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Pandemic Batters Oversupplied Senior Housing Market

The novel coronavirus pandemic poses an extra layer of difficulties for the senior housing industry, which was already suffering from supply outpacing demand in recent years. 

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A scene from before the pandemic. With seniors at higher risk from COVID-19, social distancing is the norm.

Not only has the cost of running a facility increased as operators take steps to protect residents, the number of new residents is dropping. Senior housing owners are thus putting themselves in crisis mode.

Ventas, the largest U.S. owner of senior units, is offering to defer 25% of rent payments for some of its operators in April, the Wall Street Journal reports.

The deferred rent won't be due until Oct. 1, unless an operator receives money from the federal government as part of the stimulus bill or other measures. The April deferrals could be between $3M and $9M, Ventas estimated. The Chicago-based company said it collected substantially all of its March rent.

The move is in contrast to other sectors, such as retail, in which some landlords are reportedly insisting on full rent payments for April.

"There are now strong indications that tours and move-ins are beginning to slow and the pandemic raises the risk of an elevated level of move-outs," Ventas said in a recent statement

Moreover, operating costs are increasing, and the company said it expects these trends to accelerate. Senior housing operators have had to improvise new and potentially more expensive ways of doing things, such as serving residents their meals without having them gather in dining rooms.

At the beginning of March, Ventas drew $2.75B from its $3B revolving credit facility, to have $2.75B in cash on its balance sheet. Other senior housing specialists are doing the same. Brookdale Senior Living has drawn down the entire available balance on its revolving credit facility and suspended its stock buybacks, Seeking Alpha reports

The ultimate impact of the pandemic on the demand for senior housing is still unknown. Much depends on the total percentage of the U.S. population that is ultimately infected, and the percentage of fatalities among the elderly.

If the COVID-19 infection rate is 50%, and the mortality rate for seniors is 15%, that would reduce resulting demand by 7.5% and occupancy by 8%, according to an estimate by Green Street analyst Lukas Hartwich, as reported by Senior Housing News.

The senior housing industry entered 2020 a little soft, the National Investment Center for Seniors Housing & Care reports. At the end of 2019, the most recent moment for which data is available, assisted living occupancy had improved a bit, coming in at 85.7% in the fourth quarter.

But that was from a recent record low of 85.1% earlier in 2019, the NIC said. The occupancy rate for independent living decreased to 90% in the fourth quarter, below its recent peak of 90.4% in the first quarter of 2019 and down from 90.3% a year earlier.