I thought a letter to the editor published in the Wall Street Journal on November 11, 2021 from Jane Shaw Stroup contained a number of good insights on retirement center living from someone whose husband had recently died after the couple spent five years in a community. Jane Shaw Stroup is a retired nonprofit executive and her husband, Richard L. Stroup, was an economist. The couple moved into a retirement community in Raleigh, N.C. in 2017.
Key points in Mrs. Stroup’s letter include:
Experience was mixed but generally a good one.
Your friends are close by, with was important during the depths of COVID pandemic. A small group of us met once week for wine and snacks during the pandemic.
A retirement center has some resemblance to a college dorm, but that a good thing. You are able to meet people at meals, exercise classes, lectures and clubs.
Having gym and a restaurant downstairs makes life easier.
Retirement centers are full of people who have experienced long, interesting lives – lots of opportunities for good conversation.
Emptying the contents of one’s home and selling it are poignant experience but leaving the process to one’s children may not be the right approach.
A retirement community can only succeed if it has caring staff who tolerate the foibles of older people. We were never reprimanded or chided by the staff even though we did some stupid things, like forgetting to push the button each morning to let staff know you are okay.
A retirement center is a place where you don’t have to be smarter or younger than you are. And a place where many friends can ease the loss of a spouse.
On September 18, 2019, news sources reported the sale of the Newbury College Campus in Brookline, Massachusetts to the health care REIT Welltower for redevelopment into a senior housing community. Welltower reportedly acquired the nearly eight acre site containing 8 buildings with approximately 142,000 sq. ft. for $34 million. Welltower’s purchase confirm my view, expressed in a February post, that small college campus have the potential to be successfully converted to seniors housing (see below).
There was an opinion piece in The Wall Street Journal on Friday, February 22 entitled “America’s Disappearing Private Colleges”, written by Allen C. Guelzo, a professor of history at Gettysburg College. The piece documents the closing of Concordia College, a small historically black school in Selma, Alabama. It goes on to assert “The post-Great Recession baby bust will soon mean not enough students to keep small schools alive.”
In the early 1990s I spent more than five years advising colleges and universities on real estate issues. My clients included the University of Maryland, Johns Hopkins and the Hershey Medical Center of Penn State. Even then, future weakness was evident in demand for higher education once the Echo Boomers (children of the baby boomers) passed through their college years. As Mr. Guelzo documents, the decline in the number of future potential college students has worsened since that time because of the Great Recession.
“Birthrates plunged by almost 13% from 2007 to 2012 and the CDC believes fertility could fall further”. The birth dearth means 450,000 fewer college applicants in the 2020s according to economist Nathan Grawe in Demographics and the Demand for Higher Education. Hardest hit will be New York, Pennsylvania, New England and around the Great Lakes, areas most populated by private colleges.
Harvard and other well regarded and well-endowed universities will continue to see high demand and have the resources to make their institutions more affordable and more attractive to U.S and international student. Rice University, my son’s alma mater, for example just announced a 30% increase in applications after the University put in place a more generous and more predictable aid formula and my alma mater, Johns Hopkins University, recently announced a major gift from alum Michael Bloomberg to provide more generous aid for undergraduates.
While the best regarded and best-endowed colleges and universities will continue to do well, Mr. Guelzo documents a number of small colleges closing, “17 in Massachusetts alone in the past six years”, and cites estimates that up to half of all U.S. colleges will close or go bankrupt within the next decade. Moody’s estimates that 15 private colleges will close per year. My experience as a real estate advisor to colleges and universities, and as a student of demographics, lead me to believe these dire predictions.
At the end of his opinion piece, Mr Guelzo identifies four options for leadership of small private colleges (1. Get serious about mergers, 2. Focus recruitment strategies westward where the decline in birthrates was lower, 3. Craft a niche for a particular student, and 4. Establish partnerships with local two-year colleges. ) I doubt any of these options alone will be very effective in combatting the “birth dearth” but see another option that small colleges should definitely consider – converting in whole or in part to seniors housing communities.
I make the connections between private colleges and seniors housing because, after working as a real estate advisor to colleges and universities, I spent 15 as a stock analyst covering senior’s housing and care companies and REITs owning seniors housing and heath care real estate. While the demographics driving potential demand for colleges and universities are dreadful in the 2020s, the demographics driving demand for seniors housing and care are very strong. The first Baby Boomers turn 75 in 2021 and turn 80 in 2026.
