The following analysis examines current conditions and year-over-year changes in inventory, occupancy, and same-store asking rent growth—by care segments within entrance fee CCRCs compared to rental CCRCs—to focus a lens on the relative performance of care segments within CCRCs during the fourth quarter of 2021. Overall CCRC occupancy by profit status and CCRC vs. non-CCRC occupancy differences by care segment will also be addressed. Note: this analysis was originally published by Ziegler Investment Banking, Senior Living Finance Z-News for the week of January 31, 2022.

NIC MAP^® data, powered by NIC MAP Vision, collects primary data on occupancy, asking rents, demand, inventory, and construction for more than 15,000 independent living assisted living, memory care, skilled nursing, and continuing care retirement communities (CCRCs—also referred to as life plan communities) across 140 U.S. metropolitan markets. The dataset analyzed here includes 1,104 not-for-profit and for-profit entrance fee and rental CCRCs in the 99 combined Primary and Secondary Markets. 

4Q 2021 CCRC Market Fundamentals 

CCRC occupancy reached 85.7% in the fourth quarter of 2021 for the combined 99 Primary and Secondary Markets, 1.4 percentage points above its pandemic low in the first two quarters and 5.8 percentage points below its pre-pandemic occupancy rate in the first quarter of 2020. Currently, CCRC occupancy is equal to the level reached in the fourth quarter one year ago.  

In 4Q 2021, entrance fee CCRC occupancy (88.0%) was 6.3 percentage points higher than rental CCRCs (81.7%), and not-for-profit CCRC occupancy (87.1%) was 5.4 percentage points higher than for-profit CCRCs (81.7%). Rental CCRCs are currently 7.4 percentage points below their pre-pandemic occupancy levels, while entrance fee CCRCs are 4.9 percentage points lower. 

CCRCs vs. Non-CCRCs: Care Segment Occupancy Difference 

The table below compares occupancy in CCRCs with non-CCRCs for each care segment in the Primary and Secondary Markets tracked by NIC MAP Vision. CCRCs outpaced non-CCRCs in each care segment. The difference in overall occupancy rates was highest for independent living units (7.8 percentage points) and lowest for nursing care units (2.7 percentage points) in 4Q 2021. 

Entrance Fee CCRCs vs. Rental CCRCs by Care Segment 

Among the 1,104 CCRCs spread across the 99 Primary and Secondary Markets tracked by NIC MAP Vision, approximately 51% are operated as entrance fee CCRCs, and 49% are operated on a rental basis. Referenced in the NIC Investment Guide: Sixth Edition, most CCRC residents initially live in an independent living apartment. CCRCs serve a predominately single-female population, however, entrance fee CCRCs have a higher percentage of married couples (42%) than rental CCRCs (29%).  

The table below illustrates the relative market performance of entrance fee CCRCs compared to rental CCRCs by care segment in 4Q 2021 and includes year-over-year changes in occupancy, inventory, and asking rent growth. Note that CCRCs often offer both entrance fee and rental contracts to give residents financial choice and flexibility. NIC categorizes CCRC communities by the contract type the majority of residents have. 

Entrance Fee CCRCs Have Higher Occupancy Rates and Stronger Rent Growth and Inventory Growth. By payment type, entrance fee CCRCs have higher 4Q 2021 occupancy rates than rental CCRCs for each care segment. The entrance fee CCRC independent living care segment had the highest 4Q 2021 occupancy (90.5%), followed by entrance fee CCRC assisted living and memory care (86.7% and 86.8%, respectively). The difference in 4Q 2021 occupancy between entrance fee CCRCs and rental CCRCs was the highest for the memory care segment (7.5 percentage points), followed by assisted living (6.0 percentage points), independent living (5.4 percentage points), and nursing care (1.6 percentage points). On a year-over-year basis, the nursing care segment had the most substantial change in occupancy (up 1.5 and 1.2 percentage points, respectively). 

