The Top 10 Senior Housing Trends for 2017

The new year may have begun on Jan. 1, but in some ways it feels like it only started on Friday, with the inauguration of President Donald Trump. Now, months of speculation will give way to a period of actual activity, and consequences.

Not every senior housing trend will be driven by Trump, but the new administration’s impact on the economy, the health care system and other areas will be a big part of the story in the coming year. But while operators, owners and others will be reacting to possibly dramatic changes in the early days of the Trump era, some senior living issues that have been top of mind for years show no signs of abating.

Predicting the future may seem like even more of a gamble this year than it has in others, but here are some of the top trends to keep an eye on in 2017.

Trump policy: Welcome to the unknown

With Donald Trump now officially sworn in as the 45th President of the United States, senior housing professionals will be closely watching what happens on a number of fronts.

The list of possible changes with the new administration seems to be growing daily, with the industry having its eyes on deregulation, tax reform, infrastructure spending, immigration policy, changes to the Affordable Care Act and inflation—to name a few. Inflation will be one of the more important Trump factors affecting the industry, as it will touch the expense side of the ledger quickly with wages and operating costs such as energy and consumable goods rising. With ever-growing wage pressures in the industry, expect the trend of inflation to lag closely behind the increases in labor costs.

On the flip side, if Trump’s proposed tax cuts are enacted, they should provide some positive effect to the overall economy in late 2017 and into 2018. If some of Trump’s infrastructure proposals go into effect, that will put pressure on government budget deficits and the Treasury will have to borrow and push rates higher.

Legislatively, while major health care changes appear to be in the cards, there’s little on the slate that would have a direct impact on senior housing, noted John Chang, vice president of research services for Institutional Property Advisors (IPA).

There’s no doubt the Trump effect will impact the senior housing industry in 2017 and the first year of his presidency will have a lasting effect.

Outsourcing and the rise of the mega-vendor

As resources such as time and personnel become more scarce, operators and providers will look to increase their reliance on outsourcing various services. Small- and medium-size operators stand to gain the most from outsourcing so that they can recoup management time to focus on core competencies.

Operators that can tap into a vendor’s broader knowledge base that can achieve economies of scale stand to achieve better results and return on investment within their communities.

Some firms, sensing an opportunity, are beginning to position themselves as one-stop shops for ancillary services such as marketing, dining, maintenance and laundry services to senior housing operators. These mega-vendors offer a compelling business case that enables operators to manage one relationship that encompasses a variety of services; they will continue to grow rapidly to serve small communities and regional footprints of national operators.

Two such vendors on the leading edge of this trend are food services and facility management firm Sodexo and salon/spa provider PS Lifestyle, which began offering services under a single contract in 2015.

“There’s much more room under this tent for other beneficial amenity services,” PS Lifestyle CEO John Polatz told SHN at the time. “This is the beginning of a conversation for the industry.”

A new era for interest rates

Things are looking “up” for 2017 in many respects, especially for interest rates and inflation.

With the Federal Reserve Board’s most recent move and its forecast for future rate increases in the near term, senior living developers and operators can expect their borrowing costs to rise this year with a stronger tendency for higher rates at the longer end of the yield curve. This forecast will spur a flurry of financing discussion and activity if owners and operators haven’t already locked down longer-term financing.

The good old days of cheap financing may finally be starting to look further away in the rearview mirror, and the new environment may—or may not—prove challenging to senior housing real estate investment trusts (REITs), in particular.

While rising rates are not great for the senior housing financing landscape, this new environment will provide an increased barrier to entry for new participants coming into the industry, as the cost of capital will go up for everyone. This may “tap the brakes” on overdevelopment, IPA’s Executive Director Mark Myers told Senior Housing News in December.

This increase in rates will put some downward pressure on the lofty purchase prices for assets and various lease buyouts over the next 12 months, and restructurings should trend downward. With rates and inflation possibly on the rise, the industry will be frantically looking at the escalators in their leases and agreements to make sure they’re covered.

