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414-416-3001| Brookfield, WI
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2021 Seniors Housing Trends

12/15/2020

 
There is virtually no one who has avoided being impacted by the seemingly never ending Covid Pandemic crisis. And if that weren’t enough in 2020, most of us also are feeling the effects of election fatigue! The economic fallout felt throughout the country has been significant. However, this is not the first crisis our industry has dealt with in this century. Let’s not forget the assisted living building boom of the early 2000’s. Or the Great Recession. Each and every time, the seniors housing and care M&A market has recovered. As a result, investor interest in the seniors housing and care sector continues to show its strength.

A number of factors are drawing interest from investors, not the least of which are the encouraging demographics. In fact, the 75 and over population will grow by close to an additional five million potential residents in the next five years alone. The sector also has consistently produced both strong income and strong appreciation returns for many years. And while this investor interest has grown, it has also lead to greater transaction velocity and liquidity relatively consistently. All while the sector has shown itself to be recession resistant as well. Rent growth has been stronger and less volatile than it has for other property types. In short, the Seniors Housing & Care market boasts solid market fundamentals. The current slowdown will ease and we expect continued strong asset acquisition activity in the long term.
AVERAGE MONTHLY RENT BY CARE SEGMENT (As of 4Q19)
AVERAGE MONTHLY RENT BY CARE SEGMENT (As of 4Q19)

COVID CHANGES
​THAT MAY BE LASTING
  • Telehealth
  • Higher operational costs
  • Enhanced digital communications
  • Virtual Tours and Online Marketing are here to stay
EMERGING TRENDS
  • Increasing marketplace need for lower
    ​cost housing options
  • Early generation AL props are aging
  • Technology innovations
  • Labor shortage continues
  • Rising Labor costs

NEWS YOU CAN USE
  • Development costs continue to rise. Many report the cost of new AL developments and additions to come in as high as $183 to $317 per gross square foot (up almost 7% over last year).
  • Data from the past year indicates that 55% of AL providers nationally have offered some sort of Rent concession in 2020.
  • One recent study found that one of the biggest opportunities to improve family satisfaction is by providing significant access on a regular basis to the manager/administrator/executive director.
  • While the pandemic was unkind to everyone’s occupancies, it has helped slow down new construction starts and facilitates pent-up demand going forward.
  • A recent survey taken from respondents 75 and over indicates that seniors number 1 request of their loved ones is that they call more often. ​

ASK THE INVESTOR

Why is filling my beds, especially the last few, considered so important when I am considering listing my property for sale?

Above 75-80% occupancy, most of the added revenue isn’t required to cover added, incremental expenses related to the new residents. Instead MOST of the additional revenue drops right down to the bottom line as additional profit margin! Do the math. Take your average resident fee at an incremental profit margin of 70%. This is your new cash flow per additional resident per month. Multiply by twelve (months) and see how much your cash flow increases annually for each additional occupied bed. This could very well increase the value of your property/business significantly!

LeClaire Commercial, LLC

Specializing 
in Seniors Housing since 1992
​
Confidentiality assured approach
Commercial Association of Realtors 
award winning broker 

CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS 


414.416.3001

2020 Seniors Housing Trends

1/14/2020

 
It is a good time to be a Seller of Seniors Housing. Capitalization Rates are excellent and generally steady. Capital is abundant both within the Senior Living eld as well as being successful in attracting outside investment capital (non-Seniors Housing investors) as well. Occupancies will always have some challenges but have been helped by the improving demo- graphics. Lenders have noticed that the Seniors Housing sector has been outperforming other commercial real estate asset classes and thus their willingness to aggressively seek opportunities has been obvious. In short, the Senior Living sector is solid and very sound going forward, even if some buyers may grumble at “paying up.”

The most obvious headwinds facing operators today are the following:
  • Surging Labor Expenses
  • Tight Labor Market (with historic low unemployment rates and fierce competition)
  • Rising Building & Construction Costs (increasing costs of both materials AND labor)

All three trends above have impacted the Assisted Living market here. The labor issues are, together with inadequate Medicaid reimbursement rates, making it extremely difficult for skilled nursing homes to survive. This is especially apparent in smaller, rural facilities. In fact in Wisconsin alone, 17 nursing homes have closed their doors in 2019 alone. We expect to see more nursing home closings in 2020 as well.