As shown in the table below, entrance fee CCRCs are comprised of a greater proportion of independent living units. Independent living occupancy is higher than in the other care segments, explaining the more robust overall occupancy performance of entrance fee CCRCs. 

CCRCs attract residents who are planners drawn to the continuum of care. However, entrance fee contract residents generally differ from rental contract residents in terms of higher net worth, lower age of entry, and longer tenure in the community. CCRC entrance fees (often similar to resident home sales values) typically subsidize a community’s monthly fees to some extent. Conventional wisdom would suggest that average rental CCRC monthly fee levels would therefore be higher. However, as shown in the table, in addition to higher occupancy rates—which tend to translate into community pricing power—any or all of these factors may help to explain the reasons why average entrance fee CCRC monthly fee levels are higher than rental CCRC monthly fees for each care segment.  

The highest year-over-year asking rent growth was in the entrance fee CCRC assisted living segment (4.4%), followed by nursing care (3.4%) and memory care (2.5%). Entrance fee and rental CCRC asking rent growth were similar in the independent living segment. Note these figures are for asking rates and do not consider any discounting that may be occurring.  

The number of units in a community differs significantly by payment model. Referenced in the NIC Investment Guide: Sixth Edition, the median size of entrance fee CCRCs is approximately 345 units, compared to 230 units for rental CCRCs. According to the NIC MAP Vision data, both entrance fee and rental CCRCs experienced negative year-over-year inventory growth in one or more care segments. Negative inventory growth can occur when units/beds that are temporarily or permanently taken offline or converted to another care segment outweigh added inventory.  

During the past four quarters, rental CCRCs reduced (or shifted) their inventory in each care segment except memory care. Entrance fee CCRCs increased their inventory in all but nursing care. Both entrance fee and rental CCRCs reduced nursing care inventory by -2.1% and -2.4%, year-over-year. Rental CCRCs had the highest reduction in their inventory for the assisted living care segment (-3.1%), while entrance fee CCRCs added 1.2% to their assisted living inventory. Entrance fee CCRCs added more memory care than rental CCRCs (2.4% vs. 1.1%). Rental CCRCs reduced (or shifted) more independent living than entrance fee CCRCs (-2.9% vs. 0.3%). 

Entrance Fee CCRC Occupancy is Highest in the Pacific Region. In 4Q 2021, the Pacific, Mid-Atlantic, and Northeast regions had the strongest CCRC occupancy rates ranging from 88.5% to 88.2%. The weakest CCRC occupancy was in the Southwest region at 80.8%. Considering payment type, as shown in the table below, entrance fee occupancy was highest in the Pacific region (90.9%), whereas rental occupancy was the highest in the Mid-Atlantic region (85.8%). The most significant difference between entrance fee and rental occupancy was reported for the Pacific region, where entrance fee CCRC occupancy was 7.1 percentage points higher than rental. 

Look for future blog posts from NIC to delve deep into the performance of CCRCs. 

Are you interested in learning more? 

To learn more about NIC MAP^® data, powered by NIC MAP Vision, and about accessing the data featured in this article, schedule a meeting with a product expert today. 

Stakeholders at 2021 NIC Fall Conference weigh in on the latest trends.

Considering the dramatic impact of the pandemic on senior housing and care, it’s surprising how well valuations have held up over the last two years. Investors like what they see. The worst seems to be over as the Omicron variant subsides. Occupancy is recovering. Demand is projected to only get stronger from pent-up demand in the near-term and demographic trends in the longer term.

“Senior living is headed in a positive direction,” said Zach Bowyer, managing director at JLL. He co-hosted a session on valuations at the 2021 NIC Fall Conference along with Ben Firestone, executive managing director & co-founder at Blueprint.

In a fun twist, the session was patterned after SNL’s “Weekend Update.” The hosts interviewed guest panelists about the latest valuations news.

