Senior Housing Faces Biggest Test in COVID-19
Despite falling occupancy and dwindling move-ins, experts are predicting strong demand for the segment in the long term.
More than a month after shutdowns and stay-at-home guidelines took hold as the new normal across the country, the senior housing segment is beginning to see just how much of an impact the coronavirus pandemic has had on occupancy and operations.
But for a segment that is used to protocols surrounding health and safety due to the fragile nature of many of its residents, the experience of the COVID-19 pandemic coupled with historic resiliency could serve to further strengthen the sector, industry experts say.
As the crisis was beginning to unfold in March, industry leaders were confident that the disruption would be short-lived and would mostly entail delayed construction and lease-ups at properties. Senior REITs also took a pummeling, which led longtime industry vet Mel Gamzon to caution investors not to panic.
Several weeks later, however, the real impact to the sector is coming more into focus. According to a recent executive survey put out by the National Investment Center for Seniors Housing & Care, occupancy rates at senior properties are declining across the board while move-ins are decelerating.
The declines are partially due to the moratoriums on move-ins many properties have put into place to protect staff and residents. Additionally, hospitals have been postponing elective surgeries which has led to less residents being sent to post-care facilities.
JLL Managing Director Zach Bowyer, who is one of the leads of the seniors housing valuation platform at the brokerage firm, said the resiliency of the senior housing sector has consistently been a talking point through prior recessions, but a global health crisis like this one is perhaps the biggest challenge yet.
“This pandemic is relatively unique in a sense that it put that resiliency concept to a test because with COVID-19, a senior population is much more susceptible,” said Bowyer.
Measuring the impact
Along with falling occupancy rates, many properties are experiencing increased operating costs, labor shortages and higher liability insurance rates due to the pandemic. However, one thing the sector hasn’t experienced, unlike multifamily, is a decrease in rental payments.
“We’re not seeing that in seniors housing,” said Bowyer.
Operators are ramping up efforts to protect staff with PPE and getting tested when possible. At some properties, mini-grocery stores have been created for staff members, so they don’t have to risk exposure by going to traditional stores and markets.
“We’ve talked to a couple operators who have used a metaphor of building a moat around properties to prevent COVID,” said Beth Mace, chief economist at NIC. “Residents themselves can’t really spread it unless someone comes in from the outside, so you see extraordinary efforts to protect staff.”
Walker & Dunlop Managing Director Mark Myers, who has spent 25 years brokering sales of senior housing properties across the U.S., said there is now a “wait and see” attitude among buyers and sellers.
“Pencils are down but not permanently, they’re not walking away,” said Myers, adding that unlike the economic downturn in 2009, banks and investors are still well capitalized. “But will there be business failures? Yes.”
“A safe harbor”
The first major outbreak of the coronavirus in the U.S. was centered around a five-star senior housing property outside of Seattle, Wash. Since then, there have been instances of major outbreaks and multiple deaths at other nursing homes in several states, including the hard-hit New Jersey and New York.
While the stories are tragic, industry leaders say they are not representative of the majority of senior housing properties, of which there are more than 22,000 across the country.
“In general, the industry was really, really prepared and concerned and taking it seriously and doing a good job,” said Myers. “Does that mean we were perfect? No.”
“Even the best of senior housing communities and the best of hospitals can probably learn a lot from COVID on infectious control. We think we’ll be a lot more prepared in future,” he said.
“At this point I think the operators have been able to develop procedures and protocols to contain the spread, just like they did with Legionnaires and the flu,” said Lisa Widmier, executive vice president of the Senior Housing Capital Markets practice & CBRE Capital Advisors.
Widmier said that in some instances, senior housing could even be seen as a “safe harbor” for seniors and the elderly, who are more susceptible to viruses and contagious diseases and more at risk when doing ordinary tasks like grocery shopping or going to the doctor.
“Well-run senior housing offers safe daily nutrition and air,” said Widmier. “I don’t think senior housing will come to be seen as a place of high risk, I think it will be seen as a place of safety and security.”
Looking ahead, those in the senior housing industry expect to see the sector bounce back quickly, possibly becoming even stronger than it was pre-pandemic due to the “baby boomer wave” that is still happening.
“The basic demographics are still here,” said the NIC’s Mace. As the number of seniors in the U.S. grows significantly, by 2050, the number of adult children of those seniors will decrease significantly. In short, today’s seniors have more children than tomorrows, thus the number of family caretakers will sharply decline and the need for senior housing will increase.
“COVID or no COVID, that doesn’t change,” said Mace.
Myers said he is expecting to see further declines in occupancy rates going into June but in the long run, the sector will continue to see demand based on demographics and need.
“It’s a need-drive product,” said Myers. “People need socialization, they need to have someone preparing meals for them to stay healthy. “In the medium to long-term, seniors housing is going to return to a very sought-after product.”
Widmier pointed to senior housing staying strong through past downturns as an indicator of how it will fare this time around.
“We think everything is being impacted, but we expect it to be the first asset class to sustain and recover because of demand factors,” she said. “It’s got a track record of resiliency.”