So where are the best opportunities to grow by acquisition in 2020? You better be ready to pay up if you intend to acquire larger, newer and best in class stabilized facilities. For those looking for better returns albeit with slightly more risk, we speculate that the best return opportunities may shift in the coming months and years toward failed development projects or by repositioning older properties through updating and by other capital improvements. However the rising costs of construction and potentially borrowing costs may prove to be mitigating factors going forward. 

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2020 OPERATIONAL ISSUES
  • Continual search for operational efficiencies...
  • Labor issues, staff availability, turnover and cost...
  • Minimum wage increases likely affecting expenses.
  • Continually fighting expense creep...
  • Keeping your beds full...
  • Maximizing technology in the LTC environment. 
WISCONSIN 2ND BEST
Mcknights Senior Living Magazine reported recently that Wisconsin rates 2nd best in the country (behind only Massachusettes) for protections against elder abuse according to a study done by personal nance website WalletHub. South Carolina and California were at the bottom. 

ASK THE INVESTOR
Are filling those last several units in my building all that important?
One could argue that those last units are incredibly important. For every additional occupied unit (say above 75-80% occupancy) one could impute that approximately 30% of the additional revenue would go for new, incre- mental expenses (because at relatively high existing occupancies, most operating costs already are incurred and paid). Thus approximately 70% of the additional revenue results in a VERY HIGH incremental pro t margin.... new cash that drops right to the bottom line! For a single facility operator with an average fee of $4000 per month, the 70% incremental pro t margin results in new cash ow of $2800 per month per additional unit lled. This ow yields an annual cash increase of $33,600 for EACH additional occupied unit. This could increase the value of your property/business by a SIGNIFICANT amount. Fill those last few beds! 

​ISSUES & THOUGHTS 
A recent Minneapolis Star Tribune article makes the case that tapping older workers is one of the keys to solving the shrinking workforce problem.

Governmental use restrictions such as zoning and private restrictions such as deed restrictions play a significant role in impacting a property’s market value. Knowing those property use restrictions is crucial to avoiding being over assessed on your property tax bill.

The interest rate drop has not only lowered the cost of capital for borrowers, but it has also helped offset higher operating costs at a critically important time. In late 2019, the 10 year Treasury yield stood at 1.75%, down about 125 basis points from the start of 2019.

The NY Times reports that more than 440 rural nursing homes have closed or merged in the past decade. Principal causes are inadequate Medicaid reimbursements and labor shortages.

More than 50% of federal spending will soon be dedicated to Seniors according to the latest Congressional Budget Office (CBO) estimates. The two main drivers of that spending are aging baby boomers and rising healthcare costs.

EVERS VETOES CNA BILL
Call Gov. Evers and tell him that his veto of the Republican sponsored bill easing training requirements of CNA’s was petty politics and unhelpful. e labor shortage is real. is bill could have been a real help in solving this crisis. Instead, Evers veto will likely harm our most vulnerable. 
NOTABLE QUOTE
“If you don’t listen to your customers, someone else will.”
--Sam Walton 


Specializing in Seniors Housing since 1992
​
Confidentiality assured approach
Commercial Association of Realtors 
award winning broker 

CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS 


414.416.3001  &  262.312.4642 

2019 Seniors Housing Trends

1/10/2019

 
These truly are the good times. The Seniors Housing sector continues to outperform other commercial real estate asset classes. While there will always be headwinds, including but not limited to overbuilding (in some markets), higher interest rates and thus higher capital costs, occupancy issues and of course labor shortages...the market is sound. The overall occupancy rate for majority independent living and assisted living across the top 31 primary metro markets averaged 87.9% in the third quarter. Not a crisis but the lowest in many years. SNF levels were even lower. As to the labor crisis, with the national unemployment rate below 4% and the Wisconsin rate below 3%, the challenge of recruiting and retaining employees is job one. You can expect to pay higher wages and this will make achieving your net operating income goals even harder target. 