Providing context, Bowyer noted that total commercial real estate transaction volume (all property types) totaled $450 billion through the end of the third quarter of 2021. That level of investment had not been seen since 2007. “There’s a lot of capital chasing commercial real estate,” he said.

Valuations on individual senior housing and care properties vary quite a bit. Bowyer showed the difference in performance among four properties. “The devil is in the details,” he said. In general, Bowyer expects occupancy to restabilize at 90-91% in three years. And he thinks increased consumer demand will require supply growth to eventually double.

Up next was Stephen Monroe, managing director at Levin Associates. He writes about the sector, so the moderators asked about the biggest stories of the pandemic. “The big story was census,” said Monroe. His firm researched 11 straight years of assisted living occupancy and found that it never increased in the first quarter of any single year. Occupancy might not be back to pre-pandemic levels until 2025.

Monroe worries that a “new normal” could be lower occupancies going forward. The market could get overbuilt if multifamily developers jump into senior housing sensing a big demand from baby boomers. “There might not be the demand they expect,” said Monroe.

The biggest story for the next decade will be the labor shortage, according to Monroe. A flood of new capital and development without a better labor situation could result in lower equity yields because of higher labor expenses. “The industry has to be a leader in wages,” said Monroe.

Nikhil Chaudhri spoke about valuations from the REIT perspective. He is senior vice president, co-head of U.S. Investments at Welltower.

In the last 18 months, Welltower deployed $6 billion, predominantly to purchase senior living properties. “This has been a good opportunity to purchase properties at low values,” she noted.

Government assistance helped senior living businesses to stay afloat which helped operators maintain their assets and care for their residents. But it was a one-time event and is not a factor in valuations, according to Chaudhri.

Chauhri said Welltower is taking what he called a RIDEA 3.0 approach, a new spin on the REIT Investment Diversification and Empowerment Act (RIDEA). It allows REITs to participate in net operating income. Welltower will align the interests of stakeholders. Higher revenues produce higher management fees. “It all comes down to alignment,” he said.

Operations Key

On the development and operations side, Bryan Schachter, CIO at Watermark Retirement Communities, said that the company brought in more capital during the pandemic and continued to grow. Watermark opened six projects last year.

Independent living is driving success. Watermark’s residents like the wellness and hospitality approach along with the multiple dining venues. The company’s new projects are 50-60% independent living, resulting in higher margins and lower cap rates. The new projects opened over the last several years have strong margins despite the labor challenges.

Transaction volume is rebounding, according to Blake Peeper, partner & co-CIO at Bridge Investment Group. “There’s opportunity to buy across the spectrum,” he said. But he cautions, valuations are asset specific depending on occupancy growth assumptions. “We don’t want to be too far ahead of that,” he noted.

Peeper doesn’t expect any compression of cap rates until occupancies stabilize, though the company’s portfolio has seen an uptick in occupancies. That mirrors national trends. Demand increased by 21,029 units in the NIC MAP^® Primary Markets in the third and fourth quarters of 2021, the strongest two-quarter unit increase since NIC MAP Vision began reporting the data in 2005.

Staffing remains a concern, Peeper said, especially around the uptick in overtime and the cost of labor from third-party agencies. “Clearly the overall ability to attract and retain talent is key,” he said.

For skilled nursing, Jason Dopoulos said newer assets are trading in the 10-11% cap rate range. Dopoulos is managing principal at White Oak Healthcare Partners, a non-bank lender. When funding deals, the company focuses on the operator. Does it have other operations in the state? Can it attract staff and access supplies? What is the operator’s incentive? “We dig into operations,” he said. “Property managers have woken up to the value they add.”

Gain more insights at the 2022 NIC Spring Conference, March 23-25, 2022, in Dallas, TX. See scheduled sessions, and register today.

