7 Takeaways from McKnight’s Finding Capital for Senior Housing Expo


The changing conditions in the seniors housing sector were the main point of discussing during McKnight’s Online Expo digital talk “Capital Track: Finding Capital in 2019,” which took place on March 28. During the talk, Beth Burnham Mace, chief economist with the National Center for Seniors Housing and Care (NIC), examined the economic conditions and property fundamentals in the sector to help operators predict how the cost of capital will be trending over the next year.

  1. In the fourth quarter of 2018, seniors housing occupancy decreased to 88.0 percent, close to a seven-year low. Assisted living facilities had an average occupancy rate of 85.5 percent in the fourth quarter. Independent living facility occupancy averaged 90.2 percent, which raised the question of why independent living had higher occupancy rates than assisted living, which has not been the case before. The change, according to Burnham Mace, is due to the fact that inventory growth in assisted living has exceeded demand. In the fourth quarter of 2018, inventory growth for assisted living was at 5.0 percent of existing stock, versus growth of 2.1 percent for independent living facilities. This resulted in more pressure on occupancy rates in the assisted living space.
  2. Current property fundamentals, however, vary greatly from market to market. For example, San Jose, Calif. experienced an all-time high occupancy for seniors housing at 95.0 percent. The city has seen relatively little new development and has a limited amount of available land, so there isn’t a lot of new supply coming in. In Houston, on the other hand, the occupancy rate was at an all-time low at 80.9 percent. In Houston, which has low barriers to entry, current demand can’t match the available supply.
  3. When there are fewer development restrictions, markets are more vulnerable to wild swings, according to Burnham Mace. Such is currently the case with San Antonio, where there is more construction and occupancy has decreased down to 80.0 percent. Atlanta is another market of concern because there’s so much construction.
  4. Over the past five years, occupancy has increasingly moved from hospitals to home care and assisted living due to costs. It costs about $2,200 a day to keep a senior in a hospital, whereas home health care costs $145 a day and residency in a seniors housing facility costs approximately $120 a day.
  5. Overall, however, there’s more demand for seniors housing due to people living longer, Burnham Mace noted. In 1900, the average lifespan in the U.S. was 47. By 2000, the average lifespan rose to 77, according to The National Center of Health Statistics. Over the course of 100 years, people gained 30 years of longevity. There has also been an increase in people living past the age of 82. This increase in longevity, combined with the baby boomer population entering its senior years, is expected to drive demand for seniors housing over the coming years.
  6. In addition, consumer attitudes among the senior population are changing. The old view of retirement focused on disengagement and decline. The newer retirees, or the “silver wave,” want to live longer, healthier and more engaged lives, which will continue to influence the seniors housing sector. Today’s seniors want to be more integrated in their community and give back, which are greater reasons for moving into a social setting in the market. A property that illustrates an easy way to get involved in the community will have more ability to recruit residents and that can affect length of stay, according to Burnham Mace.
  7. It is generally difficult at the current moment to find good laborers and staff workers, and not only in the seniors housing sector. In seniors housing, there is significant pressure on margins from expenses, with a reported 4 percent increase in operating costs, although anecdotally operators claim to experience increases of 6 to 7, while asking rents are not growing at the same rate as expenses. When you add lower occupancy rates, overall margins are decreased.
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