Senior Housing Facilities Battle Higher Costs, Slowdown In New Occupants Amid Pandemic
The senior housing sector has faced the particularly difficult challenge of providing housing, healthcare and services to one of the most vulnerable groups of people to the coronavirus pandemic.
As occupancy in some senior living facilities has fallen, operators are facing additional challenges brought on by two major cost increases since the pandemic began: wages and personal protective equipment.
With a public health crisis underway, wages rates have risen further to include bonuses and other financial programs, with the goal of attracting and retaining staff. The demand for PPE has also driven prices up exponentially, passing the cost burden onto senior housing communities.
Juniper Communities is facing those two challenges in almost equal measure since the onset of the pandemic, founder Lynne Katzmann said during a Bisnow webinar May 26.
“I don’t expect it to shift much until we go through greater periods of reopening.”
Even if demand for specialized PPE subsides, Katzmann said demand for common equipment like masks and gloves will continue, as senior housing operators and healthcare workers embrace a new normal.
On the staffing side, there are two schools of thought. One is that operators will need to continue to pay higher wages to retain their teams. The other acknowledges the soaring national unemployment rate and the end of various federal stimulus measures, which will place downward pressure on wages as more people vie for the same jobs.
“I think that we will see changes in our expense patterns, again depending on unemployment and depending on federal stimulus bills in the next six to eight weeks,” Katzmann said.
National Investment Center for Seniors Housing & Care Chief Economist Beth Mace said the coronavirus pandemic has had a significant health impact on higher-acuity residents in assisted care facilities. But independent living facilities will see a larger economic impact from the pandemic, because those facilities are choice-based.
“Right now, we've seen housing really slow dramatically, fewer listings, more people going into foreclosure,” Mace said.
People who may have been considering moving into an independent living facility may put that move off, a reflection of difficult economic times and overall drop of wealth in the stock market.
“It's likely to have an impact on pricing, and it’s likely to slow down the velocity, I would think, for at least a year-ish, maybe longer,” she said. “And that will have an impact on people's ability to move into independent living, which is more choice-based.”
Despite the short-term financial issues, lenders are still interested in financing the construction of senior housing communities. CBRE Capital Markets’ Austin Sacco, first vice president and co-production lead for the national senior housing group, said there has been decent appetite for new construction.
Any construction to break ground today would not deliver before 2022, which is far enough out that most people have comfort that the pandemic situation will have subsided by then.
“There are certain lenders out there, I would say, 35% to 40% of the lender pool, is out there and active today,” Sacco said.
Sacco noted that CBRE had seen more conservative loan-to-cost ratios during the pandemic, but interest rates for construction loans have not risen in a substantial way. Much of the new construction capital is coming from regional banks.
“Most lenders, on the refinance side, understand the situation that we're in today, and we've seen a lot of extensions, generally in the six- to 12-month range on their existing loans,” he said.
The recovery of the economy, and of the senior housing sector, will largely depend on whether there is a second wave of coronavirus cases and deaths in the coming months.
“Unfortunately, there's a lot of uncertainty right now, in terms of how it's going to continue — a lot of it, again, depends on a second wave,” Mace said.
Katzmann said the senior housing sector is much better prepared for a second wave than it was the first, because the equipment, teams and protocols are already in place.
“I don't believe that a second wave will have the same impact, provided that operators take it seriously, and that they continue to understand that the world as it was, we're not back there yet, and we need to continue to take some action moving forward,” Katzmann said.