Strong Senior Living Operators See ‘More Leeway’ to Address Challenges in 2022

The senior living industry is grappling with historic staffing challenges that show no sign of letting up — and yet, owners and operators are feeling optimistic about 2022 and beyond.

What has changed their thinking about the future is the fact that the industry is continuing to recover from the pandemic, at least as it relates to occupancy.

Two years and change have yielded new treatments and vaccines that have helped turn the tide against case counts. At the same time, many operators have honed their marketing skills and are now much more adept at moving in residents amid the pandemic. They are also looking ahead to a surge in demand from the baby boomers.

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All of these trends have given operators and owners more confidence that occupancy will return to pre-pandemic levels next year or even potentially later in 2022, and they are gearing up for growth in the meantime.

These sentiments about the future and others were captured in a survey conducted by Senior Housing News and sponsored by Lument. The survey includes responses from about 350 industry professionals in November and December 2021.

“There’s a little bit more leeway for the really strong operators to figure out ways to adapt in a world like this, and continue to build occupancy even when staffing is a challenge,” Lument Senior Managing Director Aaron Becker told Senior Housing News.

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Optimism in 2022

While the Covid-19 pandemic is still ongoing, 87% of respondents in the survey said they have a “somewhat positive” or “very positive” outlook on the health of the senior housing industry in 2022.

The survey’s respondents were also optimistic about occupancy gains this year. More than three quarters of them (76%) said they thought memory care occupancy would rise in 2022, with slightly less saying the same about assisted living (72%) and active adult communities (67%).

A little less than half of respondents (47%) said they expected an occupancy bump for CCRCs, and a similar amount (44%) said they expect skilled nursing occupancy to rise this year.

Responses were more mixed on when occupancy will return to pre-pandemic levels, with 36% of the survey-takers anticipating it will happen in the second half of 2022 and 42% saying they believe it will take place further down the road in 2023.

Much of that optimism can be attributed to the fact that operators aren’t seeing the same level of trepidation among prospective residents and their families in 2022, according to Becker.

“My interpretation … is that Covid is certainly still an underlying issue, but I just don’t get the sense it is to the same degree as it was a year ago or 18 months ago,” he said.

Investment outlook

In terms of growth they see ahead, respondents still showed a degree of caution, with 33% indicating they do not have a growth strategy in place. Another 30% of respondents said they planned to grow through community repositionings and renovations, while another 12% said they were seeking mergers and acquisitions.

A quarter of the respondents said they would build new communities this year. On the whole, about 60% of respondents projected an increase in new construction starts during 2022, which is up substantially from the 44% of respondents who said the same thing in 2021.

Additionally, 55% of respondents said their company plans to buy senior housing assets in 2022, while 36% said they plan to hold their assets. Another 9% said they planned to sell senior housing assets this year.

It is not a secret that there are companies on the sidelines with significant capital left to deploy in the industry, and just under half of respondents (48%) said they planned to seek financing from financing companies or banks, while 32% identified private equity and 11% said they’d seek institutional investors.

Banks have become a lot more aggressive in the financing world over the last few months, according to Becker. For one, they are making up for time lost early on in the pandemic when they sat on the sidelines. And, the cost of capital is currently low.

“The Fed has signaled they’re likely going to raise rates at least four times this year, and if the yield curve steepens, that’s very attractive for banks [and their profitability],” Becker said. “It’s an attractive time for banks to get in the market.”

On the topic of pricing, respondents were split with 44% saying they think valuations will rise in 2022, while 42% said they will remain stable. Another 14% indicated that they think valuations will fall in 2022.

One trend that has not materialized as expected is that Covid would prompt a wave of distressed assets coming to market. But with the cost of construction still high and supply chains under pressure, buying is still an attractive option.

“I think many investors are going to realize it’s going to be much cheaper and more economical to buy, even if it means investing in the asset, repositioning the asset and investing in CapEx,” Becker said. “That’s making this market even more attractive for investment and sales.”

Still, valuations have ticked down from what they were prior to the pandemic, and that too could entice more real estate investment trusts (REITs) or other investors to go bigger on transactions this year.

“There is a tremendous amount of capital in the economic system, and a lot of that is earmarked toward real estate,” Becker said. “And there’s a feeling that in the senior space, there’s an opportunity to get outsized returns versus other real estate investment opportunities.”

Staffing remains the challenge

Although senior living operators think better times are ahead, they are still facing some lofty challenges in 2022 — namely, staffing.

A majority of respondents, nearly 64%, identified staffing as their greatest non- Covid-related challenge in 2022. That is a significant increase over the 2021 survey, when just 28% of respondents said staffing would be their top challenge that year.

And as to how long those pressures might last, most respondents (37%) said beyond 2023, while another 24% said the second half of 2022.

Staffing is also weighing on operators’ bottom lines, with 77% identifying it as having the largest

impact on budgets in 2022. Just 11% said the same about sales and marketing while 3% said insurance or resident engagement and 2% said PPE and Covid-19 testing.

The silver lining for senior living operators is that the labor challenges aren’t unique to the senior living industry, but to the nation as a whole. And while the industry is feeling it on a more acute level than some less staff-intensive sectors, Becker is also seeing operators doing more with less.

“A lot of our operators here on the senior housing side have become more efficient, and … learned to do more with the staff that they do have,” he added.

Only 15% said regaining occupancy is the top challenge this year, and 5% of respondents identified new competition, political and regulatory pressures, and technology.

Another big challenge on the minds of many owners and operators is the quest to reach the middle market. Among ideas to reach that market segment, 41% of respondents think the answer lies in repositioning existing market rate communities to better serve the middle-market, while 26% think the answer lies in developing more middle-market units.

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