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DID YOU KNOW?
  • JD Power found that STAFF is the most important factor leading to overall satisfaction of your community
  • Even minimal increases in employee retention can help improve your occupancy
  • It is forecast that 40-45% of all Medicare beneficiaries will be in some kind of managed care program by 2026 (as compared to about 33% nationally today)
  • Almost 60% of operators expect to increase technology spending in their communities this year
  • Over 40% expect to increase spending on remodeling and/or renovations in 2019
  • A large Seniors Apartment building in California reports that they are saving almost $30,000 per year by replacing water fixtures with green products
  • The national need for registered nurses is expected to grow by 15% from 2016 to 2026
  • An audit recently found that the Wisconsin Medicaid program paid almost $600,000 to care for people who had already died 

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However, investor interest in Senior Living properties remains strong and will continue to outperform for the foreseeable future. An aging population of Baby Boomers will continue to transition into senior housing over the next several years. Fundamentals are strong. Well managed properties have done very well producing solid returns along with equally solid real estate appreciation. Cap Rates have been remarkably steady here in Wisconsin with SNF’s trending usually in the 12-13% range. Assisted Living Facilities can range into the 7-8% range or lower for larger, best-in-class portfolios while older assets that are struggling to compete with newer product will often sell in the 9-10% range or even higher depending on the specific challenges involved. While interest rates have risen gradually in 2018 and are expected to continue to do so in 2019, we may see some slight spikes in Cap Rates going forward. Nothing dramatic is expected however.
​

It is hard to argue that all owners and operators shouldn’t have thought about having an exit strategy. It is also hard to argue that now isn’t a great time to start planning one if you haven’t already. Cap Rates are excellent, capital is abundant and while interest rates are creeping up – they are still low by historical standards. The run-up in prices since the Great Recession here in Wisconsin and throughout the country has been exhilarating. As such, we do not recommend waiting if you are considering a sale. Don’t wait until the market weakens or interest rates spike. “Market-Timers” rarely succeed as they often find themselves procrastinating with the fear that they may miss the top of the market, leaving small change on the table. ​

WAGES CONTINUE TO RISE

​If it seems that you are paying your staff more lately, it’s probably because you are. The average hourly earnings of an assisted living worker is increasing 5% per year, while income is only increasing 2.5%per year. Labor costs at assisted living facilities represent 53-57% of operating expenses. Factors driving these costs upward across all senior living properties include a shortage of workers, higher minimum wages, challenges of attracting and retaining solid workers, and the need for more specialized care in general as acuity levels continue to rise. 
INSURANCE COSTS

​Insurance broker Willis Towers Watson reports that Senior Living and Long Term Care operators will face commercial liability rate increases of at least 5-30% in 2019. They note that “recent studies indicate assisted living and memory care communities are averaging higher severity losses” than those in skilled nursing facilities. Closer to home, Illinois is one of those states expected to experience some of the higher end liability increases in 2019. 
​
GOT TECH?

A recent survey of Senior communities had the following responses when asked about how technology services are changing for their residents:

  1. Wi-Fi connectivity and/or faster speeds
  2. Resident Portals
  3. Streaming video devices
  4. In-room touch screens
  5. Email set-up and ongoing assistance
  6. Skype and Facebook classes
  7. Assistance with ride-sharing APPS 


Specializing in Seniors Housing since 1992
​
Confidentiality assured approach
Commercial Association of Realtors
award winning broker

CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
262.312.4642 

2018 Seniors Housing Trends

12/15/2017

 
The Seniors Housing market continues to attract strong investor interest here in Wisconsin and across the country. According to the National Multifamily Housing Council (NMHC), the number of seniors over the age of 75 will increase by 3.2 percent per year, from around 19 million to 26 million by 2025. More importantly, the number of individuals living in seniors housing is projected to increase from 1.7 million to 2.2 million residents in that same time frame.