Oversupply is real

Senior living ribbon-cutting ceremonies are occasions for celebration—unless you’re watching from the down the block, with your heart sinking as a new competitor opens its doors.

That sinking feeling has become all too familiar for some of the nation’s largest providers, with long-anticipated new supply hitting Brookdale Senior Living (NYSE: BKD) and Five Star Senior Living (Nasdaq: FVE) hard in the second half of 2016.

“Unprecedented” new competition in some of its markets took a big bite out of Brookdale’s performance in the third quarter of 2016. And CEO Andy Smith anticipates that the pressure will continue for another two or three quarters, making this one of the biggest challenges for the nation’s largest operator going into 2017.

For Brookdale and other well-established providers protecting their turf, the need to compete with new supply could affect everything from rents to marketing budgets and wages in the coming year. Developers looking to build, or buyers on the hunt for good opportunities, will feel even more pressure to judge the supply-demand forces in a given market.

“Secondary markets”—such as Charlotte, North Carolina; Fort Myers, Florida; and Austin, Texas—are raising alerts for their high levels of construction, but big cities are not immune. Keep an eye on Atlanta, Dallas, Houston, and Minneapolis. All have a lot of units under development and decreases in overall occupancy between 2015 and 2016, according to data from the National Investment Center for Seniors Housing and Care (NIC).

Tough pricing choices

Getting rents right will be even more of a balancing act than usual in 2017.

On the one hand, steady improvements in the economy have increased consumers’ purchasing power, leading some to predict that higher senior housing prices will be sustainable in the coming year.

On the other hand, there’s the increasing pressure from new supply.

After starting 2016 with “aggressive rate increases,” Brookdale moved back to discounted rates as new competition ramped up. Capital Senior Living (NYSE: CSU) also discounted to counteract an unusually high level of move-outs in the third quarter, although CEO Larry Cohen says the attrition was not due to new competition, and that the company is looking to build rate growth moving forward.

Owners are sensitive to pricing, as well. Eric Mendelsohn, CEO of the REIT National Health Investors (NYSE: NHI), thinks 2% to 3% rent escalators on stabilized properties in highly competitive markets might become more common, rather than the standard 3% to 4%.

Meanwhile, there’s a steady drumbeat within the industry to cease discounting altogether and increase pricing transparency, to meet consumer expectations.

Recruitment wars

Current and prospective residents won’t be the only ones snapped up by the new competition in 2017. Executive directors and other workers already are being courted.

Expect the battle for top talent to be brutal and costly, given that labor markets already are tightening and higher minimum wages are taking effect in states and localities around the nation.

Sign-on and referral bonuses—already common—will ratchet up. Temporary workers may be a needed crutch to fill sudden vacancies when workers defect to the shiny new building that just opened.

Providers will try to put together attractive benefits packages, but that will be hard given the need to control costs. High-deductible health plans will become more common, and wellness programs and other initiatives to prevent expenses will increase.

Likely but not a sure bet: Operators will breathe a sigh of relief when Trump’s Labor Department stops fighting the controversial expansion of overtime pay.

With the need for workers only going to increase in the coming years, forward-thinking providers will keep looking for creative ways to fill workforce gaps.

Skilled nursing in retreat

Skilled nursing headwinds have developed into a perfect storm.

High labor costs, reimbursement pressures and loss of census to home health and other settings are just three of the challenges that will continue to beset SNFs.

Already, some major providers have judged the climate to be too inhospitable: 2017 will see one-time skilled nursing giant Kindred Healthcare (NYSE: KND) cease owning and operating its last SNF, if all goes according to plan.

It seemed that REITs couldn’t shed their SNF assets fast enough in 2016, and this should continue into 2017 and beyond. The asset class might be retreating firmly into the hands of private owners who are willing to weather the bad times in hope of a brighter future.

