offset by the large increase in payroll jobs. Its likely that the Fed will “skip” an increase in the fed funds rate at its upcoming June 13^th and 14^th FOMC meeting as it pauses to see how the large and frequent rate hikes in the past 15 months take hold and as it waits to see if there is further fallout in the banking system. The Fed has raised the fed funds rate 5 percentage points to a range of 5.0% – 5.25% since March 2022 in an effort to combat inflation. This is the highest rate in 16 years. The Fed is looking for evidence of a softer labor market to help ease wage pressures and prevent a wage/price inflationary spiral from occurring. 

The underemployment rate was 6.7% versus 6.6% in April. Among the major worker groups, the May unemployment rates were 3.3% for adult women, adult men (3.5%), teenagers (10.3%), Whites (3.3%), Hispanics (4.0%), Blacks (5.6%), and Asians (2.9%). The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.2 million in May. These individuals accounted for 19.8% of all unemployed people. The labor force participation rate held steady at 62.6% in May, unchanged from April and up from 62.5% in February, which followed three prior monthly increases in the rate. It was below the February 2020 level of 63.3%, however.  

NIC MAP Vision released its latest Skilled Nursing Monthly Report on June 1, 2023. The report includes key monthly data points from January 2012 through March 2023.

Here are some key takeaways from the report:

Skilled nursing property occupancy decreased in March, after increasing for two months in a row. It declined 27 basis points from February to end the month at 81.0%. There has been positive momentum in occupancy throughout 2022 and the first couple months of 2023. It is up 6.3 percentage points since the low (74.7%) point reached in January 2021. However, staffing in the sector is still a significant burden on skilled nursing operators and is limiting additional admissions in many markets around the country. Occupancy is down 7.8 percentage points from the pre-pandemic February 2020 level of 88.9%. As staffing and general inflation pressures persist, operations for many operators will be under pressure but the long-term demand for skilled nursing services is expected to grow over time.

Both Medicare revenue mix and the revenue per patient day (RPPD) increased in March. However, both are down slightly from December 2022. Medicare revenue mix is down 251 basis points from the most recent in high in February 2022 which was a time when increased cases of COVID-19 resulted in additional need for utilizing the 3-Day rule waiver and per day reimbursement for COVID-19-positive patients. Medicare revenue mix ended March at 22.2%. Medicare RPPD ended March at $591 and is up 0.78% from one year ago. Meanwhile, Managed Medicare revenue mix was down 28 basis points to 11.4% in March. However, this is 220 basis points above the pandemic low of 9.2% set in May 2020.

Managed Medicare revenue per patient day (RPPD) increased slightly in March, but it is down 0.8% from March 2022. Depending on an operator’s business model, the continued decline in managed Medicare revenue per patient day can pose a challenge as the reimbursement differential between Medicare fee-for-service and managed Medicare has increased during the past two years. However, some operators see opportunity to capture patient volume with the growth of managed care. Medicare fee-for-service RPPD ended March 2023 at $591 and managed Medicare ended at $478, representing a $113 differential. In March of 2021, the differential was $90.

After increasing slightly in the month of February, Medicaid patient day mix was flat, ending March at 64.9%. However, it has increased 188 basis points from the pandemic low of 63.1% set in February 2022. Meanwhile, Medicaid revenue mix declined 45 basis points from the prior month, ending March at 50.1%. One element of the Medicaid revenue share of a property’s revenue is RPPD and that declined 0.23% from February. However, it up 3.44% since last year in March 2022.

Get more trends from the latest data by downloading the Skilled Nursing Monthly Report. There is no charge for this report. 

The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. NIC continues to grow its database of participating operators to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form on our website. NIC and NIC MAP Vision maintain strict confidentiality of all data received.

After facing down a pandemic for three years, the senior housing industry now faces a new reality—some parts good and some not so good.   

On the plus side, the occupancy rate is improving. The labor market is tight, but better than it was a year ago. New inventory growth is relatively limited.  And, inflation and expenses continue to rise, although at a slower pace 

On the less positive side is a lot of uncertainty, which few business leaders like. They wait for clues on whether interest rates will continue to climb. Debt financing is scarce. The stability of the regional banks, a source of loans for the industry, is a concern. Added to that, economists think a mild recession seems more likely than not in the next 12 months. 