Demand for seniors housing remains strong, with national occupancies in the high 80’s and approaching 90%, despite significant new development according to the National Investment Center for Seniors Housing & Care (NIC).  And as the need for seniors housing continues its ascent, rents will follow. Genworth Financial reports that the national median costs in a private pay community is now $3,750 per month. Median costs for semi-private SNF rooms hit $7,148 per month while private rooms reached $8,121 per month nationally.
Stats
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Property sales transaction volume was strong the last several years and is expected to continue into 2018. As long as we continue to project desirable demographic trends and solid investment returns not seen in other commercial real estate asset types, this can be expected to continue. Of the three major seniors housing property types, assisted living and independent living will generally have lower Cap Rates due not only to an increased amount of revenue related to the real estate as opposed to services and due to having less budgetary issues associated with more private pay revenue. Many Mom-and-pop owners see opportunity to exit the business while prices are still solid and interest rates remain mostly stable.   
2018 should be another banner year for all property types including skilled nursing homes, despite some gloom and doom predictions. We have heard that because SNF’s are the most labor and operationally intensive; that it relies too much on governmental funding; that it is saddled with the highest level of governmental oversight and regulations; and that it is the type with the oldest average age of its real estate. Despite everything, operators have seen increased cash flows of late as they learn to adapt to new Medicare payment models. Buyer demand remains strong for skilled nursing facilities.

While labor costs continue to rise, there is even more pressure for senior living operators to seek out additional revenue streams, with ancillary services playing an ever expanding role. These additional amenities and clinical services include everything from massage therapy and salons to dermatology and X-rays, administered on site in an effort to serve residents as completely as possible while keeping revenues in-house.   
​
Lenders are readily available and are competing for senior living business. There is no shortage of lenders ready to talk.  They have some concerns such as the potential of rising interest rates, pointing out that Cap Rates will follow. Lenders love certainty and have become more and more comfortable with Seniors Housing’s ability to generate solid profitability when managed well.

DID YOU KNOW?

  • Since the end of 2015, Milwaukee, Ozaukee, Waukesha and Washington Counties have seen 900 new senior living units enter the market…

  • Seniors Housing properties are the only commercial RE asset class that experienced positive rent growth during the Great Recession…

  • Seniors Housing rent growth has exceeded that of other commercial RE property types over the past several years…

  • Falls involving alcohol killed more than 400 Wisconsin senior citizens in 2016…

  • DHS reports a worsening trend from 2010-2016 with 2,266 Wisconsin seniors reported dying from alcohol-attributed falls...
    ​

  • The National Taxpayers Union reports that as much as 60% of taxable property in the US in overtaxed…

Specializing in Seniors Housing since 1992
Award winning 
track record second to none

Confidentiality ensured for 25 years


PLEASE CALL US FOR ALL YOUR SENIOR HOUSING BROKERAGE & CONSULTING NEEDS: 
262.312.4642

2017 Seniors Housing Trends

12/1/2016

 

As we have predicted for the past several years, we again expect another robust year for all areas of Senior Living properties in 2017. The sector performed adroitly through the Great Recession. Having done so, it has augmented the asset class standing among other commercial real estate sectors. Senior Living should remain in favor as the population continues to age, operators continue to seek opportunities to find efficiencies and as capital continues to remain readily available. While new development is on the fast track in many markets, it has yet to show any signs of over-supply except in select markets. Fundamentals are strong. Best in class properties have done exceedingly well producing excellent returns along with solid appreciation. All of this leads us to believe that continued strong demand in our sector will continue into 2017 and well beyond.
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Cap Rates: Capitalization rates have remained stable. This is due in part to the limited availability of Class A product. With the likelihood of future interest rate increases on the horizon, we may occasionally see slight spikes in Cap Rates going forward. However, the near term outlook is for more of the same. (See Cap Rate 10-Year Trends on chart below).
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Chart courtesy of HEALTHTRUST Seniors Housing & Healthcare Real Estate Advisory Services

Skilled Nursing:
These facilities continue to show resiliency despite facing some considerable headwinds. Some factors contributing to this include Medicaid and Medicare reimbursement pressures, tight regulatory oversight, increasing patient acuity, labor challenges (not unique to just SNF’s), and rising competition from Home Health and other senior housing and care sub-sectors. Some owners of skilled nursing facilities, especially large Real Estate Investment Trusts (REITs) have been very public in their efforts to limit their exposure to the skilled nursing asset class. Chicago based VENTAS was one of the first to announce such a move. Yet in Wisconsin we have yet to notice any weakness in acquisition demand or in pricing. For most SNF’s that means a Cap Rate in the 12% to 13% range.

