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Recovery May Be Stronger for Higher-Acuity Senior Living Communities if Home Sales Stagnate

Higher-acuity senior living communities may have more to gain if home sales continue to slow down and decelerate the pace of move-ins across the country.

That’s according to a recent Berkadia report highlighting the outlook for the remainder of the year.

Overall, Berkadia’s analysis calls for senior living occupancy to remain around 83% to 85% on average for the remainder of the year. Average industry occupancy exceeded 83% in the first quarter of 2023, according to the most recent data from the National Investment Center for Seniors Housing & Care (NIC)

More distressed properties may come to market this year, allowing operators to set monthly rates for residents at a more appropriate level to their expenses.

Homebuying has cooled off in 2023, and if trends continue along that path,“the pendulum potentially swings back in favor of AL/memory care communities with a needs-based population,” the report noted. Typically, senior living residents will trade the value of their home to finance their stay in senior living. But while AL or memory care residents can not easily delay a move-in if they need it, IL or active adult residents could choose to delay a move to senior living until markets stabilize.

The biggest factor impacting senior housing occupancy going forward will be competition from existing communities and new projects set to come online in the next six months. Rent concessions and implementation of new payer sources, i.e. managed care providers, “will be done with occupancy increases in mind,” the authors with Berkadia noted.

While rates have increased on average between 8% and 10% in the last few years, rate increases of this magnitude aren’t “sustainable long-term,” as operators look to bridge the middle-market gap and create affordable senior living options, a historically tough area to generate revenue and profit margins.

The report expects annual rate increases to slow next year and return to historical levels in 2025 for all care types, with AL and memory care taking longer to trend down due to its needs-based nature, the report said.

In terms of transactions for the remainder of the year, the report notes that trade volumes will be down from past years, with sales volumes slipping in the second half of 2022 in line with the rise in interest rates. While there’s still deals getting done, the bid-ask spread, which widened in 2022, “seems to have grown even larger.”

In the last 24 months, Welltower (NYSE: WELL) spent $4.02 billion and Ventas (NYSE: VTR) spent $2.43 billion to lead domestic acquisitions, the report notes.

The Fed’s fight against interest rates will have a positive impact on senior living investors, the report states, because as unemployment increases, the labor pool will deepen and be available to work in communities, which could help normalize expenses by the end of the year, and “should cause an increased volume” of transactions in the market.

With a tightening credit environment, national banks have “largely been on the sideline” since mid-2022 while regional banks have continued to lend, but have slowed the pace following the Silicon Valley Bank collapse earlier this year.

“We believe most lenders will stay in the current holding pattern until there is more clarity on if we will actually enter a recession in fall 2023 before making any changes to their credit parameters,” the report states.

While short-term challenges on labor and in lending, a silver lining highlighted in the report, and a common refrain in the industry, is the prospect of favorable demographic trends for senior living.

Migration of older adults in the next five years will play a big role in just what senior living markets will see growth. With young adults moving to the South and West, expect older adults to follow children after retirement to be near family. By 2030, half of the states in the country will have contingents of 65 and up older adults that consist of 20% of the state’s overall population, the report shows.

The post Recovery May Be Stronger for Higher-Acuity Senior Living Communities if Home Sales Stagnate appeared first on Senior Housing News.

Source: For the full article please visit Senior Housing News

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