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The economic recovery embraced by senior housing investors are year ago is still happening , but it has taken a “modest step back” in the face of increasing costs, inflation and interest rate hikes, Beth Mattson-Teig wrote Friday in a National Investment Center for Seniors Housing & Care blog. 

“There is a dichotomy at play. While operators and investors have confidence in improving fundamentals within the sector, the factors of high inflation, rising interest rates and staffing issues have produced formidable headwinds,” according to the writer.

Results from a recent survey from Wealth Management Real Estate and NIC show that high costs and other economic stressors are having an effect on near-term investment strategies. Long-term investing hasn’t felt the same pull back seen in near-term investing, she said.

“What I’m starting to hear is that a lot of the investors and capital providers are beginning to understand that this is a challenging time and that there might be compromised margins as a result for the next few years,” Beth Burnham Mace, NIC’s chief economist and director of outreach, told the writer.

Primary challenges for operators right now are related to costs and staffing, according to the blog. Mattson-Teig said that approximately 96% of WMRE / NIC survey respondents reported an increase in their expenses from March 2020 through June 2022. The typical respondent reported an estimated mean increase of 12%, compared with 9.1% in the 2021 survey, she noted.

“That is very significant, because that’s going to have an impact on the overall ability to maintain margins, and they’re largely not going to be able to offset the expense growth that they’re seeing by any kind of rent increase,” Mace said.

Staffing turnover is a significant challenge especially when it comes to front-line workers, with 80% of the poll participants reporting turnover within the past 12 months. Licensed practical nurse positions showed a turnover rate of 62.6% within one year, and managerial turnover was reported at 33.4%.

“Necessity is the mother of invention. So, we’re seeing our operators get more and more creative and involved in the hiring process,” S. Scott Stewart, founder and managing partner of Capitol Senior Housing, told Mattson-Teig.

The holdoff on short-term investing may be short-lived, however, with some seeing “plenty of capital and avid interest focused on the seniors housing sector,” according to Mattson-Teig.