Construction of both memory care and assisted living campuses has bounced back following the recession, but potential competition between the two has some industry leaders skeptical of supply-demand stability.
Sabra Health Care REIT (Nasdaq: SBRA) Chairman and CEO Rick Matros is bullish on standalone memory care, but believes a boom could undermine assisted living occupancy. Imran Javaid, managing director of health care real estate for Capital One Bank, on the other hand, is less keen on standalone memory care and still believes it is advantageous to have a continuum of care to protect margins.
Memory care facilities have seen the highest development rate since the recession, with units under construction exceeding existing inventory by 9% during the second quarter of 2015, according to data shared in August by the National Investment Center for Seniors Housing and Care (NIC).
And while memory care is the smallest sector within the senior housing market, more units could draw occupants from assisted living toward memory care, Matros said Thursday at the NIC National Conference in the Washington, D.C. area.
“The memory care development that’s occurring is going to have a huge impact on assisted living,” Matros said. “While people may think that supply and demand are okay in assisted living, as memory care units open and residents move to memory care…they’re not thinking about the effect that will occur.”
Residents with Alzheimer’s disease or other forms of dementia might currently be in assisted living, for example, Matros said. When standalone memory care units open up, he said, those in assisted living might gravitate to them to receive more specialized care, hindering the assisted living facility’s occupancy.
“Unlike the skilled nursing sector, in senior housing, if a new product is built the right way…that’s really going to endanger existing assets,” Matros said. “Overbuilding might not result in the failure of new products, but it might affect old products.”
For Capital One’s Javaid, investing in properties that combine several senior living services tends to produce consistent results, for the most part, he said.
“Standalone memory care makes me a little nervous, mostly because of the number of units,” Javaid said. “I think independent living, assisted living and memory care together on a single campus is great from a consumer perspective.”
Given that memory care facilities typically have fewer units than the likes of continuing care retirement communities or independent living/assisted living campuses, Javaid said shifts in occupancy have a more dramatic affect on margins.
“The thing that makes me nervous with a small unit size is that you can have one or two people go, and all of a sudden, your margin went from 30% to 15%,” Javaid said. “I just don’t necessarily like having those on a standalone basis.”
Despite uncertainty around where demand is headed with regard to some of these particular types of assets, Matros said senior housing oversupply is of little concern from a more general economic standpoint, especially when considering where the industry is today as compared to where it was when the last economic downturn occurred.
“If we overdevelop, we’re fine, because the industry is in a different place in terms of acuity level,” he said. “Assisted living is more needs-based now. So is memory care. Independent living still isn’t needs-based, but it’s becoming more, so that independent living operators have home health agencies providing care services. A more needs-based business makes it more recession-proof.”
Written by Kourtney Liepelt
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