Assisted Living: With all the new construction going on, many of the newer facilities being built are financially out of reach for many seniors, as most cater to high-end residents (capturing higher rents). In fact, according to the 2015 Genworth Cost of Care Survey, the national median cost of assisted living (non-memory care) was approximately $3600 per month. Memory Care facilities often cost thousands more. Perhaps the most under-served are those middle market seniors who fall between the high-end market and the subsidized, affordable options controlled here in Wisconsin through Family Care. This is not an insignificant number as roughly 30% of households in that 85+ age group fall into this middle income segment. So with this challenge comes great opportunity to those trying to fill this niche.
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Demand for existing properties continues to exceed supply, especially for Class A facilities. That along with increased regulations and reimbursement concerns have nudged many Mom & Pop owners to seriously consider an exit strategy and to take advantage of this historically low cost of capital. It’s hard to argue that now isn’t the best time to sell. Cap rates are excellent, capital is abundant and occupancies are high. We have seen a run-up of prices here in Wisconsin and elsewhere substantiating that. Don’t wait until some of these metrics begin to weaken. Don’t be a “market-timer.” They almost always procrastinate fearing that they might leave a little change on the table...........Those procrastinators rarely ever hit the bullseye.

Award winning track record second to none
Specializing in Seniors Housing since 1992
Confidentiality ensured for 25 years


PLEASE CALL US FOR ALL YOUR SENIOR HOUSING BROKERAGE & CONSULTING NEEDS: 
262.312.4642

2016 Seniors Housing Forecast

11/29/2015

 
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Last we predicted that 2015 would be another very solid year for all areas of Senior Living.  Expecting another solid year, we were not disappointed.  All facets of Seniors Housing continue to show positive indicators.  In fact, over the past decade we have seen investing in these property types go from the fringes to much more mainstream.  It has not gone unnoticed that the senior living business has shown considerable resilience in good times and in bad.  And fundamentals continue to show strength in all facets.  Best in class properties in primary markets have done exceedingly well producing solid returns as well as good appreciation.  Despite a recent uptick in new development, especially in Memory Care units and properties, overall new development has been generally limited since the Great Recession.  Continued strong demand is being driven by an aging population of Boomers, a much healthier residential housing market, and the attractive spread between borrowing rates and Capitalization rates…all of which leads us to being very confident of continued strong demand going into 2016 and beyond.

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Chart courtesy of HEALTHTRUST Seniors Housing & Healthcare Real Estate Advisory Services

EBITDAR-What is it?
This is earnings before interest, taxes, depreciation, amortization and rent associated with your business.  It is often used for the valuation of properties through a market Cap rate (EBITDAR divided by price).

OTHER TRENDS    
  • We expect to continue to see industry consolidations going forward for a variety of reasons including economies of scale.
  • Continued uptick in development particularly in underserved markets AND in markets with older inventories.
  • Independent living apartments will continue to become “assisted living light” much as ALF’s have experienced acuity creep over the past two decades.
  • Nursing Home Cap rates continue to be very steady locally and nationally but have trended slightly lower (several hundred basis points) recently than the historical 13%.
  • The reimbursement landscape has not shown significant uncertainty of late helping to foster the slightly lower Cap rates on Nursing Facilities.
  • Generally all Seniors Housing Cap rates remain firm at historical lows and we expect that to persist at least until interest rates begin to climb in earnest.

