Fall 2021 Senior Housing Outlook: Operating Perils Loom But Providers See Stability, Growth Ahead

Heading into the final three months of 2021, senior living providers, investors and developers face multiple perils. Occupancy gains have slowed in recent weeks while a labor crisis is worsening, and supply chain disruption continues to drive up construction costs.

However, compared to where the industry was a year ago, the view in 2021 appears somewhat brighter. At this time in 2020, many leaders were still watching Covid-19 case counts climb with trepidation and without the reassurance of safe and effective vaccines. Now, although the industry is still far from out of the woods, infection rates in senior living have remained relatively low, and while census gains are slowing for some companies, the fact that they are still gaining ground gives them confidence that the industry will not replay the events of late 2020.

Overall, senior living executives are optimistic that more stable market conditions will soon prevail, and that their efforts this year will put them in a position to succeed in 2022. But in the immediate future, they are focused on rebuilding occupancy, responding to intense labor pressures and seizing opportunities for investment and portfolio expansion.

Demand and occupancy

Earlier this year in the spring, many operators breathed a sigh of relief as vaccination rates rose among residents and pent-up demand flowed into the industry. Then came the delta variant, which slowed some of that forward momentum.

That’s not to say that the coronavirus variant has completely frozen demand for senior living providers. A Sept. 16 executive insight survey from NIC shows that senior living companies are still reporting increases in the pace of move-ins in the past 30-days.

For organizations with independent living, 30% reported that the pace of move-ins increased between Aug. 9 and Sept. 6, according to the survey. For assisted living providers, that number was 38%; and for memory care operators, 37%.

The effect of the delta variant on move-ins and demand can also be seen in occupancy trends at the nation’s largest senior living operator, Brookdale Senior Living (NYSE: BKD). Brookdale logged a weighted average occupancy of 72.5% in August, and 73.7% at the end of that month. The operator added 50 basis points of occupancy from July to August, marking its sixth consecutive month of occupancy gains.

But occupancy growth appeared to be slowing in states and markets where the delta variant was spreading the fastest, according to the Brentwood, Tennessee-based company.

While demand has decreased thanks to the delta coronavirus variant, an industrywide hit to occupancy is not a foregone conclusion, according to National Investment Center for Seniors Housing & Care (NIC) Chief Economist Beth Mace.

“Whether or not this will translate into weaker occupancy, or what impact that might have at all in occupancy, we will have to wait to see,” Mace said during a recent webinar for attendees of the upcoming 2021 NIC Fall Conference in Houston.

Benchmark CEO Tom Grape believes his company is on good footing heading into the final stretch of 2021 after notching five straight months of growth. He also points to the fact that the company was an early adopter of mandating the Covid-19 vaccine, and that the operator isn’t seeing many new cases of Covid-19 these days.

Occupancy for the operator is currently between 80% and 90% and rising, said Grape in September.

“That hopefully means we will continue to grow our occupancy and get back to focusing on more business as usual in terms of growth and initiatives,” he told Senior Housing News. “So, I’m reasonably optimistic about the coming months.”

Another senior living leader more optimistic about the road ahead is Greg Roderick, CEO of Portland, Oregon-based Frontier Management, which operates 136 communities. The company’s portfolio-wide census has hit the 70% mark, which Roderick said is “huge” given the pandemic and all of its pressures.

Looking ahead, Roderick believes that a full recovery to pre-pandemic occupancy is at least eight to 12 months out.

“The recovery is right ahead of us,” Roderick said. “We’re seeing steady week-over-week growth in occupancy.”

But in the meantime, he also sees Frontier and other companies performing better as they adapt to the current challenging environment. And that gives him confidence that the coming months will bring not only tests but also valuable business lessons and even some opportunities.

“Though it’s still very hard, we are coming through this and we’re going to come out of it,” Roderick said. “We just have to get more accustomed to where we are today and how to navigate through it.”

Leaders of other companies see a similar road ahead. Jeff Fischer, president of Irvine, California-based MBK Senior Living, believes that pent-up demand has crested. While the operator is still seeing solid growth across its portfolio, it is not as robust as it was over the summer.

But Fischer believes that MBK can continue to recover from the pandemic in the weeks and months ahead with “back to basic blocking and tackling” in sales, operations and care.

“I still think there are customers really seeking us out,” Fischer said. “We just have to make sure we’re there at the forefront.”

For Commonwealth Senior Living, conditions are better now than they were this time one year ago, thanks in part to effective and safe vaccines for Covid-19, and that mandates are taking hold across the country. The operator has added about 4.5% in occupancy since March and has gone six consecutive months of logging more than 100 move-ins — both notable achievements for the Charlottesville, Virginia-based operator, according to CEO Earl Parker.

“Last fall … we were nervous, and we had a right to be nervous. The biggest impact in the industry really was December through February,” Parker told SHN. “Going into this fall, and knowing what we went through last fall … I feel much more optimistic.”

The chief executive of Sinceri Senior Living — the Vancouver, Washington-based provider formerly known as JEA Senior Living — is also optimistic about recovery. The company’s occupancy rate is currently in the low 80s and gaining ground at its 38 communities across the U.S., said CEO Chris Belford.

