Why 95% Assisted Living Occupancy Doesn’t Make You a Hero

The senior housing industry has become increasingly data driven, but metrics like occupancy statistics and new construction starts can’t always be taken at face value—they might paint a rosier or bleaker picture than what is actually happening in a given market.

That’s according to a pair of experts who spoke Tuesday at the National Investment Center for Seniors Housing & Care (NIC) 2017 Fall Conference in Chicago.

This is not to say that data is unimportant. Without it, senior housing investors and providers are likely to overestimate how special their properties are compared with competitors’, said Larry Rouvelas, principal at Falls Church, Virginia-based senior housing market analytics firm Senior Housing Analytics.

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“I’ve heard a lot of theories about why people’s ‘children’ are above average,” Rouvelas explained.

So, having data is crucial, so that hunches and good feelings aren’t driving decision making. On the other hand, data has limitations, and it needs to be put into context.

No magic bullet

While it may seem as though senior housing providers can count on certain metrics to accurately predict lease-up speeds, that doesn’t usually end up being the case, according to Rouvelas.

“There is a not a single variable— besides project size—that would prove to me why you’ll be faster or slower,” he said.

A particular market’s density, for instance, has a “minimal” effect on eventual lease-up speed, as does whether a market is child-heavy or senior-heavy, Rouvelas explained.

Additionally, it’s important for providers to stay realistic about what’s actually a great occupancy to achieve.

“Fifty percent of assisted living properties are at 95% or above in their third year of lease-up,” Rouvelas said. “So you’re not a hero for having done that.”

Still, approximately 25% of independent living and memory care projects without other competition opening nearby remained below 85% and 86% occupancy, respectively, three years after they’ve opened.

Sobering statistics

Despite the amount of new supply entering the senior housing industry, plenty of units remain vacant, Rouvelas explained.

About 18,000 memory care units are currently vacant, for example, while 11,000 are under construction.

“That’s $3.6 billion of capital that’s getting a zero percent return,” Kurt Read, principal at Dallas-based real estate private equity firm RSF Partners, said during the NIC session. “It’s a sobering fact.”

Similarly, there are 21,000 assisted living units under construction, despite the fact that there are currently 46,000 assisted living units unoccupied. In independent living, there are 36,000 empty units and 18,000 under construction.

“That’s $7.2 billion of idle capital in the industry,” Rouvelas said.

It’s important to remember that the introduction of even a a small number of memory care units into a given market can leave a big mark and skew statistics overall, Read said.

There are more than 40,000 multifamily units under construction right now in Dallas, for instance—but the city has seen just over 2,000 memory care units built during the past 5 years. The addition of just one 30-unit memory care building would tip the scale significantly.

“Our industry is tiny,” Read concluded.

Written by Mary Kate Nelson

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