With the senior housing and care market reporting movement toward economic recovery in the third quarter, investment firm Marcus & Millichap reported that a “confluence of near-term challenges and long-term potential presents a window of opportunity for investors.”
“The near-term future is opaque with the pandemic still creating uncertainty; however, seniors housing and skilled nursing facilities remain a key piece of the care spectrum, and the current environment may present unique favorable circumstances for investors,” Marcus & Millichap research analyst Benjamin Kunde wrote. “Temporary hurdles coincide with longer-term tailwinds that are becoming more apparent.”
One factor, Kunde wrote, is that construction is down almost 30% from the typical pace over the past five years. Meanwhile, population trends indicate that the demand for senior living will only grow, “potentially outpacing supply and powering occupancy improvement.”
“The industry has a steep climb back from the historic disruption that continues to plague operations,” Kunde wrote, and the labor shortage is an unprecedented headwind.
Kunde referenced a recent study by the American Health Care Association/ National Center for Assisted Living that showed that three-fourths of respondents believe the staffing situation for assisted living got worse from mid-year through September.
“Many operators are utilizing higher compensation to attract staff, which is costly at a time when insurance fees have increased and infrastructure improvements are needed for virus containment,” he wrote.
“Furthermore, some operators are allocating funds to ramp up marketing efforts, as many facilities are trying to fill rooms at the same time. Endeavors to entice prospective residents are especially important in the near term, as move-ins should accelerate once a broader return to workplaces reduces the number of people able to provide at-home care,” he added.
Pent-up demand is going to fuel opportunities for investment.
“Many investors that moved to the sidelines during the pandemic have cash built up and are reentering the marketplace. Sales volume has already matched the 2020 total through the first three quarters of 2021, and momentum will likely continue in the coming months,” Kunde wrote.
Investors generally are being cautious while waiting for headwinds to stabilize, but the cost of capital remains low, and potential interest rate hikes and tax changes on the horizon could drive sales activity in the near term, he said.
