There is no doubt that the senior living and skilled nursing sectors have been hit hard by the pandemic. We believe, however, that the long-term trends and industry outlook remain solid as vaccinations continue to progress throughout the nation, and senior demographics are fundamentally strong.

Over the past 10 years, senior housing returns have consistently outperformed other types of real estate, according to data from the National Council of Real Estate Investment Fiduciaries.

Short term, the current operating numbers demonstrate the effect of COVID with direct effects on occupancy levels, and as a result, earnings before interest, taxes, depreciation, amortisation and restructuring or rent costs.

According to a January report from the National Investment Center for Seniors Housing & Care, aggregate senior housing occupancy in the fourth quarter of 2020 was 80.7%, with the sector posting a record annual decline of 6.8%. This figure includes independent living and assisted living.

Assisted living rates decreased 1.3% in the fourth quarter, to 77.7%, and 6.2% for the year. Such communities were affected by the inability to conduct in-person tours and market the way they normally would have. Because residents of assisted living communities have less urgent needs, generally speaking, than those who need nursing home care, people held off on moving in during the pandemic months. There was also a slowdown in new project development — the NIC report noted that the delivery of 1,625 units in the fourth quarter was the lowest on record since 2013.

Other NIC data revealed that nursing home occupancy rates experienced a steeper drop than senior housing, to 71.7% in December, 1.4% below November’s reported occupancy rate of 73.1% and a 13.3% decrease from the February 2020 rate of 84.9%. We saw this occupancy decline across most states and especially in facilities that rely on short-term rehabilitation and urban feeder hospitals.

Across long-term care, we will begin to see a slow increase in occupancy levels as vaccinations continue. In the skilled nursing sector, short-term rehabilitation has begun to come back online, and all facility types have implemented enhanced infectious disease protocols to reduce COVID-19 risk. This trend is further evidenced by positive earnings trends using trailing three-month figures versus trailing six- or nine-month figures.

Merger and acquisition activity in long-term care also has stepped up. According to data released in October from Irving Levin Associates, M&A transactions declined 44% in the third quarter of 2020. Anecdotally, we have seen a brisk pace of deals in the first quarter of 2021, as smaller operators look to exit and more experienced operators seek turnaround opportunities.

2021 and beyond

As we think about the rest of 2021 and beyond, the assisted living asset class is likely to experience a slower recovery than skilled nursing, given that it is primarily private-pay or insurance-based and given that residents traditionally have fewer medical needs compared with skilled nursing facility residents. As vaccines have been rolled out and some of the apprehension has lifted, prospective residents and family members are more inclined to consider move-ins in assisted living. In fact, the sector posted $2.28 billion in sales in the fourth quarter of 2020 when the vaccines were announced, according to CoStar data.

The newer operating elements that will be key decision-drivers in the assisted living sector include visitation policies, design of public and community areas, and the availability of on-site medical staff. Assisted living occupancy also will be affected by the rate at which adult children and others return to work in offices and cannot care for family members in the same way as they have done at home over the past 12 months.

Marketing and the social aspect of assisted living communities likely will remain challenged for some months. For residents, social events such as meals, cards and entertainment slowly will be ramped up and monitored. For families, senior living communities have not been able to conduct in-person tours. With many assisted living communities based on social activities, which at least in some locations are expected to be somewhat limited through social distancing and other restrictions for some time, uncertainty remains in the short term.

In skilled nursing, we expect that occupancy will rebound fairly quickly, although it is not likely to reach pre-COVID levels for some time. Hospitals are performing more surgeries, boosting the demand for short-term rehab. People with health needs who no longer can be treated at home will require an institutional setting, supporting long-term occupancy. 

For the future, we see greater focus on project design, unit configuration and other means to minimize the spread of COVID. SNFs will need to shift toward more singles or doubles in their unit mix and new facilities may be built in a Pod configuration. There will also be greater need for technology and a more strategic operating approach for SNFs to best manage patient population post-COVID.


From a financing perspective, the pandemic’s effect on the senior housing and skilled nursing sectors has led to greater diligence and underwriting considerations used to evaluate transactions. As the world has become more complex, so has the financing scenario.

Here are some insights into how key COVID criteria could be viewed from a financing perspective:

  • Expect lower leverage. Global loan advance rates likely will decrease for most transactions, as lenders seek more stable cash flows and established operators to support a facility. It’s important to demonstrate experience and the financial wherewithal to support a portfolio’s capital needs, especially in a turnaround or ramp-up scenario. Operators likely should expect enhanced lender due diligence focused on global portfolio cashflow analysis, facility census trends and operating expenses.
  • Financial intermediaries and capital stack matter. Another strategy that many lenders are using to mitigate risk involves partnering with financial intermediaries to lower senior leverage positions. Banks also are partnering with B tranche lenders or mezzanine lenders on a short-term basis to gap any capital needs.
  • Guarantees and earn-outs may be involved. Some transactions, especially turnarounds, will require higher levels of initial personal recourse accompanied by loan earn-outs. With an earn-out structure, the sponsor places more equity up front at deal inception, and it gets released at a future date when the operator satisfies certain financial thresholds. The same concept applies to personal guaranty burndowns, wherein guarantees reduce over time as a facility achieves certain operating milestones. Pricing is based on the risk and leverage position as well as the strength of the operator.

Although COVID has altered the circumstances of senior housing and skilled nursing in the past year, it has not really changed the big picture for the sectors. These fundamental facts still hold true: Baby boomers continue to age and, generally, people are living longer. There might be short-term question marks, but there also remains a real need for assisted living communities and SNFs in the post-pandemic world ahead. 

Steven Caligor is executive vice president and division executive of the Structured Finance Group – CRE, Healthcare, Technology and Treasury Services at BHI, a full-service commercial bank and the U.S. division of Bank Hapoalim.

Tami Antebi is BHI first vice president and deputy head of healthcare.