Senior housing operators and REITs owning senior housing real estate are currently struggling with some overcapacity pressuring rents and occupancy and higher labor cost pressuring margins. I believe the seniors housing industry was too optimistic about the age at which seniors would move to seniors housing, found capital too easy to get, which prompted some overbuilding, and has been less than fully successful in providing living environments to which seniors want to move. Lower levels of seniors housing construction and the continued aging of the population should gradual and significantly improve demand prospects for seniors housing in the 2020s. I believe converting small colleges in whole or in part to seniors housing has the potential to allow small colleges to survive or provide a softer landing for faculty and staff at colleges that need to close; and can also provide a more desirable housing option for seniors and potentially help with labor costs.
Some of the most successful and most attractive senior housing communities i have observed offer campus-like settings with a wide range of social, cultural, educational and recreational amenities. Erickson Living and Senior Living Communities and a number of large not-for-profit continuing care communities (CCRCs) provide attractive campuses with a high level or amenities. (See links below to ericksonliving.com and senior-living-communities.com). Erickson’s first senior housing community was developed on the site of a former convent with some of the same qualities as a small college campus.
The challenge of developing large CCRCs is that they require very large upfront investments of money and time to be created on a greenfield basis. Small colleges, which have campuses, dormitories, cultural, educational and recreational amenities in place, could potentially be converted to seniors housing campuses at a lower cost than greenfield development while offering name recognition and character from the outset. One other feature seldom seen in senior housing communities, but which appears to significantly increase a community’s appeal to seniors, is a mixed age environment rather than a senior citizen ghetto. My favorite example remains Merrill Gardens at the University (see link below).
Merrill Garden at the University is a community near the University of Washington in Seattle that combines a senior housing community, non-age-restricted apartments and retail on a single site with the apartment building and senior housing community sharing an interior courtyard and the senior housing community’s bars and restaurant open to the public allowing apartment and senior housing residents to mix. Senior housing communities developed on or near other university campuses also have been attractive to seniors and appeal to alumni but I believe there is an opportunity to more fully integrate seniors housing into a college or university campus and create more interaction between seniors, traditional college-age students, faculty and staff than has been done to date. It is this type of integrated seniors housing / college setting development that I see as an attractive 5th option to those Mr. Guezlo identifies to save some of America’s small colleges.
Integrating senior housing into an existing college campus or fully converting a small college campus to seniors housing may also offer labor force benefits because students, existing college staff and potentially even faculty could be employed to providing programming, patient care and building maintenance for seniors housing as well as university buildings and might form a base labor force from which senior housing could draw even if the college is closing. Seniors may also be able to help fill college classes, particularly in the humanities or even serve as adjunct faculty.
The most feasible strategy for a college to evaluate and execute a partial or full conversion to seniors housing is to engaged qualified real estate and financial advisors to evaluate the option and help run a process to select a for-profit or not-for-profit senior housing partner. For some religious-affiliated colleges, the same denomination may also develop and operate seniors housing, which might ease some of the anxiety of teaming with a senior housing partner.
I welcome inquiries from colleges and universities wishing to consider a college to senior housing conversion and may be able to help evaluate such options at a strategic level and assemble a team to help a college or university execute such a conversion. For some insights into the process see the link to an article I co-authored in 1996 entitled “Privatizing University Properties” in the Journal Planning for Higher Education.
Like most issues about which I post, the topic of “Finding A Good Death” arose from a personal connection. In this case when a neighbor consulted me about his sister who was being referred to hospice care after battling cancer. While not an expert in hospice care, I have long studied seniors housing and care and, for a time, I followed the publicly traded hospice companies as a stock analyst. I also have some personal experience with hospice care. My older brother (only four years my senior) utilized hospice care before his death in late 2014 from a degenerative neurological condition. To supplement my own knowledge for this blog post, I interviewed a friend and neighbor who is a long-time bereavement counselor volunteer at a large not-for-profit hospice in Baltimore and researched the topic on line.
John McCain’s death, which appeared to come quickly surrounded by friends and family after the Senator elected hospice care, also makes the subject of Finding A Good Death very relevant.
Even though we all die eventually, talking about death and planning for death, beyond making funeral arrangements, are taboo subjects for most Americans. We are culturally geared to want to live as long as possible and most physicians and patients have a strong bias toward utilizing the most expensive, invasive and technologically advanced medical procedures to prolong life, viewing death as failure rather than an inevitable part of the life cycle.
According to data from the Social Security Administration:
A man age 65 today can expect to live, on average, until age 84.3.