“I feel strongly about senior housing going forward, and that we will recover,” Belford told Senior Housing News.

Staffing remains scary

Although staffing has always been a top industry challenge, the pandemic has kicked those challenges into overdrive, and this is likely to remain the case for the foreseeable future.

Some in the industry had pinned their hopes on an end to enhanced unemployment benefits for potential workers, but there is little evidence that made an impact in the 26 states that withdrew pandemic-era support for jobless people in June or July. At the same time, providers have other mounting concerns over staff trauma and burnout related to Covid-19.

This tough labor market is leading to rising expenses, and that is clashing with relatively weaker rent growth among operators this year, according to Mace.

“As a result, you’re going to have margins that are being squeezed, and that’s going to be more of a challenging environment for operators,” Mace said during the webinar.

A recent survey from the American Health Care Association and National Center for Assisted Living (AHCA/NCAL) found that 77% of assisted living providers said their overall workforce situation has gotten “much worse” or “somewhat worse” since June.

The survey also found:

— 52% of operators said they are facing “moderate-level staffing shortages,” while another 30% said their staffing shortages were high-level

— 42% of operators were “somewhat concerned” that workforce challenges might force them to close down, and another 19% said they were “very concerned” about that outcome

— All of the respondents said they were having a “very difficult” (64%) or “somewhat difficult” (34%) time hiring new workers

Charles Turner has a particular understanding of labor challenges. Turner is CEO of Kare, a senior living staffing app that connects senior housing and care communities with workers who need shifts. From his point of view, there are many caregivers who want to stay in this line of work despite recent challenges — and it’s up to operators to reach them with better benefits or wages or a better company culture.

“Our frontline caregivers want to be in this industry, they just want to be paid more to do it,” Turner said during a recent presentation at the 2021 Argentum Senior Living Executive Conference & Expo in Phoenix.

Pay is indeed a top motivator for senior living workers seeking a permanent role in a community, and also the biggest reason why they might choose to quit, according to a recent survey that tracked responses from 227 caregivers and 164 managers who work with Kare.

Like most other senior living operators, Benchmark is grappling with staffing at its 63 owned and operated communities. And in that arena, CEO Grape believes there is more progress to be made.

“I don’t think there’s going to be an easing up with the labor challenges for a while,” he said. “And as we all know, there’s also an incoming caregiver shortage for the next several decades.”

But Grape also believes these are hurdles the industry can vault over with effort. Benchmark is confronting those challenges by overhauling compensation for workers, offering career development and giving them more flexible schedules.

At Frontier, Roderick believes that the “new normal” of staffing is one where operators must provide “higher wages; better benefits; and a far better work environment, from a more beautiful lounge to a far more comfortable uniform to more recognition and a wider variety of bonuses.”

One particular challenge that Roderick sees is how often providers must rely on staffing agencies, which are only getting more expensive to use as the labor crisis drags on.

“If you’re paying $15 to $18 an hour and you need someone from an agency, you might be paying north of $35, $45, $55 an hour through agencies,” Roderick told SHN.

Another challenge is the fact that global supply chains are currently strained, driving up the price of things like building materials, utilities and food. That, in turn, is increasing the need for operators such as Frontier to keep up with their expenses by raising rates.

“We all have to look at this with an eyes-wide-open attitude that costs are increasing, and therefore rental rates are going to be pressured,” Roderick said.

Pace of M&A

When the pandemic arrived in 2020, dealmaking significantly slowed down across the industry as capital froze up. In the quarters since, activity has ramped up— and there are signs it could increase further in the months ahead.

“My anticipation is that you’ll start to see an acceleration of transaction volumes as we go through the remainder of this year and into next year, largely because there’s a little bit less uncertainty,” Mace said. “There’s a lot of capital on the sidelines.”

Mace also believes sellers who held off earlier this year to get a better price could market more communities for sale.

Brokers in recent weeks indicated that the year could conclude with a surge in transaction activity, according to Michelle Kelly, senior vice president of investments at Murfreesboro, Tennessee-based NHI.

“They’re expecting a very big fourth quarter,” Kelly said during an Argentum panel in mid-September. “They like to be very positive, so we’ll see if it all transpires, but I think we’re going to see a lot more activity now.”

That is a sentiment shared by Ray Oborn, vice president of asset management at ​​American Healthcare Investors (AHI).

“There will be lots of activity still in the space, especially with the low cost of capital,” he said in September.

Even before Covid-19, investors described a shortage of high-quality operators for investors and owners to partner with. But for senior living companies that can execute on their plans in this uncertain environment, there are rewards for the taking and opportunities to be had, according to Mace.

Indeed, mid-size operators have taken on scale through transactions announced in recent weeks. And there are further opportunities to seize, with Sinceri being one operator that has bold intentions to expand before the year draws to a close: The operator and its sponsor, Access Industries, have an ambitious plan to grow to as many as 80 communities by the year’s end through a mixture of acquisitions and bringing on new management opportunities.

And Sinceri almost surely will not be the only provider to execute on deals in the last months of 2021.

“There is a lot of money swishing around out there looking to invest in strong operators, looking to invest in even single-property operators that are trying to grow,” Mace said.