The spread of the COVID-19 Omicron variant (and seasonality) had a moderate impact on the pace of move-ins. While the pace of move-ins slowed during the Omicron surge, residents were not leaving out the back door of communities at the same rates that they did earlier in the pandemic. Respondents with nursing care beds cited lack of available staff, fewer hospital discharges due to COVID-19, and the holidays as reasons for a deceleration in the pace of move-ins. Notably, between 70% and 80% of organizations reported no change in the pace of move-outs, indicating that most residents have remained in their communities. Of the respondents that noted an increase in the pace of move-outs, three-quarters (75%) indicated that residents were moving to receive higher levels of care. Staffing continues to be operators’ most significant challenge. Roughly four out of five respondents (79%) report that their organizations currently use agency or temp staff to backfill labor shortages. One-half (50%) employ agency or temp staff to supplement nurse aides and about 40% tap agency nurses. Anticipated increases in operating margins in the near term have moderated. Currently, roughly one-half (48%) of organizations expect margins to increase between 1% and 5% in the next six months.

–Lana Peck, Senior Principal, NIC

NIC’s Executive Survey of senior housing and skilled nursing operators is designed to deliver transparency into the market fundamentals as conditions change. Since March 2020, at the beginning of the pandemic, NIC Analytics has received more than 3,200 completed questionnaires with insights on thousands of properties across the nation and by property type. These survey responses have allowed NIC to provide real-time insights into the impact of the pandemic and the pace of recovery. The Executive Survey Insights 2022 questionnaire has been streamlined from prior surveys as we continue to recover from the pandemic. Both standard questions and new, monthly questions track and examine the pulse of the industry—informed by the leadership of seniors housing and care properties.

The “ESI” is the longest-running industry survey offering time-series data on specific market fundamentals and trends influencing our sector. This Wave 37 survey includes responses from January 10 to February 6, 2022, from owners and executives of 78 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. 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 37 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. Between survey Waves 32 and 37 (conducted August 9, 2021, to February 6, 2022), the shares of organizations reporting an acceleration in the pace of move-ins trended lower overall, largely due to the spread of the COVID-19 Delta variant and, more recently, the Omicron variant.

Move-Ins slowed notably in the higher levels of care in Wave 37. Presumably due to the Omicron variant surge in many parts of the country, fewer organizations with memory care units and/or nursing care beds reported an acceleration in the pace of move-ins since the previous survey (21% vs. 33% for the nursing care segment and 34% vs. 49% for the memory care segment). However, one-half of the organizations with these care segments (and independent living units) reported no change in the pace of move-ins. Respondents with nursing care beds cited lack of available staff, fewer hospital discharges due to COVID-19, and the holidays as reasons for the slowdown in the pace of move-ins.

Most reported no change in the pace of move-outs. Between 70% and 80% of organizations reported no change in the pace of move-outs suggesting that although the current pace of move-ins may have been affected by the Omicron variant, most residents have remained in their communities. Of the respondents that cited an acceleration in the pace of move-outs, three-quarters (75%) indicated that residents were moving to receive higher levels of care. And unlike earlier in the pandemic, only one respondent cited resident or family member concerns.

Few organizations have regained their pre-pandemic lead volumes. Given pent-up demand coming out of the pandemic and questions about the sustainability of historic and near-historic absorption rates during the third and fourth quarters of 2021 per NIC MAP® data, powered by NIC MAP Vision, this measure in the ESI may be a leading indicator to watch with regards to occupancy recovery. As shown in the chart below, the question of lead volume was benchmarked in Wave 26, with data collected at the beginning of the second quarter of 2021. Contrary to anecdotal reports suggesting a more robust return of leads, only one-third of respondents (32%) indicate that their leads volume is currently at pre-pandemic levels in Wave 37.

