/>iWith rising occupancy rates and demand outpacing supply, there are many reasons to be optimistic that better days lay ahead. Unfortunately, such optimism may be tempered by potential new staffing requirements amid a workforce crisis and the added uncertainty of the financial markets.
Occupancy Levels
The latest quarterly occupancy report released by the National Investment Center for Seniors Housing & Care (NIC), along with NIC MAP Vision, projected that the market could achieve pre-pandemic occupancy levels by 2024. The average senior living occupancy in the primary markets rose to 84.4% in the third quarter of 2023, which is just 2.7pp below pre-pandemic levels, and increased again to 85.1% in the fourth quarter of 2023, representing the 10th consecutive quarter of occupancy gains since the onset of the pandemic. In terms of property type, independent living (IL) properties increased occupancy by 80 basis points and assisted living properties (AL) saw an increase of 90 basis points for the fourth quarter of 2023.
Meanwhile, occupancy rates for skilled nursing properties grew by 70 basis points to 83.1% during the fourth quarter. Healthcare real estate investment trusts (REITs) in the skilled nursing sector have experienced generally stagnant occupancy rates but are hopeful that rates will grow despite staffing shortages that continue to plague the market and restrict operators’ ability to admit new residents. Despite increased occupancy, merger and acquisition activity in 2023 was sluggish as rising interest rates and general economic uncertainty made deal making difficult. Nevertheless, many believe that the senior housing market is on track to outperform nearly all other real estate asset classes as demand continues to outpace supply across the United States.
Staffing Challenges
Despite expected growth in long term demand, senior living operators are currently battling inflationary pressure alongside the staffing crisis. The ability to find qualified candidates coupled with the aging workforce has created significant obstacles for hiring. According to a survey conducted by the American Health Care Association/National Center for Assisted Living approximately 15% of nursing home employees have left the industry since the onset of the pandemic, with 87% of providers facing moderate to high staffing shortages. The Centers for Medicare & Medicaid Services (CMS) recently issued a final rule updating Medicare payment policies and rates under the Skilled Nursing Facility Prospective Payment System for 2024 resulting in an estimated net increase of $1.4 billion (or 4.0%) in Medicare Part A payments. Unfortunately, the increase may not be enough given the surge in labor expenses and an overall rising of operating costs.
On September 1, 2023, CMS issued a proposed rule titled “Minimum Staffing Standards for Long-Term Care (LTC) Facilities and Medicaid Institutional Payment Transparency Reporting,” which would require facilities to increase the amount of nursing care received by each resident on a daily basis. Under the new rule, there must be one onsite Registered Nurse (RN) 24 hours per day, seven days per week, and each resident must receive 0.55 RN hours per day and 2.45 Nurse Aide hours per day. To meet these new requirements, facilities around the country would need to hire additional staff, an extremely difficult task given the already tight labor market. In addition, the cost to adhere to the staffing mandate could prove extremely burdensome for many operators.
Debt Wall
The senior living industry has billions of dollars’ worth of debt coming due in 2024 and borrowers who may need to refinance and/or recapitalize loans are facing significant hurdles as higher interest rates and stringent lending requirements make refinancing difficult. The challenging financial market will likely cause many owners to offload properties. With increased refinancing and borrowing costs as added motivation to sell, 2024 may see a narrowing of the sizable bid-ask gap that has recently thwarted deal making. On the other hand, the potential for interest rate cuts in 2024 could undoubtedly ease the pressure many senior living operators will face as they attempt to work out financing solutions with their lenders.
Focus on Wellness Programs
Shifting the focus from care to overall wellness has been an increasing trend in the senior living industry as operators continue to enhance access to mental health services, fitness centers, and nutrition education and programs. There has been an increased emphasis on providing residents with access to fitness classes and amenities suited for their particular needs, as well as offering opportunities for social engagement and continuing education. As baby boomers enter the senior housing market, they will be looking for communities that allow them to continue to pursue hobbies, including physical and social activities, that they have enjoyed in their retirement.
An Attractive Investment: Active Adult
The 12th edition of CBRE’s Seniors Housing & Care Investor Survey showed that Active Adult communities remained a top investor category, while confidence in IL properties fell in comparison to prior years. Increasing demand, longer lengths of stay, reduced operational expenses, and no required healthcare licensure all contribute to the enormous growth potential for Active Adult communities. “The growth of Active Adult communities is by a combination of demographic trends, changing preferences among baby boomers compared to the prior generation, and the limited amenities and services these communities offer,” according to US Seniors Housing 2023 Investor Survey Report.
Technology Trends
Telehealth, artificial intelligence (AI)-powered healthcare assistance, and wearable technology are a few of the technological advancements that are being integrated into senior housing communities to meet operational needs. AI has the potential to address the staffing crisis by assisting with back office needs and reducing operational expenses. Leveraging AI will allow operators to track health data and outcomes while streamlining things more efficiently like medication management and employee scheduling. Meanwhile, increased use of telehealth services has allowed operators to provide care and services that residents may otherwise not be able to physically access including mental health services. Telehealth services can be used to augment care otherwise provided at the facility or following a hospital visit.
