There’s no question that 2020 was one of the most challenging years in memory, particularly for senior living.
We started the year with lofty goals from a production standpoint, but COVID-19 quickly brought many challenges to owner/operators of senior living communities. This, coupled with changes in the capital markets, put many transactions on hold. The hardships for residents of senior living, their families and the staff members were real, but there also are some positive takeaways from the pandemic that contribute to the optimistic outlook for 2021 for the industry.
When the pandemic began, investors and lenders lacked confidence about what the future would hold, and they hit the pause button. But the attractiveness of senior living is still strong. Positive demographics are in place, and we’re seeing pent-up demand for assets such as independent living, and especially in assisted living and memory care.
Unexpected bright spots
One of the side effects of the pandemic was the new attention focused on combatting the isolation of many older adults who live alone without visits from family members, as some common amenities and activities were reduced to prevent spread of the virus. But even with social distancing, operators found ways to encourage safe socialization and a sense of community in senior living communities to support residents.
We’ve seen tremendous creativity with things such as virtual activities and visits and using social media to keep relationships strong with family members and within the community. As Plato famously noted, “Necessity is the mother of invention.”
Taking stock, and a necessary correction
Operators and developers have taken this time to figure out what they have, what they need and what the problems are before they take on new development and new risks. This experience has put greater emphasis on something that’s important whether there’s a pandemic or not: the importance of being extra careful to do your market due diligence. Many operators want to be in a market where they can be successful leveraging their brand or their regional team, and this brought the emphasis on mitigating risk to a new level.
The COVID-19 vaccine will create confidence among existing residents and their families, staff members, prospective residents, owners, operators, developers and capital market providers, including participants such as Fannie Mae and Freddie Mac. When the uncertainty is taken away, we’ll start to see more momentum and an opening when people start to look to acquire sites for new development of seniors housing.
The vaccine will help operators provide increased safety for their team members and residents, normalize expenses and grow their occupancy. We expect this recovery to be slow, but steady, and affirm the strength of the senior living sector.
Lending lessons learned
Among the lessons we learned this year from a capital markets viewpoint is the importance of the partnership between us and our clients. When the coronavirus began to spread, our immediate reaction was to figure out how to support our clients, especially on the operating side.
We shared market intel from around the country and worked with operators and their partners to find the capital they needed and to move loans to different lenders, if necessary. We were proactive in our outreach and support, because we know that in any challenging situation people like to hear from their friends. It’s important to bring challenges and issues to the forefront sooner rather than later.
From a financial standpoint, during the past few months we’ve seen the capital markets opening back up. The liquidity is there now, and Fannie Mae and Freddie Mac have been extremely stable throughout the pandemic.
Relationship lenders who take a long-term approach to working with senior living operators have been consistent, too. There’s a separation between those lenders and some who are less committed to seniors housing, some of whom are taking a pause. Now we know who the players will be going forward, and we anticipate plenty of capital to be available in 2021, especially for long-term, reputable operators. There may be less capital available to unproven operators and investors who are new entrants to the space, but capital will be there for acquisitions and opportunities to take over distressed properties for stronger sponsors who have been able to weather the pandemic.
Despite the incredibly tough challenges our sector has faced this year, you’ll have seen capital put to work in 2020 with proven operators and strong financial sponsors. All told, lenders would rather deploy capital to work on the development side, because we know it will take 14 to 18 months to complete, and the demand is growing. We believe that with more certainty about the vaccine roll-out and the economic recovery, we’ll see more residents moving into seniors housing and independent living communities by 2022, when these projects deliver to the market.
Senior living still is an attractive space, one that can only get better as we show that we came out of the pandemic stronger than we were going into it.
Cary Tremper is managing director and head of the Seniors Housing Finance Capital Markets team at Greystone.