One source of hope for 2017 is incoming Health and Human Services Secretary Tom Price. He’s made some serious noise about ending bundled payment programs that could be causing patients to bypass SNFs, and the industry’s largest trade association expects him to spearhead other favorable policies.

Data for days

Tech has been a buzzword over the last several years, as senior living organizations have invested in infrastructure to support the latest and greatest in shiny new devices to improve the lifestyles of residents and staff alike.

But now that most operators have made the shift to the 21st Century, complete with Wi-Fi to support their technology endeavors, there comes the real magic of this important shift.

Today, the organizations on the forefront of technology are watching their investment pay off in spades. That’s because they now have measurable data to help inform their decisions regarding resident wellness, sales and marketing, operations and even community expansion.

Take, for example, the electronic health record.

More commonly found in skilled nursing settings in the past, the EHR is appearing more often today in senior living organizations. By offering a consistent system to track resident health and wellness, the EHR is a one-stop shop for resident data. It saves time for staff who may otherwise track this information via pen and paper, and it reduces error. Cutting-edge providers are utilizing EHRs to benchmark residents when they move in, and to show their health condition through accurate documentation. It helps residents see their progress over time, and it also helps inform discussions with family members when a resident requires a new service, or a move to a higher level of care.

But data collection and analysis also spans operations. Providers are utilizing staffing software to provide the appropriate number of employees and shifts; they’re using sales management tools to track leads and follow up; they’re honing in on revenue management; and more. All of these metrics are working to help senior living providers become more efficient, and to provide better care in an optimum way.

Are residents satisfied? Providers can poll them through a third party survey company. Or, they can simply ask them—in real-time via tech-enabled kiosks.

Measurement of all aspects of senior living is becoming paramount in today’s competitive environment.

The independent living comeback

If 2015 was the year of assisted living, and last year was the year of memory care, then this year will mark the comeback of independent living.

Following the recession, move-ins to independent living retreated relative to move-ins across property types geared more toward higher acuity needs. While residents and their families could not put off a move into assisted living or memory care, they could justify waiting a few more years for a move to independent living.

Fast forward to 2017—to a time of full employment, all-time stock market highs and a historic economic recovery (despite political uncertainty pending the reign of the incoming President Trump). No longer are 70-somethings cash strapped and delaying a move; rather the first of the baby boomers to seek senior housing are now looking to independent living and full-spectrum CCRCs as a place to downsize or otherwise relocate.

Independent living occupancy reached a nearly seven-year high to close out 2016, according to the most recent data from NIC. Previously, NIC reported that nearly 2,500 units of independent living were absorbed on a net basis in the third quarter of 2016, even amid strong inventory growth. That’s the highest absorption rate in a single quarter since NIC began collecting data in 2006.

A new service around every corner

As senior living residents become more choosy, which foreshadows the baby boomers that will move into senior living in the coming decades, providers are realizing they can offer more to that same set of residents.

While the standard dining, activities, fitness centers and transportation will continue to be commonplace among senior living offerings, especially in higher acuity settings, providers are honing in on other services to improve the resident experience—and the bottom line.

Some are expanding services by partnering with other providers expert in areas such as rehabilitation or home health care. Others are beginning to provide these services in-house as a way to add business channels and offset potential dips in occupancy (think hair salons, on-site physicians’ practices and wellness centers).

In some cases, these services are available to residents and those people who live outside the community, opening the doors of the community to paying customers and serving as a possible referral point to those who may be considering a future move to senior living.

But as payment structures come into the spotlight in light of a new administration, successful providers will have to consider how to get a piece of the services pie—not just as a nice-to-have, but as a need-to-have in remaining competitive and proving senior living’s place in the health care landscape.

Written by George Yedinak, Elizabeth Ecker and Tim Mullaney

Photo source: ‘Donald Trump‘ by Gage Skidmore, CC BY-SA 2.0