YOUR ASSESSMENT – Is it fair?
Remember that assessors are not permitted to assign value to personal property-that is assessed separately.  They also must refrain from assessing intangible assets such as your business operations.  Profits may be subject to income taxes but not property tax.  They must tax only the fee simple interest of the real property, i.e. the “sticks and the bricks.”  You have the right to appeal your assessment.  We can direct you to an appropriate professional if you feel that your assessment may be unfair.  Or you can go to: www.revenue.wi.gov/pubs/slf/pb055.pdf online if you prefer.

Solicited by a Broker from Illinois or another state?
New Wisconsin statutes enacted early in 2015 prohibit Out of State Real Estate Licensees from practicing in Wisconsin in most circumstances including LISTING your property, conducting TOURS, and even INSPECTING your Wisconsin property.  Always ask to see their Wisconsin credentials before hiring someone based out of state as this is the LAW.

  • We create demonstrative value for you by maximizing price
  • We create competitive environments for our clients communities
  • We serve as a buffer for difficult discussions with Buyers during negotiations and through the sale process.
  • Our experience and expertise allows you to focus on operations while we focus on the numerous sale details.
  • We are experienced at ensuring the highest levels of Confidentiality.

PLEASE CONTACT LeCLAIRE COMMERCIAL FOR ALL YOUR SENIOR HOUSING/LIVING BROKERAGE & CONSULTING NEEDS:  262.312.4642


2015 Senior Housing Forecast

2/24/2015

 
The US Economy grew faster in the Third Quarter posting the strongest six months of growth in more than a decade.  Many economists now believe that 2015 will be the year that the recovery shifts into a higher gear.  This optimism is also being felt in the Seniors Housing market.  Positive aging trends along with increasing inflows of debt and equity will continue to provide positive impetus for some time.  And Seniors Housing isn’t the only sector experiencing robust investment as sales volume for most commercial real estate property types have bounced back to near pre-recession levels, with pricing following suit.  Seniors Housing is very healthy today.  And we expect and are confident that 2015 will be another solid year.

Financing continues to be readily available especially for capable and experienced operators.  They continue to require more skin in the game and there better be operational cash flow or a reasonable expectation and detailed plan to see cash flow in the near term.  Rising interest rates continue to be forecast and on the horizon but for now they are still low by virtually any standards and have yet to exert much upward pressure on Cap Rates.

The Assisted Living sub-market, including CBRF’s and RCAC’s here in Wisconsin, has also shown strength in 2014 and we expect that to continue into 2015 and beyond.  The Genworth 2014 Cost of Care Survey indicated Wisconsin median monthly rate was $3850 for a one bedroom with single occupancy.  Rates are projected to grow 4% annually over the next five years.  With age creep being experienced by operators of all types of Seniors Housing, Assisted Living Facilities are caring for an increasingly frail population.  The prevalence of dementia in assisted living facilities is also increasing.

With the average move-in age at an assisted living community now ranging into the mid 80’s, that presents more than just care giving challenges.  Keep in mind that if the people moving in are more frail than in the past, while your existing residents are aging in place, then rates may not be keeping up with your costs.  Keep your eye on acuity creep, rate discounts and old rates otherwise you will find that your expenses per occupied unit rising faster than your revenues.

The Skilled Nursing sub-market continues to defy the odds by continuing to generate significant interest when properties come on the market.  Many apparently feel that the sector has a bevy of opportunities as the post-acute market evolves.  Most sales in the Badger State will average in the 12-13% Cap Rate range.  This has been remarkably resilient and in the same range for the past 20+ years.  Obviously newer or significantly remodeled homes with more amenities, larger homes with great locations, along with those with an impressive quality mix can push the Cap Rates lower. We’ve seen buyers paying up for newer homes and for high Medicare and Sub-acute census SNF’s and this is becoming more and more common over time.  As we saw in 2014, we project even more Mom & Pop sellers in the coming year.  The business has gotten increasingly complex.  With the increased oversight, regulations and documentations etc., it has simply become more challenging than ever for those with just one or two communities.

The Nursing Home sector continues to be challenged by a number of factors that include continued competition from assisted living for the private pay market.  In addition they will continue to be challenged by increasing acceptance of Medicaid waiver programs that funnel funding to alternative forms of care.  And there will be increased competition from inpatient rehabilitation facilities and long term acute care Hospitals for patients requiring rehab.

