Senior housing has long been considered a defensive sector, in other words one in which demand holds up relatively well during times of economic stress. The coronavirus pandemic has turned that assumption on its head.
The pandemic has taken a disproportionate toll on the elderly and by extension senior housing, which not long ago was a darling among investors in commercial real estate. Between April and November 2020, more than 100,000 residents and staff at U.S. long-term care facilities died from COVID-19, according to an analysis by the Kaiser Family Foundation. Nationwide, deaths in long-term care facilities have accounted for a staggering 40 percent of all COVID-19 deaths.
As deaths have mounted, the sector’s occupancy rate has plummeted because of attrition, waning demand and self-imposed moratoriums on move-ins by operators seeking to protect existing residents and staff. In the fourth quarter of last year, the sector’s occupancy rate fell to an all-time low of nearly 81 percent, according to the National Investment Center for Seniors Housing and Care (NIC). Facilities that provide skilled nursing care to the most-fragile seniors have suffered the steepest declines in occupancy rates, followed by memory-care and assisted-living properties, respectively, according to Beth Mace, NIC’s chief economist.
“The impact of the coronavirus pandemic on the sector has been significant,” says Mace, noting that revenues have declined as expenses have risen as a result of the costs associated with personal protective equipment (PPE) for staff, COVID-19 testing and, in some instances, overtime and bonus pay for staff, among other factors.
“Increasing expenses and loss in revenue really put a squeeze on the bottom line for many operators,” she says.
With the pandemic still raging, the near-term outlook for the sector is highly uncertain. What seems clear, however, is that the crisis is likely to have lasting effects on the sector, starting (perhaps not surprisingly) with a greater emphasis on the health and well-being of residents and staff. To some extent, the pandemic has simply accelerated pre-COVID-19 trends tied to demographic trends, shifting consumer preferences and more.
HUMIDORS TAKE A BACKSEAT TO HEALTHCARE
In recent years, many developers of assisted- and independent-living facilities have tried to woo deep-pocketed seniors with hotel-like amenities, such as bars, humidors, high-end bistros and zero-entry pools. In other words, hospitality trumped healthcare. However, the pandemic appears to be elevating the importance of healthcare.
Rather than expecting residents to venture out for all their medical needs, operators are likely to do more in the coming years to bring care to residents, experts say. Some have already implemented telehealth capabilities, opened in-house clinics staffed by third-party healthcare providers on a rotating basis and/or begun offering concierge services that help residents coordinate their healthcare.
“For [the last] 10 years, senior living was all about hospitality and care was marginalized,” says Tod Petty, a 20-year veteran of the senior housing industry and COO of Lloyd Jones Senior Living, which provides management services to senior housing owners and developers. Lloyd Jones Senior Living also advises its parent company, Miami-based Lloyd Jones, on the acquisition, improvement and development of senior living properties and runs its senior living communities.
“Care is why people ultimately want to be in assisted living,” says Petty. “You may initially get them there with a fancy fireplace, but you won’t keep them there.”
Americans, he notes, are living longer and aging in place for as long as possible, which means many newcomers to assisted living are already well into their 80s and often suffer from medical challenging conditions such as Alzheimer’s.
“What the pandemic did was accelerate what was already going on. What matters to people now is not the fireplace, the bistro or having a glass of wine at 4 p.m. They want to be able to quarantine in their rooms and live in a community that’s free from the transmission of disease, one that has certain protocols in place to protect them,” explains Petty.
THE ROAD LESS TRAVELED
For its part, Lloyd Jones is taking a two-pronged approach to investing in senior housing. On one hand, it’s focusing on resort-style, independent living properties serving middle-market consumers, an underserved niche, according to Petty. It’s also focusing on assisted living properties offering “luxury healthcare,” which Petty describes as well-staffed, attractive facilities equipped with features such as air handlers designed to reduce the spread of disease in common areas; infrared temperature sensors at building entry points; state-of-the-art air purification systems; washers and dryers in residents’ rooms; and dining venues that are smaller than traditional cafeteria-style spaces.
“Our luxury healthcare properties may not have cascading fireplaces, but they’ll provide an environment for residents to age and die in place. That’s what the baby boomer generation is going to want. And they’ll pay more for it than for a property that initially appears sexy, but ultimately doesn’t deliver on healthcare.”
THE UNDERSEVERED MIDDLE MARKET
While the pandemic has created historic challenges, it’s also giving rise to new opportunities for investors such as Lloyd Jones, which has been acquiring distressed hotel properties with fitness centers, pools and other such amenities. The firm is investing in the properties to convert them into resort-style, independent living communities priced for the middle market.
