Belmont Village CEO Patricia Will begins 2023 “wildly optimistic” about the industry’s prospects.
“We’re at the cusp of some changes in the industry that I think bode well in addition to the demand curve we’ve all been waiting for,” Will said during the recent 2023 Outlook webinar hosted by Senior Housing News.
And she is not alone, with Solera Senior Living Founder and CEO Adam Kaplan also bullish, and Beth Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC), additionally seeing some favorable trends — including in labor.
But senior living operators are also dealing with familiar issues heading into 2023, not only related to workforce, but rising costs and slow margin growth. The solutions will require big-picture thinking and concerted action at the industry level, but providers that are moving to meet the market should benefit from demographic and other tailwinds.
Regardless of headwinds, optimism remains
“We’re very optimistic right now on the demand-side of things,” Solera Senior Living CEO Adam Kaplan said during a Senior Housing News webinar. “We’re seeing high 90% occupancies on our acquisitions and on our developments that have been open for over 18 months, well-ahead of our lease up projections.”
Kaplan has company, too.
Seventy-nine percent of respondents to the 2023 Industry Outlook Survey by Senior Housing News indicated that their outlook is “somewhat positive or very positive,” with the majority forecasting national occupancy rate increases in every category over the next 12 months. Half of respondents said they believe the industry will rebound to pre-Covid occupancy levels in the first or second half of 2023.
Will said she’s confident that comprehensive long-term care insurance policies will boost market penetration of senior living, allowing more folks to access care than ever before. That, coupled with a rising appetite for senior living from the newest generation of customers, should be beneficial for operators able to capitalize.
Will credited the rise of active adult, along with NIC’s recent defining of the sector, with helping to get people out of their homes and more accustomed to a senior living environment, albeit without programming.
With active adult serving as an entry point, nearly a third of SHN survey respondents said they felt that active adult was going to be the most attractive category for future investment in 2023.
“They’ve solved the problem for us by getting seniors out of their homes sooner,” Will said. “I think it’s going to help assisted living and even independent living in the years to come.”
Solera had broached potential active adult investment but then balked at making a final commitment, regardless of the high margins, Kaplan said candidly.
“The yields and returns are just tighter, and from an operational perspective we’re going to focus on what we do well, which is independent, assisted and memory care, and rental CCRCs without skilled [nursing],” he added.
Staffing woes persist, but pressure easing
But bringing down the optimistic mood are factors like employee burnout and turnover among operators, Kaplan said, coupled with rising costs of certain goods to create a “margin crunch” alongside a truncated capital market environment.
With capital markets facing high costs of debt and inflation, Kaplan said the short-term economic climate makes it “very challenging” for the year ahead.
“I would say that long term, I still am extremely bullish,” Kaplan added. “I think there’s going to be a lot of innovation that’s going to come out of this year.”
These challenges will force the industry to come together to operate more efficiently all while generating new revenue streams, Kaplan said.
Employment rates among AL sites tracked by NIC show that the industry is still 15% below its pre-Covid level of staffing, according to NIC’s Mace. While wages are up dramatically compared to pre-pandemic levels, Mace said easing wage stabilization would help operators and alleviate bottom line pressures.
NIC Executive Survey data show severe staffing shortages are also beginning to wane for operators, Mace said, from the pandemic high of 27.3% NIC-tracked markets down to 8.8% most recently. Now, 19.3% of operators in NIC markets are reporting minimal staffing shortages, compared to just 6.1% in early 2022.
“I think these are all favorable trends we are seeing,” Mace added.
To fight labor issues, Kaplan and Will said the industry needs to lobby Congress to loosen immigration restrictions, a long-standing refrain. Another labor fix might be finding talent among capable older adults themselves, with seniors working longer, Will added. That’s mixed in with a larger debate around mandatory taxation of retirement savings on older adults, something Will said would need to be addressed.
“The fact that they have to take retirement savings out and be taxed on it prematurely I think hurts people who otherwise would continue to work, make money and defer to it when it’s needed,” Will said.
Occupancy a familiar bright spot
While communities have regained occupancy on average, Kaplan said “architecturally relevant” communities are in the best position. Those with a large portion of outdated infrastructure or studio units, for example, face a tougher climb ahead on occupancy.
“I believe that with good operational execution, you will achieve occupancy north of 90%,” Kaplan said. “If you build a property that is well-designed with good leadership, with a focus on quality care and service, I believe your occupancy will rise or remain stable.”
From these challenges, Mace speculated that some struggling operators might face harsher realities sooner. That’s been echoed by lenders who say the runway for distressed properties is getting far shorter than it was at the start of the pandemic.
“The reason the occupancy rate hasn’t come back to pre-Covid levels is because inventory growth has continued to go on even despite what was happening during the pandemic and challenges in the capital markets,” Mace said.
Belmont Village expects to see continued occupancy gains in 2023, with some communities opened earlier this year showing “record growth in occupancies,” Will said.
“For those that hit bottom during the pandemic, we’re seeing a great revival and I am bullish on occupancy,” Will said.
But for the industry to return to pre-pandemic levels, Mace said it might be a reach this year, with eyes on 2024. That’s based on the last six quarters of occupancy growth, with just over 4% to go to regain pre-pandemic census.
Kaplan has observed that communities with attractive designs for customers have “already fully recovered.”
“It just depends on the market you’re in and your circumstances, of course,” Kaplan said. “I am very bullish. I think if you have not recovered, I think that you will in 2023.”
The post Cusp of Change: Why Belmont Village, Solera, NIC Leaders Are Bullish on 2023 and Beyond appeared first on Senior Housing News.
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