Although demand is high for continuing care retirement / life plan communities, some headwinds may stall total pandemic recovery for the sector, according to the experts at Fitch Ratings.
“Decelerating real estate price growth and rising operating costs [are] among the most notable examples,” the finance and insurance company said in a press release issued in conjunction with a Thursday afternoon webinar.
“The biggest driver of the outlook change is our expectation for inflationary operating cost pressure to continue, at least for some period of time, during 2023,” Margaret Johnson, CFA, senior director and senior lead for senior living at Fitch, said during the webinar.
Johnson noted that older adults who buy into a CCRC typically sell their homes to make the transition.
Deceleration in real estate price growth is slowing. National home prices were 12.2% overvalued as of the third quarter of 2022, according to Fitch data. Home prices are expected to moderate further as mortgage interest rates rise.
Staffing shortages continue to drive operating cost pressures for CCRCs as well, “which is causing most [life plan communities] to have to pass through pretty considerable wage adjustments and, in some cases, bonus structures to recruit and retain staff, which is causing deterioration in operating margins,” Johnson said.
Two potential disruptors that could pause recovery are an unexpected surge in a highly contagious strand of coronavirus and heightened regulatory requirements, according to Gary Sokolow, a director in Fitch Ratings’ public finance healthcare group.
A surge in infectious disease, he said, could slow move-ins and counteract current strong demand.
“On a positive note, we are about halfway through the winter season and have yet to experience a surge as disruptive as omicron was last year,” he said.
Although most states have not added material new regulations in the past two years, the possibility still exists if a public health emergency necessitates action, Sokolow added.
Fitch Ratings expects the pace of mergers and acquisitions activity to continue in 2023. According to Sokolow, competitive pressures are driving smaller CCRCs to seek the resources of larger systems.