Once open, the facilities will offer concierge-style services to residents, such as cleaning help and personal care, says Petty. Price isn’t the only appeal of such properties: They're also designed for active seniors under the age of 85 who want “one more bite at the apple” and thus are likely to shun assisted living.
“They don’t want to be with people who are actively dying,” says Petty. “Because they’re from the Woodstock generation, they want one more shot at relevancy.”
The middle class, experts say, has been largely overlooked by the senior housing industry. In recent years, many developers — including entrants from the multifamily sector — have focused on building upscale, amenity-rich facilities that are priced for the top 10 percent of U.S. households.
Middle-income consumers “have no [government] subsidy to get into the lower-end product, and they can’t afford the resort-style product,” says Petty.
LUDDITES NO LONGER
In addition to overlooking the middle market, senior housing has also tended to lag other sectors when it comes to technology, experts say. That’s changing as a result of the pandemic, which has accelerated the use of telehealth, virtual tours for prospective residents and their families and digital tools (such as tablets and even robots) to help quarantined residents cope with social isolation, among other developments.
“The problem with aged-care facilities is that many are Luddites when it comes to technology,” says Terry Crews, founder and chief executive of Gabriel, a San Francisco-based firm that develops technology-based products to improve senior care and make it less labor-intensive.
The firm, for instance, has developed a bedsheet that uses artificial intelligence (AI) to recognize movements and thus prevent unassisted bed exits. It has also developed a system that uses cameras, facial-recognition technology and AI to help senior-housing staff detect and gently redirect residents with dementia who try to leave facilities without supervision, as they can be prone to do.
“Some operators would say technology costs too much. I’d say that’s a false premise because putting in technology can, in fact, reduce their costs,” says Crews.
According to Crews, providing a high level of care to seniors hinges in part on being able to detect subtle changes in their habits, mood or even facial expressions, which can be hard to do in facilities that are short-staffed, have high turnover or use temporary help.
Before the pandemic, many operators had difficulty recruiting staff because of the tight labor market, which was exacerbated in some areas by a proliferation of new senior housing facilities, according to Mace. Some operators have brought in temporary workers during the pandemic to deal with staffing shortages.
“Technology can allow aged-care facilities to make up for the problem of lack of consistent staffing,” says Crews. “But, more importantly, it can provide real-time information to residents’ families that gives them peace of mind” and allows them to spot signs of trouble.
PROCEED WITH CAUTION
How might the pandemic change the way architects approach senior housing?
David Dillard, a practice leader with Dallas-based HKS Inc., sees room for subtle design changes, such as smaller onsite dining venues and separate entryways for visitors (such as tour groups) and for inbound and outbound employees. Tighter controls over the flow of foot traffic, he says, may help to reduce the spread of pathogens within facilities.
Yet, Dillard cautions against overreacting to the pandemic from a design point of view. He points out that in the aftermath of the 9/11 terrorist attacks, airport operators implemented changes, including the erection of barriers and checkpoints, that remain in place to this day. Dillard worries that the pandemic could give rise to the same type of “permanent institutional effect” within senior housing.
“9/11 changed the look of airports and the way traffic flows through them forever. Do we really want that [in senior housing]? The answer is ‘no.’ So we have to ask ourselves what we can change without being foolish or irresponsible.”
He says the toll the pandemic has taken on residents and staff in senior housing is largely a function of operations, including employment practices. To make ends meet, many frontline employees work multiple jobs, which is thought to have contributed to the spread of COVID-19 among facilities. Some operators, says Dillard, have responded by raising wages to discourage employees from moonlighting.
Some observers say the senior housing sector may actually emerge from the pandemic better prepared to manage future health-related risks, whether pandemics or bad flu seasons.
“This crisis will make the sector more resilient to health risks over time,” says Lukas Hartwich, a senior analyst covering healthcare and lodging REITs at Green Street.
What remains to be seen is how long fundamentals will suffer as a result of the pandemic. Hartwich says the sector may hit bottom in the middle of 2021 if COVID-19 vaccines are broadly distributed and administered among residents and staff.
Many investors believe it’s just a matter of time before demand begins to bounce back, according to Hartwich. Starting in the mid-2020s, the number of Americans ages 80 and older is expected to grow dramatically. Americans who move into senior housing tend to do so in their mid-80s, according to Hartwich.
“At the end of the day, many people think it’s a sector that will deliver attractive returns over time. The demographic story is attractive,” he says.
Anna Robaton is a freelance business journalist based in Portland, Ore.