‘Not One Singular Trend’: Inside Senior Living’s Uneven Pandemic Recovery

Recent occupancy and absorption trends show that recovery is underway in the senior living industry. But not all operators and communities are seeing the same kind of gains.

Some communities and property types have rebounded from pandemic lows faster than others, with variations in the same market or the same owner/operator portfolio.

Given all of the variables from one market to another, it is difficult to determine what exactly is fueling the recovery of some operators or communities while causing others to lag behind. According to a soon-to-be-published analysis from the National Investment Center for Seniors Housing & Care (NIC), market and product type occupancy recovery in the latter half of 2021 has primarily hinged on three big factors:


— how much net demand was lost due to the pandemic

— how much construction occurred during the pandemic

— current developments that are in the pipeline


Operator quality is also just as important as ever in the effort to regain occupancy, according to Lana Peck, Senior Principal at NIC.

“Occupancy was maintained in some properties and we know that occupancy declined in some properties pretty seriously,” Peck told Senior Housing News. “Operator ability was a big factor in that, as well as reputation.”

Other factors that have affected the rate of occupancy recovery for some communities and operators include property age, nonprofit status, consumer sentiment, market conditions and local employment rates.

Meanwhile, buyers and sellers are getting creative with new transactions during the recovery period; and properties are trading hands in valuations that might widely differ from one community to another in the same market — even just blocks apart from one another, according to JLL Managing Director and JLL Valuation Advisory Head of Alternative Real Estate Sectors Zach Bowyer

“The biggest trend that we’re seeing is that there’s not one singular trend,” Bowyer told SHN. “There really isn’t one narrative that fits the various markets throughout the U.S., or even the various property subtypes.”

They are also keenly aware that some operators have performed well despite the current pressures of Covid, according to James Graber, Managing Director for CBRE Valuation & Advisory Services.

“If a community is still flat [in occupancy] or with no positive net absorption, it’s not Covid, most likely,” Graber said. “Buyers and sellers now know that.”

Tracing the recovery

The third quarter of 2021 was one of growth for many senior living companies.

Overall, the senior living industry added 1.4% of average occupancy in the third quarter of 2021 as absorption greatly increased. As of the end of October, occupancy had gained another 60 basis points, registering at 80.7%, according to the latest NIC MAP Vision data.

In terms of 3Q occupancy, communities with independent living units led the way with an average occupancy rate of 83.9%, followed by communities with assisted living units at 77.7% and those with memory care units at 76.8%.

While communities with memory care units shed the most occupancy during the pandemic between 1Q20 and 2Q21, the product type also added the most occupancy between the second and third quarters of this year, according to NIC MAP Vision.

Peck, along with NIC Chief Economist Beth Mace, have recently spent time studying how occupancy differed across regions during the pandemic, with findings slated to be released in the coming days. In general, the middle Atlantic states had the highest occupancy in the third quarter of 2021 with 82.2%, followed by the Northeast at 81.8%. Q3 occupancy was weakest in the Southwest, which registered at 77.7% for the quarter.

Unsurprisingly, senior living operators that went into the pandemic with higher occupancy and kept it from falling too far during it have been the quickest to recover so far.

Among properties that reported a 95% occupancy rate in 2Q20, slightly less than one third reported the same occupancy rate in 2Q21, according to a NIC analysis from September.

Communities in the range of 10 to 17 years old also fared particularly well as it related to occupancy.

“These are properties that have been in operation for a pretty good period of time, certainly long enough to establish good neighborhood and market reputations,” Peck said. “Their operations are running smoothly and they were not old enough in terms of being obsolete in terms of age and amenities, so they had a bit going for them going into the pandemic.”

The fact that the senior living industry is in the midst of more muted inventory growth is also helping to drive recovery, particularly in areas where absorption has ticked up due to lower new communities opening. The inverse is also true, with communities in the traditional development hotbeds such as Dallas, Atlanta and Houston likely seeing slower recoveries due to those markets’ long-term fundamentals.

While the data paints a complex picture of pandemic recovery, some operators have not seen a wide disparity among the different kinds of units they manage. For example, occupancy has steadily recovered across all property types and regions for the 138 communities LCS and its management division, Life Care Services, owns or operates.