With regards to developing trends, nursing homes will continue to look for additional sources of revenue and continue to explore expanding into other lines of business.  Expanding ancillaries such as Therapy and Home Health care services will be priorities for some operators.  With fewer regulations and less exposure to reimbursement cuts, expect Hospice care to be an option for some as well. 

Other trends in Seniors Housing for 2015 (and beyond):

  • Increased ages and acuity in all settings
  • MCO’s driving care
  • ALF’s built in the 1990’s needing significant upgrades
  • More amenities in today’s designs including larger resident rooms, Internet Cafes, Pubs, Therapy Pools, and Movie Theaters to mention a few
  • Continued consolidation including in some Secondary Markets
  • Shorter hallways in today’s designs
 

Bottom Line Tip: Do you know how your Assessor defines Fair Market Value?  If you don’t you are likely paying TOO MUCH on your property tax bill.  This can be handled on your own or we can refer you to the appropriate professionals – at no risk to you.


Please consider LeClaire Commercial LLC for your SH brokerage or consulting needs
  • We create demonstrative value for you
  • We can create a competitive environment for your community
  • We serve as a buffer for difficult discussions with the buyer before and during negotiations and through the RE Closing process
  • Our experience allows you to focus on operating your business while we focus on the many and varied Sale details
  • We simplify the Sale process and thus increase the probability of a successful Closing
  • We ensure the highest levels of Confidentiality between the buyer, you and the general public

2014 Senior Housing Forecast

2/8/2014

 
While the economy continues to show signs of improvement, albeit slower than most of us would prefer, the economy is getting better.  So too is the Senior Housing market, that has been recession resistant, but definitely not recession-proof.  The graying of America (thank you Boomers) will lead to strong growth in demand over the next two decades.  These aging trends along with increasing inflows of debt and equity will provide positive impetus for the foreseeable future.  In many communities the average age is already above 80, and many providers indicate that their average age has been climbing over the past several years.  Occupancies and rent levels should continue to improve much as they have done in 2013 as the demand for senior housing units is increasing thanks to an improving housing market.  Before we get too giddy, there are still many challenges on the horizon.  While the Great Recession has ended, the US Census Bureau reported in September that median household income, adjusted for inflation, is still down 8.3% from 2007 (when the economy began to contract).  The long and the short of it is that the improving economy has so far failed to improve the lot of many households.  Still we are confident that 2014 will be a solid year.

Financing seems to be again readily available to experienced operators where HUD (mostly skilled nursing) as well as Fannie Mae and Freddie Mac in the assisted and independent living markets are quite active.  As to higher interest rates, they are still low by historical standards and have yet to exert much upward pressure on Cap rates.

The Skilled Nursing Facility market has been remarkably solid over the 20+ years that I have been selling facilities in the Upper Midwest.  There have been a few pauses during recessions, credit crunches and with reimbursement changes over the years.  But these were only temporary and strong demand for Nursing Homes continues.  Most sales in Wisconsin will average in the vicinity of a 13% Cap Rate and has done so over the past 20+ years.  Special circumstances can vary this somewhat but generally not dramatically.  Newer (or recently remodeled), larger facilities with great locations and with an impressive quality mix can push the Cap Rate lower however.  We also expect to see more Mom & Pop sellers next year as it is becoming more challenging to compete and the business has become more and more complicated.  Everything from regulations, documentation, you name it…has gotten more complex.

The Assisted Living market, including CBRF’s and RCAC’s in Wisconsin, has been strong as well.  Portfolios of multiple high-quality properties in the same or contiguous well-located markets have been demanding near record pricing.  Real Estate Investment Trusts, or REIT’s for short, are driving this pricing and consolidation due to their inherent low cost of capital.  As long as interest rates remain low, REIT’s will have plenty of cash to spend on these sizeable acquisitions.  At times making other investors feel like they’re getting crowded out of the market except in the cases of one-offs and smaller facilities.  These institutional investors have been outspending everyone of late.  With interest rates increasing, we expect more regional and private buyers to become more of a factor in the acquisition market in 2014 and beyond.