So, what do current market trends tell us about where the industry is headed?  

A panel of experts recently took a deep dive into that question during a NIC Leadership Huddle webinar. The conversation was led by NIC Chief Economist Beth Mace. She was joined by three senior living executives with different roles and market perspectives.  

Putting the conversation in context, Mace presented a detailed look at current economic conditions and the commercial real estate and senior housing markets. She said that inflation, the direction of interest rates, and the impact of rate hikes to date remain a concern though senior housing market fundamentals are recovering. 

Join the next complimentary NIC Leadership Huddle Webinar

“Prominent Real Estate Research Directors Discuss

Market Trends and the Economic Outlook”

June 13, 2023, 2:00 PM ET

{{cta(‘fce32378-a03f-46fd-8c62-bc08ca9011f8′,’justifycenter’)}}

Commercial Credit Freeze 

The capital markets are a worry.  

“It’s incredibly inefficient to finance something,” said panelist Aron Will, vice chairman and co-head, National Senior Housing, CBRE Capital Markets. A large slice of equity capital has returned to the market, but debt financing is difficult to secure. 

The national banks have been out of the lending market since last summer and the regional banks have liquidity problems. It’s especially difficult to refinance or trade value-add type properties—the projects that need the most help. “There’s just not a lot of deals that qualify,” said Will.  

The general slump in commercial real estate is having a spillover effect on senior housing, according to panelist Steve Blazejewski, senior portfolio manager and managing director at asset management firm PGIM. Institutional investors have hit pause waiting for the liquidity crisis to pass. “Nothing is transacting,” said Blazejewski.  

Good Things Happen Here 

From an operator’s perspective, Kris Woolley expressed a big sense of relief. “It feels a lot better today,” said Woolley, founder and CEO, Avista Senior Living. “COVID was just overwhelming.” 

He said his staff of 1,100 people is in a better frame of mind now. Reliance on expensive staffing agencies has decreased dramatically. Rents are being raised without pushback from consumers.  

Fewer new communities are opening so there’s less competition. Net operating income is up year-over-year. “Despite the very difficult capital markets issues, there’s a lot of good things going on,” he said.  

Avista is fielding more inquiries about management assignments from institutional owners with troubled properties. Woolley said that a reset in valuations could provide an opportunity for operators to seek some form of ownership. Regional operators could be the winners. “The market is creating a much deeper bench of mid-sized, regional operators,” he said.    

Recession Apprehension 

The panelists expect more trouble in the short-term but a brighter outlook in the years ahead as baby boomers age into senior housing and care.  

For now, the continued disruption in the capital markets and the prospect of a recession worry the panelists. A lot of senior housing properties have floating rate debt and higher interest rates are sapping any gains being made in net operating income. “It’s difficult,” said Woolley.  

Some troubled properties are going back to the lenders. “What happens then?” asked Mace. The panel agreed that lenders do not want to operate senior housing properties. 

Blazejewski expects write-downs, loan covenant modifications and property sales at lower prices. Banks are already asking equity providers to put in more capital to refinance loans. But opportunities could emerge for investors with capital to buy loans.    

Older properties represent a big challenge. “You can’t put enough CapEx into them to keep them competitive,” said Will. As an alternative, older properties could be retooled to provide a more affordable product for the underserved middle market.  

Beyond the next 12-18 months, the outlook for senior housing is bullish. New construction is down 54% from its peak. The aging population is a big plus. Consumers are also more aware of the senior housing product than they were 10 years ago.  

Another bright spot is senior housing’s fundamental strength. Annual rent growth has recently topped 5%. “That’s a remarkable statistic,” said Will. “The resilience of this asset makes it a shining star.” 

To stay current on senior housing market conditions during these turbulent times, visit NIC’s new Senior Housing Market Conditions Hub for insights and resources on factors influencing the outlook for senior housing and care.  

