What Senior Housing Providers Get Wrong About Market Studies

As the senior housing industry struggles to adapt to declining occupancy rates and staff availability, investing in quality market analyses is a crucial step before breaking ground. As new industry trends emerge, new areas of the market need to be monitored by senior housing owners and operators.

These new market feasibility indicators include seniors’ individual net worth and labor market status, industry experts said at the recent Senior Housing News Summit in Chicago.

Spotting red flags

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The inability of older adult populations to afford some of the higher-end communities being built was one topic on the agenda, and the reason often boils down to hidden factors that historically have not been included in market studies, according to Jamie Timoteo, vice president at Plante Moran Living Forward, the senior living development consulting division of the nation’s 14th largest certified public accounting and business advisory firm.

Studies used to look at the percentage of seniors in a market area that own homes which they could sell and use the equity to pay for senior housing. However, it’s important to also look at how many of these seniors still carry a mortgage, Timoteo pointed out.

“We need to add net worth into these analyses,” Timoteo said. “Then, we should make sure that there is a big gap between net worth and home equity value. If there is a small gap, that means that every piece of that senior’s asset value is held in their home, which could be a potential red flag.”

Another big concern is the declining health of the labor market, which in some areas has been dire enough to cause senior housing facilities to turn away potential residents because they do not have enough staff to provide needed services, said Lana Peck, senior principal at the National Investment Center for Seniors Housing & Care (NIC).

The result is that owners and operators are looking more closely at the state of the labor market in potential growth areas.

“Staffing has been the number one challenge for our company and we’re finding that other owners and operators have the exact same problem,” said Diane Kenney, vice president of sales and marketing at Minnesota-based senior living provider Ecumen. “So we’re adding that into the analysis we do before opening a community now.”

Digging into the data

With complications like occupancy and labor concerns taking a toll on the senior housing industry, it’s more important than ever for owners and operators to carefully read and understand market studies, said Dana Wollschlager, principal at Plante Moran Living Forward and moderator of the panel.

“It’s alarming to me how much developers, owners, operators and underwriters balk at the cost of a market study,” said Wollschlager. “You’re going to invest $40,000,000 in a project, but you’re not interested in spending $11,000 on a market study? This is possibly the most important part of your due diligence. We need to do a better job in analyzing these markets to make sure that we get it right.”

There have been nearly 29,000 units of added inventory among primary and secondary markets in the past year. One third of the growth occurred in seven metro areas, which were Dallas, Minneapolis, Chicago, Houston, New York and Boston, said Peck.

Dallas and Minneapolis alone accounted for 14% of all senior housing inventory growth nationally, however growth outpaced demand in Minneapolis, where occupancy ultimately deteriorated over the past year.

The increase in upscale senior living properties has also showed signs of being unsustainable.

“The market can only support so many of these really high-end projects,” said Kurt Apfelbacher, senior vice president at Dougherty Financial, a Minneapolis-based financial services organization. “We’re getting more and more involved with affordable sites. Right now with the construction pricing getting out of reach, we’ll say, ‘maybe we don’t need a high-end project here, maybe we can scale it back.’”

Current negative dynamics of the market in terms of supply and demand may have a silver lining for the senior housing industry, said Wollschlager.

“The upside to all of this product coming into the market place and less sophisticated owners and operators, like hotel folks, that think they can come in and run senior living, is that there’s going to be a significant opportunity to pick up properties in the very near future for pennies on the dollar,” said Wollschlager. “It’s a result of those that didn’t do their due diligence and don’t understand that this is not a real estate play, but in fact a health care business wrapped in a real estate bow.”

Written by Elizabeth Jakaitis

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