The end of the coronavirus continues to be difficult to predict, but in the meantime, operators, investors and lenders can take contingency planning steps to address the myriad paths that may unfold, advised a recent National Investment Center for Seniors Housing & Care-sponsored blog.
NIC Chief Economist Beth Mace offered questions for investors, lenders and operators that help them create a worst-case scenario, encouraging them to ease up on the assumptions to identify the pandemic’s effect on the bottom line.
“Once there, better-informed decisions can be thoughtfully considered,” she said.
Investors, Mace said, should consider whether property valuations will be pressured to go lower, and if so, how will that affect investment returns? Borrowers must understand that capital providers will be looking for lower loan-to-values, stricter covenant agreements, and higher interest reserve requirements, though how much higher still remains to be determined. From a broker’s perspective, fewer deals likely will be happening in the short term, until distressed properties that require capital infusions and recapitalizations emerge.
For operators, occupancy shifts will be a key indicator to watch, Mace noted.
“If you are among the half of all properties that had an occupancy rate of 90% or greater as of the first quarter of 2020 by NIC MAP metrics, the challenge may be large but not impossible,” she said. “If you are among the 22% of properties with occupancy rates below 80% and in a market with generally low stabilized occupancy rates, the challenges may be greater.”