Kelly Hamill and Andrew Foster: Seniors Housing Spotlight
(Kelly Hamill is MBA Associate Director of Commercial/Multifamily Policy. Andrew Foster is MBA Associate Vice President of Commercial Real Estate.)
All property types have felt some effects from COVID-19, but seniors housing is a special case. It has seen a variety of impacts including in occupancy rates and expenses.
Whether these shifts are long-term secular trends or if they will reverse and revert to the mean after COVID-19 passes or a vaccine is widely introduced is a key question for investors, lenders, owners and other stakeholders.
McKnight’s Senior Living noted in a June article that “despite early concerns about the effects of the coronavirus, investors in the seniors housing and care industry already are seeing signs of rejuvenation.”
JLL reported seniors housing rent collection remains stable with little to no change in loss to lease. Seniors housing and care operating expenses, however, have increased by between 3 percent and 10 percent year to date. The virus has led operators to revise their budgets, projecting an annual increase of 4.4 percent to 11.6 percent for seniors housing and 8.1 percent to 12 percent for nursing care properties. The Senior Housing & Care Investor Survey and Trends Outlook report summarized survey responses from 109 investment sales professionals, debt providers, developers, private equity investors and other stakeholders.
The Mortgage Bankers Association hosted a member call on July 21 with sector experts to discuss what the seniors housing industry is focused on, what the data show, what is known and what the market will have to wait to see.
Thriving and Surviving During COVID-19: Spotlight on Seniors Housing
The COVID-19 pandemic challenging the seniors housing industry like nothing before. Our panelists took a deep dive into how the pandemic is affecting the sector, focusing on operations, valuations, transaction activity, construction, development, financing, capital availability and overall market conditions. These experts also provided insights into how the industry is changing and adjusting to the pandemic and what lessons can be learned from today to be applied in the future.
This member call was organized by MBA’s Kelly Hamill and moderated by Beth Mace, Chief Economist and Director of Capital Markets Outreach at National Investment Center for Seniors Housing & Care. Speakers included JLL Valuation Advisory Managing Director Zach Bowyer, Blue Moon Capital Partners LP Co-founder and Managing Partner Kathy Sweeney and Benchmark Senior Living Founder, Chairman and CEO Tom Grape.
Key Takeaways
• Demographics is Destiny. Seniors housing demand continues to benefit considerably from current demographic outlook and particularly Baby Boomers, a large cohort of population.
• The NIC MAP Data Service tracks approximately one million seniors housing units across the country. At nearly 10 percent of the size of the multifamily market, seniors housing is a niche but sizable market with a significant amount of capital invested.
• The sector saw negative occupancy growth in the second quarter due to a substantial slowdown in move-ins since COVID-19 began significantly impacting markets across the country in March. There is a great deal of variance in occupancy across properties and markets, with nursing care and assisted living hitting record lows. Some pent-up demand as move-in moratoriums have been lifted by operators.
• Expenses increased substantially during the outbreak for PPE and staffing as well as other items such as updating HVAC systems to improve airflow. Some staff and residents contracted COVID-19, which created a need for relatively expensive replacement staff during the required quarantine period.
• Experience varied across portfolios for seniors housing operators. One operator with a portfolio in the Northeast noted that at the height of portfolio impact, one-third of their properties experienced significant COVID cases, one-third experienced a moderate number of cases and one-third of properties reported no cases.
• Manager experience is more critical than ever. Capital raising efforts are laser-focused on highly experienced operators with expertise given the challenging operating environment. No “operator tourists” need apply to this asset class. Seniors housing is driven by a health care model, not a typical multifamily operating model.
• Valuation presents a significant challenge in the current environment given health risks and access generally but also because appraisers generally use historical data. Questions that stand out include where are capitalization rates? What is the impact to value from occupancy taking a hit? How much have expenses increased?
• Investor interest continues, but there are fewer transactions even while some loans are starting to be made again.
• Borrowers and operators appreciate proactiveness, flexibility and patience by existing lenders. Lenders are slowly creeping back into the sector with new debt. There is not a lot of activity on the distressed debt front, but there might be down the line based on performance.
What’s on Deck?
MBA will continue to develop engaging material and highlight business intelligence relevant to the commercial and multifamily finance ecosystem. The next offering, a webinar entitled Riding the Waves: Anticipating and Managing Impacts of Natural Disaster Events, will take place July 30 at 3:00 p.m. ET.