Staffing remains the operators’ most significant challenge. Since last July, nearly all operators (98% – 100%) responding to NIC’s Executive Survey Insights have reported staff shortages. In the Wave 37 survey, four out of five organizations with multiple sites (81%) reported staff shortages in more than half of their properties—up from roughly one-half (46%) in the Wave 24 survey conducted mid-March 2021. Attracting community/caregiving staff and employee turnover remain significant challenges for survey respondents. When asked about backfilling staffing shortages, 97% – 100% of respondents cited overtime hours since Wave 25 (data collected between March 22, 2021, and January 9, 2022). And more than three-quarters of respondents are currently tapping agency or temp staff (79%).

One-half of organizations use agency or temp staff to supplement nurse aides. Respondents who indicated that their organization currently utilizes agency and temp staff were asked to describe the jobs being filled. One-half of organizations use agency or temp staff to supplement nurse aides, and roughly 40% are backfilling nurses. In the Wave 37 survey, under 10% of respondents sought temp staff to fill food services positions. No respondents sought temp staff in plant operations (such as housekeeping, maintenance, and transportation staff), community administration, or corporate support.

Considering CMS data, for the week ending January 23, 2022, approximately 30% of nursing care properties reported shortages of nurse aides, 28% reported nursing staff shortages, and 18% reported shortages of other staff. This data, including vaccination rates among residents and staff of skilled nursing facilities reported to CMS, time-series trends in COVID-19 cases, fatalities, and occupancy with the ability to sort by geographic location, can be viewed by accessing the NIC Skilled Nursing COVID-19 Tracker.

A question was added to the Wave 38 survey (currently in data collection) to understand the degree of operators’ support for a federal investigation of anticompetitive practices by nursing and other direct care staffing agencies. According to the Bureau of Labor Statistics (BLS), nursing and residential care facilities employed three million people in July, down 380,000 workers from February 2020. The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) with the American Hospital Association (AHA), sent a joint letter to the White House’s COVID-19 Response Team Coordinator at the end of January, requesting assistance due to reports of anticompetitive practices by nursing and other direct care staffing agencies.  AHCA/NCAL asked that the White House “urgently devote” the federal government’s attention to these practices. (Both organizations are still waiting on a response from the Federal Trade Commission after writing to the agency to investigate the matter last October.)

Anticipated increases in operating margins in the near term have moderated since last September. Just over one-half of respondents (56%) in Wave 37 anticipate their organization’s operating margins will improve in the next six months. Just under one-half (48%) expect a 1% to 5% increase. While rising wages, insurance premiums, and maintaining infection control measures will continue to be mitigating factors, other factors supporting NOI growth going forward are related to rising occupancy rates and census counts and possibly higher rates, as evidenced by anecdotal comments by some operators that they are implementing rate increases to counterbalance  pandemic and recovery-related cost pressures.

Wave 37 Survey Demographics

• Responses were collected between January 10 and February 6, 2022, from owners and executives of 78 seniors housing and skilled nursing operators from across the nation. Owner/operators with 1 to 10 properties comprise roughly one-half (47%) of the sample. Operators with 11 to 25 and 26 properties or more make up the other half of the sample (31% and 26%, respectively).

• One-half of respondents are exclusively for-profit providers (50%), more than one-third operate not-for-profit seniors housing and care organizations (37%), and 13% operate both.

• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 72% of the organizations operate seniors housing properties (IL, AL, MC), 30% operate nursing care properties, and 36% operate CCRCs (aka Life Plan Communities).

This is your survey! Owners and C-suite executives of seniors housing and care properties, please help us tell an accurate story about our industry’s performance. The ESI 2022 questionnaire has been shortened from prior surveys. While some standard questions will remain for tracking purposes, in each new survey “wave,” a new question or two will be added as per respondents’ suggestions.

Wave 38 of the ESI is now collecting data. The current survey is available and takes five 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 get in touch with 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 provide the broader market with a sense of the evolving landscape as we recover from the pandemic.

