Residential Real Estate Values Complicate Life Plan Communities’ Stable Outlook

Non-profit life plan communities can expect another year of stability in 2020, but there are some factors that could complicate the landscape in the future.

That’s according to a new report from Fitch Ratings, which on Wednesday released its annual outlook for U.S. not-for-profit life plan communities. As in previous years, those communities should expect a “stable” operational outlook for the next 12 months, according to Fitch.

Many of the factors that have contributed to past tailwinds for non-profit life plan communities, such as favorable demographic trends, healthy residential real estate markets and capital market access, are expected to continue through 2020, the Fitch report noted. Not-for-profit life plan providers can expect to see stable independent living occupancy, with revenue and net entrance fee growth offsetting labor challenges and post-acute headwinds.


Similar trends have played out for other industry providers to varying degrees. Across the entire senior living sector, there is hope that rising demand coupled with a lower rate of new construction starts will help drive up occupancy in 2020. Average senior housing occupancy increased to 88%, up 30 basis points from the second quarter’s 87.7% rate, according to third-quarter data from the National Investment Center for Seniors Housing & Care (NIC).

There are some factors that cast a degree of uncertainty on the long-term outlook for non-profit life plan communities, however. One potential threat lies in residential home values, the growth of which has historically supported entrance fee price increases. But there are new signs that the residential real estate market may be starting to level off, according to Margaret Johnson, a director at Fitch Ratings.

“Most prospective life plan community residents need to sell a home in order to pay the entrance fee,” Johnson told Senior Housing News. “There needs to be a correlation between entrance fees and prevailing real estate values in a given market in order to maintain demand.”


A similar trend is playing out in the wider senior living space. An abundance of available homes in some major metro markets over the next two decades, driven by a potential lack of younger buyers for homes owned by older adults, could delay a wider influx into senior living.

Some not-for-profit life plan communities have increased entrance fees at a rate less than the growth in local real estate prices, according to Fitch Ratings Director Gary Sokolow.

“This provides a measure of pricing cushion as some markets flatten,” he told SHN.

That said, Johnson doesn’t believe that a flattening of real estate values poses an immediate threat to the not-for-profit life plan community sector.

“Rather, we believe it has the potential to affect a community’s flexibility to pass through entrance fee increases over time if real estate prices do not keep pace,” Johnson added.

Life plan communities may also face increased pressure to innovate with their marketing. More not-for-profit life plan communities are embracing digital marketing as a tool to stand out when reaching prospective residents and their loved ones. For example, some communities have started to divide marketing and sales, understanding that the digital tools are more a function of marketing than sales.

“The disparity we observe among communities is more in their level of sophistication with advanced digital strategies, such as social media or search functionality,” Johnson said. “It is there that we think we could potentially see a competitive gap emerge.”

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