The operator had lost less than 400 basis points of occupancy in its life plan community portfolio and another another 400 basis points in its rental portfolio during its pandemic low point in October 2020. A little over a year later, both portfolios have each recovered about 200 basis points, exceeding the recovery the Des Moines, Iowa-based company had expected to realize in 2021, according to COO Chris Bird.

“We started seeing the move-ins in independent living rebounding right alongside assisted living and memory care,” Bird told SHN. “There’s not one sector that has outpaced the other.”

That said, LCS’ skilled nursing unit occupancy was flat in the third quarter as Covid-19 cases crept up nationally, Bird said, mirroring trends seen in the wider skilled nursing industry.

Bird attributes LCS’ relatively robust occupancy recovery in 2021 to several factors, chief among them the company’s flexibility in the face of adverse conditions. Thanks to the company’s digital marketing efforts, the company in 2021 is seeing web inquiries at a level higher than just before the pandemic in 2019. And LCS now has more visibility on its business thanks to an investment in its customer relationship management systems with Salesforce that it executed shortly before the pandemic arose.

“With our CRM, we’re able to really dial in to what’s happening on a weekly basis,” Bird said. “Some of the advances that we had with Salesforce and … on our websites are really helping drive our business.”

‘Not one singular trend’

LCS is not alone in posting positive occupancy gains; for instance, recent data from National Health Investors showed average occupancy in its 42-property Bickford Senior Living portfolio hit 81.3% in October, representing a 670 basis point jump from its low point in March 2021. And NHI’s nine Senior Living Communities properties gained 530 basis points from their low point in Dec. 2020, to reach 81.5%.

Still, the variation in the pace of recovery that Mace and Peck have quantified is also reflected in the mergers and acquisition market. Among deal brokers at JLL and CBRE, there is a sense that many different factors are affecting the senior living industry’s occupancy recovery at the tail end of 2021, leading to varied outcomes in valuations.

“You can have one property in a market that is trending really well,” JLL’s Bowyer told SHN. “And you can go five blocks over to a very similar property that is not trending really well.”

Graber and CBRE generally categorize communities into two groups during the recovery: those that are making good progress regaining lost ground and have a story to tell regarding reaching stabilization, and those that are simply struggling. But he does not think Covid is the main driver of those differences in performance.

“We’ve seen so many positive indications in really all markets,” Graber said. “Those that have an uphill battle … it may be operator-based; it may be market-based.”

He added that CBRE is seeing aggressive cap rates for Class A properties in high-barrier-to-entry markets, and lots of activity brewing on the acquisition side. One prolific buyer of senior housing properties this year has been Welltower (NYSE: WELL), which has executed on $5.6 billion in pro rata gross investments since Oct. 2020 — with potentially more deals on the way.

Bowyer pointed to four different properties that JLL has followed throughout the pandemic as indicative of trends in the market, with three of them newer Class A properties that opened in the last decade and another Class D property.

Before the pandemic, in 2019, each property carried roughly similar capitalization rates, with the three Class A properties at 5.5% and the Class D at 6.25%. Valuations for the three Class A properties ranged from about $650,000 per unit to just over $756,000 per unit, with the Class D community valued at more than $334,000 per unit. Occupancy for all four properties in 2019 ranged between 84% and 93%.

But fast-forward to 2021 and the picture looks different. Though cap rates were about 25 basis points higher for each property, their valuations varied widely, ranging from more than $585,000 per unit to about $747,000 for the three Class A properties, with the Class D property coming in at about $435,000. Only one of the Class A properties that JLL analyzed had a low occupancy rate of 68%, with the others ranging from 86% to 89% occupied.

In the age of Covid-19, Bowyer believes that focusing on individual assets during valuations rather than general market narratives is more important than ever for buyers and sellers.

Factors that might affect pricing include the market the community is in, staffing and whether the owner is well-capitalized. It’s also no secret that operations can mean the difference between a community’s success and failure, he added.

“Operators have always been extremely important,” Bowyer said. “And I think that’s really what it comes down to in this environment.”

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