Senior living and care today “is in many ways a study of paradox,” Aaron Becker, head of seniors housing and healthcare production at Lument, said Wednesday during a webinar sponsored by the commercial banking company.
Mixed dynamics are at play in the industry. On one hand, Becker noted, the fundamentals are strong. Inventory and growth are moderating, demand is strong and occupancy rates are increasing, he said, adding that demographics point to an increasing need.
Nonetheless, Becker said, on the senior living side, valuations are down approximately 10% to 15%, “and the flow of distressed property sitting in the market is increasing”
The skilled nursing market is a “mirror image,” he said, noting that “prices have held up for the most part, which is supported by a shortage of beds in the industry. And this is even despite rising labor costs and sharper regulatory scrutiny with this potential staffing mandate looming over the industry going forward.”
The availability of capital is fairly limited right now, according to panelist Michael Dodge, vice president of development at Continental Real Estate.
“So, even if we get some stability in the capital markets, the process for real estate development in general and senior living development is a time-consuming process that takes anywhere from — depending on the market you’re in and the type of site you have — 12 to 36 months just to kind of get a project ready to break ground, when you’re talking about approvals and planning and design.”
In terms of capital markets, panelist Beth Burnham Mace, special adviser to the National Investment Center for Seniors Housing & Care, said that the future depends on actions by the Federal Reserve going forward. The Fed funds rate is expected to ease next year, she said.
Mace, a 2020 inductee in the McKnight’s Women of Distinction Hall of Honor, noted that the Fed has raised interest rates 11 times since March 2022, and that has significantly affected capital markets and construction activity.
“My view is that there’s a possibility of a soft landing in 2024. I think we’re past the point of recession, unless there’s some significant outside exogenous risk that happens. And there’s, of course, a lot of risks going on in the economy,” Mace said. “They could include further disruption in the Middle East, the impact that could have, clearly, on additional war in the Middle East and oil prices.”
If a “soft landing” occurs, she said, “maybe you might even skirt right through without any significant huge economic crisis.”
Dodge said he doesn’t foresee much development happening until the second half of 2025, even if capital becomes more easily available, as it will take time for developers to relaunch projects and get them to the starting point.
Panelist Scharee Lee, vice president of provider relations at SanStone Health and Rehabilitation, said that rather than using the interest rates to drive business decisions, her organization “is focusing more on the things we have more control of” such as maximizing reimbursement for care provided to patients and residents.
