Capital One’s annual survey of seniors housing and long-term care executives has found that the industry remains optimistic about acquisitions of existing properties and repositioning of older facilities as they look to the next 12 months. Thirty-six percent of surveyed executives stated that acquisitions presented the most opportunity for growth, with 30% naming repositioning as the top option.

However, the development of new properties garnered only 14% of the vote in comparison with 24% who said the same in 2018--potentially signalling a shift in investor appetite as the National Investment Center for Seniors Housing & Care (NIC) announced that the seniors housing occupancy rate reached its lowest point since 2011 during the second quarter[1]. The survey, conducted ahead of the NIC Fall Conference, polled 119 CEOs, CFOs and senior leaders within the industry.

With Industry Optimism Comes Financial Concerns

Unsurprisingly, labor cost pressure was cited as the greatest financial concern for more than two-thirds (67%) of respondents. While this has been cited as the greatest financial challenge for seniors housing for three years in a row, it has emerged as an even more pressing issue this year. In 2018, just 46% of executives cited it as their chief financial concern.

Supply and demand imbalances were the second greatest concern, with 27% of respondents citing it as such. Respondents were far less focused on the availability/cost of capital, with just 4% naming it as their biggest financial worry. And despite capturing 10% of the vote last year, only 2% stated that impact of higher interest rates had them most worried for the 12 months ahead.

Intersecting with the focus on labor costs is the fact that the quality of staff and care is seen as far and away the best way for seniors housing facilities to differentiate themselves from their competition, with 74% of respondents stating so.

“As the survey results indicate, the industry continues to deal with wage cost pressure as the unemployment rate hovers around five percent,” said Chris Taylor, Managing Director at Capital One Healthcare. “Providing the highest quality of care and service to residents, in the most cost effective manner possible, will continue to be a primary focus for owner/operators in the senior housing space”

Construction Activity Set for a Slowdown?

Given that only 14% of respondents pegged new development as the biggest opportunity in seniors housing, and with supply/demand imbalances chosen as the second biggest concern, it’s not surprising that many respondents felt the pace of construction activity could be set to stagnate in the year ahead. Just 18% of respondents predict an uptick in construction activity, with 34% anticipating a decrease and the remainder (48%) seeing, at best, new construction activity track similar to what was seen in the previous year.

Despite this, financing needs stayed similar year-over-year. When asked to name the type of financing that would be the most important to their organization in the next 12 months, one-third of respondents (33%) named real estate term loans. Other financing of importance to the industry included:

• Construction loans (23%)
• Refinancing of stabilized or repositioned facilities (22%)
• Bridge to agency loans (including Fannie, Freddie, and HUD) (14%)

“Our customers are telling us that while the rate of new construction appears to be slowing, it will likely take another year or more for new units to be absorbed in many markets,” said Jim Seymour, Senior Managing Director, Capital One Healthcare. “From a borrower’s perspective however, the availability of transitional and permanent term loan financing remains abundant to support their needs.”