Following a steep increase in Chapter 11 bankruptcy petitions immediately after the pandemic, defaults had slowed for a couple of years. The long-term care sector, however, is seeing a “second wave of distress,” Reorg Senior Reporter Hoa P. Nguyen told the McKnight’s Business Daily.
Nguyen authored the data and analytics firm’s report, “Senior living sector ‘not out of the woods’ despite fall in defaults.” It covers assisted living and other types of senior housing, continuing care retirement / life plan communities, skilled nursing facilities, hospitals and psychiatric residential treatment centers, although the majority of facilities tracked are CCRCs, followed by assisted living communities.
Pandemic relief funds are running out this year, leading to a rise in defaults, according to Nguyen.
“We’re kind of past the pandemic, talk, if you will. And so a lot of these places, as we learned from our market sources, told us that they’re just taking it month by month, a lot of time, just balancing on the cusp,” she said.
Properties that find themselves in a bankruptcy situation likely have been in a financial predicament for a while, Reorg Deputy Managing Editor Seth Brumby said.
“I think bondholders really try and do what they can to pull every lever to make sure the project is successful. That can take years to determine whether or not it ultimately has to file for restructuring,” he said.
For example, The Harborside, a CCRC in Port Washington, NY, filed for bankruptcy protection for the third time in nine years in 2023. The proposed sale to Life Care Services recently was withdrawn by LCS.
“Another thing that we really zeroed in on in our story was our bankruptcy data of the 119 facilities that we’ve been tracking since 2018; 21 of them have filed for Chapter 11 and 14 of them have since emerged for bankruptcy in 2012 and then again in 2019 and emerged from bankruptcy and going into restructuring in November of 2020,” Nguyen said.
Brumby noted that the housing market is starting to recover, which could increase occupancy and, in turn, alleviate some of the financial pressures faced by some types of senior living communities.
“I think as we start seeing rates come down, you will see that gradual churn of people leaving their homes and moving into senior care facilities,” Brumby said.
On the other hand, Nguyen said, increased occupancy isn’t necessarily a savior for skilled nursing facilities. Fewer beds with the same number of residents could artificially inflate occupancy, he said.
“Within skilled nursing, the rise in occupancy rates might actually be attributed to a reduction in the number of licensed beds within a facility, rather than an actual improvement in the number of people entering the units,” Nguyen said.
Regardless of which candidate wins the presidential election in a few weeks, Brumby said, the Federal Reserve will play the greater role in alleviating financial distress and defaults in senior living and care, Brumby said. He noted that the central bank made its first rate cut in four years on Sept. 18.
Additional cuts will energize the housing market more, he said, which could lead older adults to sell their homes and use the proceeds to move into senior living communities.
The only policy idea put forth by a presidential candidate that would directly affect the sector relates to home healthcare, Brumby noted. Vice President Kalamala Harris has proposed a new Medicare at Home plan that would allow Medicare to cover in-home health care for older adults and people who have disabilities.
If Harris’ proposal becomes law, Brumby said, “I think that could have a potentially negative impact on senior care facilities because if you provide money for people to stay home, you reduce the demand for people to move into senior facilities.”
