Senior Living Industry Still Among ‘Riskiest’ for Muni Bonds Even As Defaults Fall

The senior living industry is still a real estate sector with high risk in the U.S. municipal bond market, even as the broader market is showing signs of turning around.

Total municipal bond default disclosures dropped to 38 in the first quarter of 2023, down from 73 in 4Q2022, according to new data from Moody’s Investors Service. First-time municipal bond delinquencies dropped from 11 in Q4 to four in Q1 of this year.

According to the latest Moody’s report, two senior living projects defaulted in the first quarter of this year. Another two drew from debt service reserve funds, and one other reported a covenant violation for the first time during the period.


But despite a relatively “mild” quarter for senior living defaults, the trendlines show senior living will likely remain among the riskiest sectors for real estate in the U.S., “dwarfing” those seen in not-for-profit hospitals, small private colleges and charter schools.

Last year, Moody’s noted senior living as “the municipal bond sector most directly harmed by the pandemic.”

Moody’s wasn’t the only data service showing challenges ahead for muni bonds and senior living. A similar report from Municipal Market Analytics (MMA) dated April 19 showed that four of the eight defaults disclosed so far in 2023 were in the senior living sector.


“Senior living is going to continue to face difficult headwinds for at least the next year,” MMA Managing Director Lisa Washburntold Senior Housing News. “The demographics and the slowdown in construction will benefit some in senior living, but I still think that the headwinds will outweigh the demographics.”

Washburn added: “The numbers – on an absolute basis – may not be as eye-popping as they were in the past few years, but I still think they will be elevated compared with the overall market.”

As far as municipal bonds go, the senior living industry has always been risky, according to Washburn. Still, from about 2015 to 2019, the municipal market was in a period of “aggressive underwriting,” she said.

Then, the Covid-19 pandemic hit, bringing with it increased risk of worse outcomes for residents, high levels of restrictions for staff, and subsequent inflation and labor pressures.

“We saw a wave of defaults from 2020 to 2022, but things have started to slow down,” Washburn said.

But, that slowdown may not be due to operators navigating the marketplace better. Instead, Washburn believes that a slower issuance market in 2020 has led to fewer communities coming online.

Since 2020, when the Covid-19 pandemic began, senior living has had substantially more first-time payment defaults compared with other sectors investigated by MMA with 99. The next closest in that time period was IDB with 29.
Looking ahead, the industry’s bond woes are likely to continue, according to recent Bank of America research from late 2022.

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