The just released 3Q2021 NIC Lending Trends Report shows issuance of new senior housing construction loans jumped in the third quarter of 2021. The increase occurred despite challenges facing new development such as supply chain disruptions, high demand, and rising prices for materials, services, and labor. This indicates that keen interest in new construction and development is returning, reversing the slowdown in lending activity seen earlier in the pandemic.

The quarterly report, available for free to NIC’s constituents courtesy of NIC Analytics, currently tracks over $86.8 billion in senior housing and nursing care loans. The report tracks senior housing construction loans, mini-perm/bridge loans, and permanent loans over five years, from mid-2016 through third quarter 2021.

Key Takeaways

• The volume of construction loans closed increased for senior housing in the third quarter, showing that interest in construction projects is returning following a pause seen earlier in the pandemic. On a same-store, quarter-over-quarter basis, the increase was 45.0% for senior housing. Construction loans closed for nursing care were also elevated in the third quarter, although new nursing care construction loans closed came in 25.1% lower on a same-store basis from second quarter 2021. It’s noteworthy, however, that construction lending for skilled nursing was about 15% of the level seen for senior housing.

• Nursing care also had strong new mini-perm/bridge loans issued in the third quarter, increasing by 27.2% on a same-store, quarter-over-quarter basis from second quarter 2021 and moving back toward its peak of nearly $644 million in fourth quarter 2020. Conversely, the issuance of mini-perm/bridge loans for senior housing continued to edge lower from the peak in fourth quarter 2019.
• Delinquent loans continued to decline for both senior housing and nursing care in the third quarter from the pandemic-related high point reached in third quarter 2021. Delinquent loans, which include loans in forbearance for some lenders, were 1.0% of total loans in the third quarter for senior housing, the lowest share since first quarter 2020 when delinquencies stood at 0.3%. Nursing care delinquent loans were 1.2% of total loans in the third quarter, down from 1.6% in second quarter 2021. These declines are encouraging signs of continued recovery.

These data are not to be interpreted as a census of all senior housing and skilled nursing lending activity in the U.S., but rather reflect lending activity from participants included in the survey sample only.

The NIC Lending Trends Report for fourth quarter 2021 is scheduled for release in mid-May 2022.

Interested in participating? The NIC Lending Trends Report helps to deliver on NIC’s mission to enable access and choice by further enhancing transparency of capital market trends in the senior housing and care sectors. We very much appreciate our data contributors. This report would not be possible without them.

If you would like to participate and contribute your data, please email us at analytics@nic.org. As a thank you for providing data, data contributors receive this report early before publication on the website. The information provided as part of the survey will be kept strictly confidential. Individual answers will be combined with the answers of all other respondents. Data acquired from this survey will only be reported in the aggregate, and therefore, the resulting aggregated data will not be attributed to you or your company upon distribution.

The Labor Department reported that nonfarm payrolls rose by 467,000 in January 2022. This was stronger than market expectations of an increase of 125,000 and occurred despite the impact of Omicron on the economy. Many analysts had expected the employment numbers to be negatively affected by absenteeism and self-isolation driven by the Omicron virus wave. January’s gain compared relatively favorably to the average monthly gain of 555,000 seen in 2021 and will support the Federal Reserve’s intention of raising interest rates as soon as March. Revisions added 709,000 to total payrolls in the previous two months. Nonfarm payrolls have now increased by 19.1 million since their pandemic trough in April 2020 but are still down by 2.9 million or 1.9% from their pre-pandemic level in February 2020.

Concerns about rising wage costs and inflation are further supported by this report. Average hourly earnings for all employees on private nonfarm payrolls rose by $0.23 in January to $31.63, a gain of 5.7% from a year earlier.

In a separate survey conducted by the BLS, the jobless rate edged up by 0.1 percentage point to 4.0% in January 2022, down 2.4 percentage points from year-earlier levels. The jobless rate is now 0.5 percentage points above the pre-pandemic level of 3.5% seen in February 2020, and well below the 14.7% peak seen in April 2020.