As to developing trends, nursing homes continue to look for additional sources of revenue and are branching into other lines of business.  Many are expanding into home health care services.  In addition, some are looking into other services including hospice care, counseling and pharmacy units.  Expect to see more specialty care units as well.

Other trends in the Senior Housing markets for 2014 (and often beyond):
1.    Increased acuity in all settings
2.    Managed Care Organizations driving care/results
3.    More older facilities in the marketplace needing significant upgrades
4.    Shorter hallways in new developments
5.    Financing underwritten as much by evaluation of the management team as by the P & L
6.    More consolidation, even in smaller markets
PLEASE CONSIDER US FOR ALL YOUR SENIOR
LIVING/HOUSING BROKERAGE AND CONSULTING NEEDS.
WE WOULD BE DELIGHTED TO PUT OUR 20+ YEARS OF
EXPERTISE TO WORK FOR YOU.

2013 Senior Housing Forecast-Wisconsin

12/12/2012

 
Senior Housing 2013 Forecast Report

By:  Robert LeClaire – Principal, LeClaire Commercial, LLC

Provided the federal government actions, with regards to the impending fiscal cliff does not cause the economy to fall back into a double-dip recession, the outlook for the senior housing market will remain strong going into 2013.  Newer properties in good locations will continue to be in demand.  Senior Housing continues to be a more stable asset class than other traditional forms of commercial real estate, especially in terms of operational fundamentals.  In fact Senior Housing is widely recognized as the only real estate class that did not experience declining rents during the recent recession.  Its occupancy has performed in step with other commercial real estate, dipping slightly in the 2007-2010 term.  It has slowly improved since then and is showing material recovery from its cyclical high in 2006. 

The Affordable Care Act will definitely impact Senior Housing going forward.  As many as 15,000,000 more American citizens will qualify for Medicaid in 2014, accelerating the fiscal difficulties of an already over-tapped system.  This does not bode well for the solvency of the Medicaid program.    Without significant changes it will go bankrupt.

Despite reimbursement challenges, Skilled Nursing Facilities continue to hold their own.  While not many are changing hands due in part to all the uncertainty, they typically trade in Cap Rates near 13%.  This has been remarkably stable over the years.  In states other than Wisconsin, we have seen some Nursing Homes trade for significantly higher than here.  However, these are newly built properties in major markets, and in very good Medicare and managed care markets.  Most operators here continue to be challenged by reduced Medicaid reimbursements. 

We expect that consolidation will continue to occur as it becomes increasingly difficult for the Moms & Pops to compete without the economies of scale that larger operators possess.  Occupancies should be fairly steady here.    


Assisted Living occupancies continue to inch up as do rents here in Wisconsin.  Costs are rising for most kinds of senior care, according to MetLife’s Mature Market Institute study.  The average rent at Assisted Living Facilities nationally shot up 17% to $3,486 per month over the past five years according to the study.  Their report indicates that the average cost of an Assisted Living Facility in Wisconsin is slightly lower at $3,329 per month.  Comparing contiguous states, only Michigan and Illinois average rates are higher.  Both Minnesota and Iowa have average costs below $3,000 per month.  With regards to investment trends, average Cap Rates for assisted living are often in the 9-10% range.  Premiums are being paid for facilities catering to dementia care with elevated revenue streams, newer properties, and those portfolios with economies of scale.  Older properties often trade in the double digit range.

All in all, we are in an industry that is recession resistant but not recession-proof.  Macro trends helping us include the over 85 age bracket, which is the fastest growing of all age categories.  This will continue to spur modest growth trends in both assisted living and skilled nursing facilities which in turn will continue to attract outside capital.  We expect seller-financed transactions to continue to be very popular in 2013 and beyond due to the fact that sellers can typically ask for more in these transactions because they are assuming more risk.  We are bullish for next year’s prospects as relates to all types of Senior Housing.

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    Authored by Robert LeClaire, Principal of LeClaire Commercial, LLC

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