NIC Senior Housing Spring Conference 2022 Recap
The JCH team had the pleasure of attending the Mid-year NIC Conference in Dallas last month. It was nice to reconnect with old friends and make new connections.
Overall the conference was well attended, with the majority of attendees having a cautiously optimistic tone. Among the many topics discussed, census, new construction, staffing and increased premiums for insurance were high on the list.
The general consensus is that occupancy rates are improving in Assisted Living, Memory Care, and Skilled Nursing facilities, with a few operators reporting census at pre-COVID levels. We all agreed that if a facility was struggling pre-COVID in all likelihood that is still the case and may be much worse.
The cost of new senior housing construction is making it much more challenging for developers to bring mid-range priced facilities to market. Many think that costs might go down again, but rising labor/construction costs and interest rates will likely wipe out the savings. In our discussions with several developers and prominent architects, all indicated that new construction for Assisted Living facilities is running $280,000 per unit and higher.
The cost of operations is outpacing the rate increases. The high cost of insurance and labor, as well as the difficulties with hiring/maintaining staff is of great concern. Many operators are now considering creative work schedules, improved employee break-rooms etc… in an effort increase hiring and retention. The cost of all insurance has as most know absolutely skyrocketed since 2020 with many operators reporting between a 30-60% increase in their premiums. While many operators have increased rental rates 4-10% this year, the rise of Interest rates and inflation which do not appear to have an end, leaving many to wonder if these increases will be enough.
It was interesting that much of the conversation at the NIC was that the CAP rates on performing buildings are still going down, thereby raising sales prices. We must stress that stabilized Class “A” facilities in major metro markets continue to see CAP rates being pushed lower. Value add opportunities are taking significantly longer to complete with many hoops that we all must jump through. We are finding creative solutions like seller carry-backs, earnouts etc… on the rise. The silver lining here may be that there is significant capital/equity that has been sitting on the sidelines for the last couple of years needing to be deployed.
More good news from the NIC, with many news pundits predicting a recession next year, many investors are seeking out senior housing as a shelter from the storm. Senior housing has been nearly recession-proof during the last two economic downturns. Higher acuity assisted living facilities and stand-alone memory care facilities largely held their own, with many increasing their profitability. Interest rates are inching up, increasing the urgency for investors to buy now. For those of us who remember the 80’s when the Prime rate was over 14% this had a horrible effect on facility pricing, and yet we made it through and created the best years in our industry’s history.
I am enthusiastic about the 2nd Quarter of 2022 for buyers and sellers alike.