The next NIC Leadership Huddle webinar will be held June 13. Prominent real estate research directors will discuss market trends and the economic outlook.  Register now! 

Data from the recently released 1Q2023 NIC MAP Vision Actual Rates Report showed growth for asking rates was at near-record highs on a year-over-year basis for all three care segments (independent living, assisted living, and memory care) for the data contributors to this data collection. In the recently released report, monthly data of actual rates and leasing velocity are presented through March 2023, including data on rate discounting and move-in/move-out trends. Key takeaways from the report, specifically from the Segment Type report, are presented below. Care segments refer to the levels of care and services provided to a resident living in an assisted living, memory care or independent living unit. 

Key Takeaways

• The year-over-year pace of growth in all rates for all care segments reached near record highs.

• • • At 9.6% in March 2023, year-over-year asking rate growth for the independent living care segment was the strongest pace of the three rate categories. Separately, in-place rates were up by 7.5% from year-earlier levels, and initial or move-in rates were up by 8.2%. These were nearly the highest rates of growth in the time series for these rates, except for January 2022, when many rates rose with lease renewals and annual adjustments.
    • For assisted living, growth in initial rates was a very high 11.5% in February 2023, the largest year-over-year increase in the time series. March 2023 gains were also high at 8.7% from year-earlier levels. Asking rate growth topped 9.1% in March 2023.
    • Of the three tracked memory care rate categories (in-place, asking and initial/move-in), the fastest pace of growth occurred in asking rates, which were up by 9.1% from year-earlier levels in March 2023. In-place rates were up by 9.0% from year-earlier levels in March 2023 and initial rates were up by 7.4%. 

• Discounts are highest in the independent living care segment.
  • • Discounts between asking rates and move-in rates (initial rates) within the independent living segment have hovered between 1.0 months and 1.3 months on an annualized basis since February 2022 and were the equivalent of $383 (1.2 months) in March 2023. Compared with asking rates, in-place rates had a 0.6 month annualized equivalent discount. This is higher than the historic average of 0.2 of a month.

• The pace of move-ins generally strengthened in the early months of 2023 for assisted living, and memory care.
  • • Move-ins for assisted living segments averaged 3.6% of inventory in March 2023, among the strongest months since September 2021. At its lowest point in the early months of the pandemic, move-ins averaged 1.1% of inventory in April 2020 before accelerating to a high rate of 3.9% in June 2021.  

Additional key takeaways are available to NIC MAP Vision subscribers in the full report.

NIC MAP Vision continues to work to onboard new data contributors and is dedicated to reporting more metros. It is only with the support of Actual Rates data contributors and officially certified Actual Rates software partners that expanded metro-level reporting is now available. For more information on which metropolitan markets are now available to NIC MAP Vision subscribers, please contact a product expert at NIC MAP Vision today. 

About the Report

The NIC MAP Vision Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,700 properties across the U.S. operated by 35 to 40 senior housing providers. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as we currently require participating operators to manage 5 or more properties. Note that this monthly time series is comprised of end-of-month data for each respective month, and that the set of properties included in each month’s data set is subject to change. The sample is not “same store,” and occupancy is inclusive of newly opened properties in lease-up. NIC MAP Vision is working on including same-store rate metrics in a future release.

Interested in Participating?

The Actual Rates Data Initiative is an effort to expand senior housing data and we are looking for operators who have five or more properties to participate. NIC MAP Vision has expertise in extracting data from industry leading software systems, such as Yardi, PointClickCare, Alis, MatrixCare, Glennis Solutions, Vitals, Move-N, and Eldermark and can facilitate the process for you. 

Operators contributing data to the actual rates report receive a complimentary report which allows them to compare their own data against national, and metropolitan market benchmarks.

In addition to receiving a complimentary report, your organization benefits through:

• More informed benchmarking, strategic planning, and day-to-day business operations,
• Increased transparency, aligning with other commercial real estate assets in terms of data availability,
• Saved time, Actual Rates data is collected electronically directly from operators’ corporate offices, removing the need for telephone calls to individual properties, and
• Enhanced investment and efficiency across the sector.

Visit NIC Map Vision’s website for more information.