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.
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
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.
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:
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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
Confidentiality assured approach
Commercial Association of Realtors award winning broker
CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
262.312.4642
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