Demand for senior housing rebounds after two disastrous years
Few places seemed riskier during the early pre-vaccination peaks of the Covid-19 pandemic than nursing homes and residences for the elderly. This includes Arbor Court Retirement of Topeka, the oldest retirement community in Topeka, Kansas.
“There was a lot of fear,” says Linda Clements, director of business development at Arbor Court of Topeka, an independent living community for people 55 and older. Arbor Court has contained the few Covid outbreaks it has experienced – the 58-apartment community has seen one Covid-related death. Still, like many senior housing communities, the company has struggled during the pandemic to bring in new residents to fill empty apartments when residents have died or moved to facilities with more medical care.
High-profile Covid deaths in nursing homes early in the pandemic forced many families to rethink community living and long-term care plans, but experts and senior housing groups say the request resumes now.
At the start of 2021, Arbor Court had 14 vacant units, almost three times the previous record for vacancies. However, once Covid-19 vaccines became widely available, Clements started getting calls from potential residents again. Now it has just four empty apartments, and new residents are expected to move in this fall. “I just think about how far we’ve come in a year because we’re pretty much back to normal,” Clements says.
About 36% of seniors’ residences (which excludes retirement homes) experienced Covid deaths in 2020, according to the National Investment Center for Aged Care and Housing (NIC). Meanwhile, in nursing homes, which typically provide specialist medical services to the most vulnerable residents, the figure rises to almost 61%. Communities that have avoided deaths have done so with strict quarantine policies and restrictions on visitors that have also made families wary.
The fallout from Covid and perceived fears around senior facilities were bad news for real estate investment trusts (REITs) and institutional investors with large portfolios that held these facilities. The NAREIT Equity Health Care Index, which tracks healthcare REITs across all sectors, entered 2022 down 10% from its pre-Covid value. Many senior housing REITs have performed below this benchmark. Some of the biggest REITs in the sector – including Omega Healthcare (OHI), LTC Properties (LTC) and National Health Investors (NHI) – fell 18% to 24% during the same period.
But as nationwide occupancy among retirement homes approaches pre-Covid levels, investors could see a healthy rebound in this sector of the property market. Occupancy fell to 78.8% for senior residences in 2020, and closer to 75% in some segments of the space, according to the NIC. The total number has returned to 81.4%, but still has room to increase before reaching pre-COVID occupancy levels of 87.6%. Executives from Enlivant and Belmont Village Senior Living, two companies with multi-state portfolios, predict they will surpass pre-Covid occupancy levels in 2023.
Some senior communities have seen a faster rebound in occupancy. Steve Blazejewski, senior portfolio manager at PGIM, the asset management arm of Prudential Financial, says his senior housing portfolio is already seeing higher occupancy and income than before Covid. Blazejewski notes that costs, especially labor, have increased. “Compared to multi-family housing, for example, senior housing rents can be two to three times higher. This creates a fairly substantial return on income.
These yields translate into high-yielding dividends for many of the largest REITs focused on senior housing, including Ventas, Sabra Health Care and Omega Healthcare. Dividends from the largest retirement home REITs ranged from 3% to 9% in early June. The S&P 500 dividend yield is currently 1.7%.
Experts say the outlook in space looks even better in the long term, as the oldest of the 70 million baby boomers approach their late 70s, the ideal age to settle into communities of people. elderly. Over the past 20 years, the average person who moves into a seniors’ community is 84 years old. But some communities have seen that number drop. In Belmont Village, which has locations in eight states, the average age of new residents is around 79.
The oldest baby boomers are 76 and they may be more open to living in communities, experts say. “This generation that we are about to reach will be the first to have lived in university dormitories and commons. They went to Woodstock and lived in sorority and fraternity houses,” says Patricia Will, CEO of Belmont Village Senior Living. “Community living is welcome for them,” says Will, contrasting with past generations who resisted communities of the elderly.
Not only are baby boomers the largest generation to reach retirement age, but they are healthier than their parents and are likely to spend more time in seniors’ residences before transitioning to retirement homes. communities with specialized medical services. They are also supported by rising home values, as the majority of retirees pay for their senior housing by selling their homes. According to the Fed, baby boomers hold more than $17 trillion in housing wealth and only $3.28 trillion in mortgage debt.
For investors, senior housing could become a particularly attractive bet if the US economy slows down and enters a recession. Fed Chairman Jerome Powell said he was more concerned with getting inflation under control than the possibility of pushing the country into a recession, which some observers said could happen with currency hikes. continuous rates. “If you think we’re going into a recession, whether it’s a capital ‘r’ or a lowercase ‘r’, health care is still one of the safest places to go. can be. You still need health care,” says Connor Siversky, research analyst at Berenberg Capital Markets, a Germany-based investment bank.
Indeed, since 1990, healthcare has been one of two stock market sectors to have recorded average positive gains during the last four recessions. Senior housing gained its reputation for recession resistance when occupancy numbers largely held steady during the Great Recession. Meanwhile, consumer healthcare spending has increased every year since 1968, according to the Centers for Medicare and Medicaid Services. Nominal spending on seniors’ housing increased by 76.6% between 2005 and 2020, despite the aging of a relatively small generation in the seniors’ housing population during this period.
A challenge for senior housing, however, is a tight labor market, coupled with rising costs. Some facilities reject new occupants because they do not have the employees to support additional residents. The industry has also been affected by inflation, particularly rising labor costs, which are forcing many communities to raise prices.
But Will is not discouraged. “We came through the Great Recession and the business held up remarkably well,” says Will. “We are recession-proof.”