Although senior living rental rates have increased higher than expected, creativity in pushing care rates was an even bigger surprise as operators look for ways to recapture increased operating costs, according to a new rate report.
The Chicago-based senior housing data analytics company LivingPath measured annual rate increases for more than 100,000 senior living units — assisted living, independent living and memory care — for the first quarter.
“Seniors housing rates increased 8% to 10% based on unit type — above our expected range of 6% to 8%,” said LivingPath CEO and founder Jonathan Woodrow. “Beyond just base rates, operators are getting more creative to push care rates with traditional levels up an average of 5.7%, and med management up to an average of $556 per month for assisted living and $659 per month for memory care.”
Independent living one-bedroom units and memory care private units saw the strongest growth with rate increases, 9.1% and 9.8%, respectively. Assisted living shared and studio units both grew 8%, which was the smallest increase across the dataset.
The three drivers that determine the life or death of a building financially, Woodrow said, are census, rate and labor. The top 15% to 20% of operators have seen margins approach or return to pre-COVID levels, he added.
But operators also have an elevated floor on labor costs: minimum wage increased in 23 states, and lingering COVID-19 testing and personal protective equipment costs, which initially were modeled as one-time expenses in the capital markets, have not gone away.
Woodrow, who previously was part of the Welltower real estate investment trust team, said to look for operators’ continued rigor in analyzing and passing through increased labor costs and lingering personal protective equipment expenses.
“If you’re looking to solve for what you think is a healthy NOI [net operating income] market at the operator and capital partner level, you need to find a way to push rates — both asking and in-place,” he said.
Capturing actual services delivered
Along with higher rental rates, care rates are increasing. Woodrow said that for the first time, he’s seeing much restructuring of care packages and different resident reassessment strategies. Additionally, he said, he is seeing several operators layering in 10 to 12 different care levels and actively reassessing care to be able to appropriately charge for those services.
Part of that restructuring of care rates can be attributed to an “acuity creep” that started early in the pandemic. Average care needs in assisted living and memory care have increased, he said, and that increase is reflected in the cost and rate structures.
Care rates in assisted living and memory care are increasing 5.6% and 5.8%, respectively. Assisted living medication management rates are up 6.7%.
Woodrow said that many operators are using bundling and stratification, as well as creativity, on the care fee side as they try to match rates strategically to accompany increases in labor costs. Capital partners also are interested in those numbers, he added, and high-level feedback is that those fee structure changes are encouraging.
The pandemic, Woodrow said, has operators dealing with a more price-insensitive and care-sensitive consumer.
“Oftentimes at the top of the market, operators are competing on clinical value,” he said, adding that clients have told him that prospective residents will go elsewhere if they believe the quality of care they seek isn’t being offered.
The next step for LifePath, Woodrow said, will be to stratify its national data sets to include directional benchmarking, placing rate and occupancy positioning into perspective relative to the broader submarkets and updated state data sets, as well as national benchmarking.
