The National Senior Housing Market: 2021 Midyear Review

The Senior Housing industry, while a need-driven business, is at least for the near future facing some uncertainty as they recover from declining census and increased expenses caused by the pandemic. Divided into three major market segments: unlicensed facilities such as Independent Living (IL), Active Adult, and licensed facilities which would be Skilled Nursing Facilities (SNF) and Assisted Living Facilities (AL) are each facing unique challenges as the sector emerges from the pandemic.

Independent Living/Active Adult serve a younger/healthier population and are less need driven and therefore are a more discretionary move. As seniors get vaccinated and restrictions relax, active adults are once again moving to these communities.  These communities are recovering at a faster pace than what industry experts expected.

Skilled Nursing facilities by their nature are caring for the most significant percentage of “High-Risk” seniors with underlying medical conditions and were hit hard by the COVID-19 virus. As the sector emerges from the COVID-19 crisis amid sweeping regulatory changes, significant increases in expenses related not only to PPE and infection prevention protocols as well as increases in wages could force the exit of “mom & pop” operators unable to weather the financial storm.

Assisted Living Facilities serve seniors that require assistance with the activities of daily living.  The sector was also negatively affected by COVID-19 both by the virus itself and the resulting restrictions placed on allowing new move-ins.  As a result, the industry is experiencing the lowest occupancy since the recession. As Assisted Living facilities in most areas have been able to “open back up”, occupancy is rebounding.  Most industry experts believe that, depending on location, it could be two to four years before occupancy and operations normalize.

For the last 18-months both state and federal government and the Centers for Medicare & Medicaid Services have offered financial support which has kept many operators afloat.  This financial aid, for the most part, is ending. As a result, we expect to see more distressed assets hit the market in the second half of the year. We also expect to see a significant number of operators throwing in the towel due to increased labor costs, insurance and litigation, more regulations all leading to disappearing margins and diminished profits, all leading to being simply exhausted.

According to JLL Valuation Advisory’s recently released fourth annual Seniors Housing Investor Survey and Outlook, even though the seniors housing industry still faces many challenges, long-term demand still has the sector on a trajectory for growth.

Transaction activity is picking up significantly in all sectors of the senior housing industry and we expect it to continue during the second half of the year.  We are encouraging investors considering the sector to pay close attention to every aspect of the transaction.  During the due diligence period investors need to really evaluate what capital investments are going to be needed especially, what CAPEX does the property need.  They also need to evaluate what potential residents are looking for in a facility and what ways they can optimize employee retention.

Cindy Hazzard

Principle, JCH Senior Housing Investment Brokerage

Office: 714-463-1672 Email: [email protected]