The U.S. federal government has passed an unprecedented $5.3 trillion in stimulus packages in an effort to help the economy recover from the COVID-19 pandemic. In the short term, these efforts appear to be helping the commercial real estate industry recover, noted an analysis Monday in the industry trade publication Commercial Property Executive. Yet some economists are raising concerns about the toll these “go-big” spending packages may have long-term, including within the senior housing industry.
“Rapid growth from stimulus-fueled consumer spending creates concerns about an exploding federal deficit, a rapid increase in inflation, and rising Treasury rates,” wrote Paul Fiorilla, author of the analysis and director of research for Yardi Matrix, a commercial real estate services and data firm based in Goleta, CA. “Such conditions could produce an increase in the cost of capital, and potential for lower returns and distressed debt in commercial real estate.
Fiorilla noted that commercial real estate stands to benefit from the relief bills — at least in the short term, as consumer spending is forecast to jump from the combination of direct stimulus and tax cuts. This increase in spending could be a boost for several property segments, including senior living.
“While there does not appear to be specific allocations to senior housing in the $5 trillion of relief passed to date, the industry should benefit indirectly from the resulting boost to the economy and household balance sheets,” Fiorilla told the McKnight’s Business Daily. Provisions of the stimulus bills passed that indirectly benefit senior housing, he added, include funding for vaccine implementation and COVID-19 testing, aid to businesses such as senior living operators that offsets higher expenses and lost revenue due to COVID-19, the approximately $50 billion of renter assistance combined in the last two bills, direct payments to individuals, enhanced unemployment aid, aid to state and local government, and expanded child tax credits.
“The relief bills should help the country get back to normal as soon as possible and ensure that people have money to pay rent and buy consumer goods,” he said. Still, some economists worry that all this government spending will force Treasury rates to rapidly increase and make debt more expensive to access.
“That would erode property values and present a dilemma for properties with maturing low-rate mortgages,” Fiorilla wrote. “With property owners facing increasing expenses such as taxes and capital expenditures to make buildings energy efficient and safer, increased mortgage rates could be a straw-that-breaks-the-camel’s-back issue.”
Fiorilla offered hope for the long-term care industry, however, particularly around funding for affordable housing for seniors.
“We do expect that the senior housing industry will get a more direct benefit from the rumored $3 trillion infrastructure package that will be announced later this week,” he said. “All indications are that the infrastructure bill will finance investments in badly needed affordable housing stock, including long-term senior care facilities.”