| There's no question that every operator and | | | | are the projection for most commercial real |
| investor in the senior living space has been | | | | estate classes in 2010 and even into 2011, it is |
| impacted in some way by the recession. | | | | possible that senior living has already seen much |
| Fortunately, the most recent data shows signs of | | | | of its occupancy loss. With very few new senior |
| resiliency - especially as we prepare to answer | | | | living properties coming online after mid-2010, |
| these questions from investors: How has | | | | there could be significant upward pressure on |
| occupancy been affected? How about rent | | | | occupancy rates throughout the sector. |
| growth? What are some of the links between | | | | Construction and Supply |
| what is happening in the economy and the senior | | | | Another bright spot for operators who are eyeing |
| living business? How has the industry coped | | | | a dip in their occupancy levels is construction. |
| compared to other commercial real estate | | | | Construction data tracked for the top 100 metro |
| sectors? Here are the answers. | | | | markets shows a dearth of projects beginning |
| Occupancy Variables | | | | construction. Many companies that were doing |
| It's no secret that occupancy rates are down. For | | | | major development prior to the recession have |
| independent living, the average occupancy rate | | | | ceased development projects, while some have |
| stood at 89.7 percent during the first quarter of | | | | gone as far as laying off their entire development |
| 2009; it was 91.9 percent a year prior. Since its | | | | staff. As a result-although some supply is still in |
| peak in the first quarter of 2007 at 93.7 percent, | | | | the pipeline-the senior living sector is going to |
| average occupancy for independent living has | | | | reach a point with very little new supply growth |
| declined 4 percentage points. The slumping housing | | | | around the middle of 2010, and this could stretch |
| market has likely played a role in declining | | | | into a fairly significant period of time. This means |
| independent living occupancy, and NIC research | | | | you'll see little to no competition from new |
| and research conducted by various other groups | | | | properties starting sometime next summer. |
| make that connection. For assisted living, the | | | | There are also signs that the general economy |
| average occupancy rate in this year's first quarter | | | | may exit the recession late this year or early |
| was 88.3 percent, compared to last year's first | | | | 2010. Plus, NIC MAP data already shows signs that |
| quarter when it was 90.1 percent. Since its peak | | | | occupancy rates may be stabilizing in some |
| in the fourth quarter of 2006 at 91.6 percent, | | | | markets, even if at lower levels. But there are |
| average occupancy has declined 3.3 percentage | | | | two caveats that may halt, or even reverse, any |
| points. | | | | stabilization efforts. The first is the continued |
| Another economic indicator investors are | | | | impact of employment losses, particularly on |
| scrutinizing is the fluctuation in employment levels. | | | | assisted living. Overall in the United States, the |
| Operators know that the income of adult children | | | | number of employed people continues to decline; |
| is a critical feasibility metric for assisted living | | | | however, the pace of these losses has improved |
| communities, and employment status is a primary | | | | since the beginning of the year. |
| driver of income. Just as seniors' ability to sell their | | | | According to the U.S. Bureau of Labor Statistics, in |
| homes seems to be critical to independent living | | | | the first quarter of 2009, approximately 2.1 million |
| occupancy, data is beginning to suggest that | | | | Americans lost their jobs, compared with 1.3 |
| changes in the employment rate may be a | | | | million in the second quarter. The second caveat is |
| contributing factor to changes in assisted living | | | | the possibility of another significant shock to the |
| occupancy-although more research must confirm | | | | overall economy and, thus, to consumer |
| that. | | | | confidence- however, many financial experts are |
| Steady Rent Growth | | | | predicting positive GDP growth in 2010. And while |
| The latest data shows positive rent growth | | | | it appears the economy has steadily improved |
| across the senior living sector- even if at a | | | | since March of this year, it's still in a fragile state |
| somewhat slower rate, and even though some | | | | that will be carefully monitored by financial |
| operators are reporting negative rent growth. In | | | | experts and investors in the coming months. |
| the first quarter of 2009, the average | | | | Assisted Living Occupancy: Top Metro Markets |
| year-over-year rent growth for assisted living | | | | Beat 90% |
| was 3.1 percent. This was down from 5.9 percent | | | | Overall, across the 31 largest metro markets, |
| a year earlier and 6.9 percent during its peak in | | | | assisted living occupancy has fallen this past year |
| the second quarter of 2007. Independent living | | | | from 90.3 percent in the first quarter of 2008 to |
| had an average year-over-year rent growth of | | | | 88.3 percent in the first quarter of 2009. Among |
| 3.3 percent in the first quarter of this | | | | those largest markets, 22 have fallen below 90 |
| year-compared to 5.2 percent in the first quarter | | | | percent occupancy. However, there are nine |
| of 2008 and 5.5 percent at its height in the third | | | | metro areas that can boast stabilized occupancy |
| quarter of 2007. | | | | above 90 percent in the first quarter of this year. |
| While the pace of rent growth has slowed, it's | | | | The top four are Boston, Houston, Minneapolis, |
| important to note that many operators are still | | | | and New York. |
| able to increase base rents and fees on a | | | | Boston, MA - 93.5 percent. Down two percentage |
| year-over-year basis. Most haven't had to | | | | points from first quarter 2008, Boston has the |
| sacrifice rent growth for occupancy, which is | | | | highest occupancy of the 31 largest metro |
| what's happening in other commercial real estate | | | | markets. |
| classes like multi-family, office, and hotel. Those | | | | Houston, TX - 92.2 percent. This is an increase of |
| sectors are experiencing declines in | | | | o.65 percentage points since first quarter 2008. |
| year-over-year rent growth, which suggests | | | | Minneapolis, MN - 92.1 percent. This is down 1.1 |
| they're conceding rates to prop up occupancy. | | | | percentage points since last year's first quarter. |
| Plus, at a time when record-low occupancy rates | | | | |