Residences for the elderly begin to rebound, sources of capital impatient but cautious


After development and construction of new senior housing projects halted during the pandemic, growth is back – with investors and operators navigating economic challenges to seize demographic opportunities.

That’s according to data and ideas shared at Senior Housing News’ recent BUILD conference in Chicago.

Lending and construction activity are rebounding as occupancy rates recover, although inventory growth is still relatively slow, said Beth Burnham Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC). She considers the development challenges and opportunities to be roughly balanced at the moment.

Meanwhile, Des Moines, Iowa-based LCS has been able to keep its developments on track despite the pandemic, and continues to pursue its important pipeline while managing supply chain issues and other disruptions. .

The rebound


The occupancy rate of senior citizen housing fell to historically low levels after the onset of Covid-19, according to data from the NIC. And although the census has started to resume, many elderly communities are still struggling.

“There are a lot of operators who operate less than 80% properties,” she said.

However, the trends are promising. Occupancy rebounded slightly in the third quarter to 83.2% in independent living and 76.9% in assisted living.

The rebound in occupation is accompanied by record demand. Previously, there had been negative absorption in the four consecutive quarters starting in 2Q 2020. Then, in the second quarter of this year, absorption returned to normal levels before exploding in the third quarter.

Not surprisingly, the growth of new stocks has slowed considerably during the pandemic and remains well below historical norms. Inventory growth in the third quarter of 2021 was 3.2%, compared to a peak of 5.0% in 2018.

But, as the occupancy rate returned, so did construction lending activity.

Overall, banks and equity groups have been good partners, helping operators get through the plight of Covid. Banks don’t want foreclosures, they want solutions. However, they will have to start facing difficult situations.

“I think you’re going to see more workouts going forward,” Mace said.

Despite these predictions, lenders are returning to the market and opening their coffers for construction projects after stepping back amid Covid fears.

According to the NIC Lending Trends Report, financial institutions loaned just under $ 400,000 million for the construction of senior housing and over $ 118,000 million for the construction of skilled nursing in the second quarter of this year. .

“For development, you need capital. You have to have money, Mace said. “Now we are starting to see the taps opening again.”

Still, lenders are being cautious. Usually, they lend to borrowers and sponsors they already know, and having strong operators in place is a must, Mace said.

With the increase in loans, housing starts accelerated.

“We are back to the levels we saw in 2015; so there are about 33,000 units currently under construction, ”Mace said.

Even if construction activities resume, tight global supply chains and other complications could result in longer project timelines. Mace believes this will extend a period when the supply of new senior housing is limited.

“Maybe this will give us a window of limited inventory growth as we move into 22 and 2023,” she said.

Challenges

The amount of money needed to move forward with development is also affected by what Mace called an elephant in the room.

That factor is inflation.

“We are facing inflation numbers that we haven’t seen in 30 years,” Mace told SHN.

In addition to inflation, the industry faces supply chain disruptions, wage pressures and trade policy complications from tariffs, many of which were in place before the Covid pandemic.

For companies capable of meeting the challenges, demographic opportunities await on the other side.

One of those companies, LCS, has found a way to push development forward during the pandemic, according to LCS executive vice president and general manager Chuck Murphy, who participated in the panel.

“We’re not arrogant about it, I don’t want to describe it – we were able, with our financial partners and the strength of our company, to continue through Covid, but it slowed things down,” he said. declared. .

Yet LCS and its partners have brought new communities to market, including the recently opened Clarendale in Clayton, a luxury community near St. Louis, developed in partnership with Ryan Cos.

The current pipeline is robust, but Murphy is aware of the lingering challenges, particularly with the availability of equipment and supplies.

“The new buzzword is ‘just in case’ instead of ‘just in time’,” Murphy said.

The buzzword refers to the need to be well prepared when resources are stressed. Supply chain problems will persist “for a while,” Murphy said.

LCS controlled development risk during the pandemic by purchasing contracts earlier, as company executives believed the Covid situation would get worse before it got better.

And then there are the challenges in the job market, which are extreme in the US economy and in retirement homes in particular.

The lack of a skilled and accessible workforce is the “real trap” that could hold back the growth of older people’s lives, Murphy said.

He and Mace agreed that there were no easy solutions to the job crisis, but Mace suggested that the retirement home industry could do a better job of promoting its “mission of the heart.”

Senior associates have the opportunity to be mentored, loved and fed by residents while serving them, which is a value proposition that cannot be matched by fast food restaurants, she said.

“I think our industry is really attractive to certain types of people who are caregivers,” she said. “And I don’t think we’re doing a good enough job on that, actually, when we’re advertising [workers], when we are trying to recruit.

Opportunities abound

Housing opportunities for seniors in the coming years focus on demographics, updates to existing infrastructure, and expanding consumption options.

Demographics is Destiny, a phrase repeated throughout BUILD, highlights America’s aging population. There will be 1 million new people aged 80 or over in the next five years.

The demographics of the aging population are also important. Middle-income seniors, the so-called “forgotten middle”, present a tremendous opportunity for developers.

The cohort of people aged 75 or older in the middle-income group will double from 7 million to 14 million by 2029, according to Mace.

“It’s a huge group… we have to figure out how to respond to it. “

The challenge with the forgotten medium is to provide as much as possible, but at more affordable rates than other products.

“Anyone who can crack this code will shoot just fine,” Mace said.

The LCS remains bullish across the spectrum, according to Murphy.

Consumers have evolved in recent years and have more options than 10 years ago. Not only are there more options, but consumers are expressing their needs and preferences much better. The key is to provide consumers with options, both through new core developments and by repositioning existing communities, according to Murphy.

Active products for adults are an option that consumers increasingly want. While the demand for active products for adults is growing rapidly, this sector remains a small part of retirement homes overall.

“But we see it more often,” Murphy said. “And we see it as potential competition for other products.”

Understanding what consumers want and connecting with their families is a benefit in itself, according to Murphy, who also cited technology as an increasingly important goal for LCS.

“We like to focus on innovation,” Murphy said. “People confuse it with amenities. ”

For LCS, innovation can mean anything from flexibility over meal plans to more options for personal technology.

“This is a service offering,” Murphy said. “Things that allow people more choice in what they do with their senior life experience. “

However, with the developers looking to seize the opportunities and serve the future consumer base, Mace and Murphy agreed there is a lot of debt and equity.

“Everyone is looking at the demographics and smacking their lips,” Mace said.


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