By Jim Knapp
We are consistently being asked to advise/comment on post COVID-19 property values, the recovery timeline, the best time to initiate a marketing effort, cap rate movement and other questions pertinent to a senior housing and healthcare service provider, owner, or investor. The knee-jerk answer was, and to a certain extent still is; don’t know…. too early to tell. After a number of months of this dilemma, we are starting to see some partial answers seep between the cracks or what could be best described as a consistent enough repetition of facts and opinion that is slowly taking the form of an intelligent answer with the typical disclaimers. The panic that was initiated by COVID-19 has started to subside, but with a cautionary note as spikes are expected. In the past, market changes like this were mainly caused by economic disruptions in banking and real estate or a crisis such as the oil crisis of the 70’s. This current disruption is unique, and it is reported that the recovery could be “V”, “W”, or “U” shaped. We are hearing well thought out predictions from the folks at NIC, Marcus & Millichap National Seniors Housing Group, and many other prominent leaders in this industry including owners/operators in the varied markets across our country and the indications are cautiously optimistic.
On the positive side for seniors housing-healthcare assets, we are hearing that many other investment asset classes are faring much worse, such as hotels, retail, restaurants, cinema’s and other venues where crowds congregate. And, even though the elderly population were the most vulnerable, the residents of senior communities were still paying rent. The demographic demand for seniors housing and senior healthcare is remaining steady and growing. Historically, senior health care delivery has protocols in place for this type of event, and even though this one was very trying, the event tested what was already in place and as a consequence of this it is anticipated that operators/owners will be better prepared for this in the future.
It will be interesting to observe over the coming months, to see if smaller senior housing facilities may actually be very desirable to families, residents and prospective buyers, due to smaller segregated gathering spaces and other physical plant characteristics that allow for smaller groups and more segregation to take place, therefore, giving a comfort level of better withstanding a pandemic event.
Another aspect we have learned during COVID-19, is the importance of having a way for residents and family members to connect when apart by online video conferencing. Every owner/operator of a senior housing facility would benefit by taking the steps to accommodate their residents in this way if they are not already doing this.
Going forward it is vital for providers to seriously examine the middle market senior housing demand. In a study done by NIC, the National Investment Center for Senior Housing, it is estimated that there will be 14.4 million middle-income seniors by 2029, and that around 54% of them will lack the monetary resources to pay for senior housing at today’s market rates. This was already a challenge before the recent pandemic and will only be more of a challenge now. Current and future owners need to creatively search for ways to lower their costs and, therefore offer affordable prices in this ever-growing middle-income market.
Offering lower rental rates will therefore make acquisitions of older, more modestly priced communities more favorable than new construction from a cost basis perspective. Many senior housing owners are also on the lookout for assets that were hit hard by the COVID-19 pandemic and can be purchased at more favorable prices and be able to offer them to middle-income and lower-income seniors.