Senior Housing ‘Will Probably Take The Longest To Recover’ From The Coronavirus Recession
The coronavirus pandemic has hit senior housing residents hard. Concentrations of elderly people, especially in nursing homes, have proven tragically susceptible to COVID-19. In the short run, from a business standpoint, the crisis means senior housing occupancies are down and costs are up.
Over the long run, lingering fear among potential residents, or a long recession, might hamper future growth prospects, senior housing experts say. But others say it is possible that the previously forecast silver tsunami will survive the pandemic mostly intact, driving demand for senior housing later in the 2020s.
"Of all the asset classes, I'm most concerned about the future of senior housing," Mizuho Managing Director of Equity Research Toyo Okusanya said. "It will probably take the longest to recover from the pandemic. The headlines about facilities overwhelmed by COVID-19 will affect people's decision-making. People will have reservations about moving in, maybe for years to come."
The senior housing asset class is made up of a broad spectrum of living facilities, including independent living, which are essentially apartments for an older population, and assisted living, which provides apartments but also a higher level of service for its elderly population, such as meals or group activities.
The term also refers to long-term care facilities — nursing homes and memory-care — that provide healthcare services for elderly residents with chronic conditions. The pandemic has hit this segment particularly hard.
Coronavirus-related deaths at U.S. nursing homes and other long-term care facilities have topped 10,000, the Wall Street Journal estimates, based on data aggregated from state health departments.
Assisted living has been impacted as well. Just since Monday, seven COVID-19 deaths were reported at an assisted living facility in McKinney, Texas; 13 residents at a Chandler, Arizona, assisted living facility have died from the pandemic; 65 residents and employees of two facilities in Sacramento County, California, have been reported infected; and South Carolina reported that 46 nursing homes and assisted living facilities had a confirmed case of COVID-19 either among residents or staff.
For now, the lease-up across the spectrum of senior housing properties has ground to a stop, and move-outs are flat or accelerating, Duff & Phelps Managing Director Ross Prindle said.
"You can't show properties," Prindle said. "The model of paying a lump sum to move in, that isn't happening either. It's come to a halt."
Occupancy at independent living properties is relatively stable, according to a National Investment Center for Seniors Housing & Care survey of senior housing executives, but it is trending down for the rest of senior housing, including assisted living and memory care, with the deepest declines reported for nursing homes.
About 40% of organizations reporting on their nursing care beds said they experienced an occupancy decline of 10% or more compared with the previous month, NIC said.
Major senior housing owner Welltower reported that between March 27 and April 10, occupancy within its senior housing portfolio, which includes independent and assisted living, fell from 85.4% to 84.2%, and the company anticipates further occupancy losses.
Despite fewer customers, expenses are up, especially for assisted living and nursing homes. Facilities now are hiring more staff, buying more protective gear, which has become more expensive as supplies have been strained, and investing in technology to connect residents with their relatives, the New York Times reports. The industry is in full crisis mode.
"On top of that, most operators don't qualify for PPP, and the emergency funds dedicated for healthcare are mostly going for hospitals, not senior living facilities," RSM Senior Manager and Real Estate Senior Analyst Scott Helberg said.
The largest owners, with reserves of capital and access to lines of credit, are probably best equipped to weather the storm, Okusanya said. The REITs mostly have solid balance sheets, but the smaller owners and operators will be hit hard, he said, possibly leading to closures in the near term and further consolidation in the industry later on.
No senior housing expert ventured a firm prediction about what will happen to the industry after the pandemic, but some say that there is a case for optimism in the long run, considering the nation's demographics.
"I'm bullish on the sector in the medium to long term," said CBRE Vice Chairman Aron Will, who co-heads national senior housing debt and structured finance for CBRE Capital Markets. "There will be pent-up demand in the sector, because the need for assisted living and memory care isn't going away. It will still be needs-driven."
The pandemic hasn't changed the fundamental fact that the average age of Americans is getting older, and will continue to get older over the next few decades, Will said. The shock of the pandemic might make some hesitant to enter senior housing, but even so, the sheer size of the aging generation will support growth in the sector eventually.
The older population is going to go up, as is the population of the very oldest, who typically need assisted living and nursing care the most. In 2010, slightly more than 14% of the over-65 population was 85 and older. By 2050, that proportion will increase to more than 21%, the Census Bureau predicts. Those numbers were released before a pandemic that was especially deadly among the elderly swept across the globe.
Another factor that might help the industry in the long term is a slowdown in construction, which had actually started before the pandemic in response to a number of overbuilt markets, Walker & Dunlop Managing Director Mark Myers said.
NIC reported that 17,062 new senior housing units started construction during the four quarters ending in March 2020, the fewest new starts for the industry since 2014.
"It's going to slow down a lot more," Myers said. "If nothing else, lenders are going to be much more careful about projects."
Not everyone is sure that demographics will be enough to support senior housing growth in a post-pandemic environment. For one thing, even after the pandemic, there will be a recession, and it could be a long, painful one.
The recession will put a damper on demand for senior housing, Okusanya said, especially if it lasts long enough to hit the housing market hard. That is because most people sell their house or their investments to move into senior living in the first place (typically independent living).
The inability of people to move into independent living has longer-term ramifications for all of senior housing, Helberg said, because people tend to transition from there into assisted living or memory care.
"Demand is a concern on the independent side," Helberg said. "In one way or another, the current crisis might encourage people to age in place longer."
CBRE's Will believes assisted living and memory care will do well regardless of what happens in independent living, because those sectors outperformed after the last recession.
"Institutional capital came into the sector post-recession last time, and I believe it will make the same calculation this time, because senior housing is recession-resistant, if not recession-proof," Will said.
Beyond there being a need for senior housing, or the question of a recession, the industry will change in the wake of the crisis, and do what it needs to do to help restore confidence, Will said.
Regulators will likely require better infection control, and many owners and operators will go beyond what is mandated to reassure potential residents and their adult children.
"I hope and I pray and I think that infection control is going to get a bigger focus throughout healthcare, including senior housing," Myers said. "Most operators have been vigilant about controlling infection during the pandemic, but there have been outbreaks even at the best-run facilities, so the industry needs to do more."