A woman age 65 today can expect to live, on average, until age 86.7.
About one out of every four 65-year-olds today will live past age 90, one out of 10 will live past age 95; and longevity estimates for 65 year olds continue to rise. Also, these statistics are averages for the entire population, so healthy non-smokers and those with better health plans and medical care should expect to live longer. Once you reach 65, I would argue you already have a very good chance of living a long life and you and your family should be more concerned with the quality rather than quantity of the remaining life you lead, and with the quality of your death, the focus of this post.
A good death is generally understood to be one that comes quickly and peacefully and with minimal pain and suffering, ideally at home and with an opportunity for loved ones to say their goodbyes.
English physician Dame Cicely Saunders first applied the term “hospice” to specialized care for dying patients in the UK in 1948. Hospice care was introduced to the U.S, in the mid-60s and did not become a Medicare eligible benefit until 1982. History of hospice care
As defined by Medicare, hospice is a program of care and support for people who are terminally ill (with a life expectancy of 6 months or less if the illness runs its normal course) and their families. Hospice helps people who are terminally ill live comfortably.
The focus is on comfort (palliative care), not on curing an illness.
A specially trained team of professionals and caregivers provide care for the “whole person,” including physical, emotional, social, and spiritual needs.
Services typically include physical care, counseling, medications for relief of pain and suffering, medical equipment, and supplies for the terminal illness and related conditions. Things like diapers are not covered by Medicare although catheters are. Patients and their families should not expect 24/7 physical care from hospice unless the patient is receiving inpatient care. Home health aides can be provided for bathing, etc. but cannot provide total care.
Care is generally given in the home.
Family caregivers can get support.
In order to qualify for Medicare’s hospice benefit, you must participate in Medicare Part A and
Your hospice doctor and your regular doctor (if you have one) certify that you’re terminally ill (you’re expected to live 6 months or less).
You accept palliative care (for comfort) instead of care to cure your illness.
You sign a statement choosing hospice care instead of other Medicare-covered treatments for your terminal illness and related conditions.
Medicare will cover the cost of a one-time hospice consultation even if you decide not to elect hospice care. Once you elect hospice care, the first step in the process is development of an individualized care plan. Original Medicare will cover everything you need related to your terminal illness, but the care you get must be from a Medicare-approved hospice provider.
Hospice care is usually given in your home, but it also may be covered in a senior housing community, a nursing home or a specialized hospice inpatient facility. Depending on your terminal illness and related conditions, the plan of care your hospice team creates can include any or all of these services:
Medical equipment (like wheelchairs or walkers)
Medical supplies (like bandages and catheters)
Hospice aide and limited homemaker services. At Gilchrist, a large not-for-profit Baltimore area hospice, a volunteer may do light housekeeping but that is all
Physical and occupational therapy
Speech-language pathology services
Social worker services
Grief and loss counseling for you and your family
Short-term inpatient care (for pain and symptom management)
Short-term respite care
Any other Medicare-covered services needed to manage your terminal illness and related conditions, as recommended by your hospice team.
Note that the above list does not include the cost of room and board in a seniors housing or skilled nursing facility, so the patient or their family may have to cover this cost if routine hospice care cannot be provided at home.
If your usual caregiver (a family member or other caregiver) needs rest, a hospice patient can get inpatient respite care in a Medicare-approved facility (such as a hospice inpatient facility, hospital, or nursing home). Your hospice provider will arrange this for you. You can stay up to 5 days each time you get respite care. You can get respite care more than once, but only on an occasional basis.
Medicare pays the hospice provider for your hospice care. There’s no deductible. You’ll pay:
Your monthly Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) premiums.
A copayment of up to $5 per prescription for outpatient prescription drugs for pain and symptom management.
5% of the Medicare-approved amount for inpatient respite care if used.
Medicare won’t cover any of these once your hospice benefit starts:
Treatment intended to cure your terminal illness and/or related conditions. Talk with your doctor if you’re thinking about getting treatment to cure your illness. You always have the right to stop hospice care at any time.
Prescription drugs (except for symptom control or pain relief).
Care from any provider that wasn’t set up by the hospice medical team. You must get hospice care from the hospice provider you chose. All care that you get for your terminal illness and related conditions must be given by or arranged by the hospice team. You can’t get the same type of hospice care from a different hospice, unless you change your hospice provider. However, you can still see your regular doctor or nurse practitioner if you’ve chosen him or her to be the attending medical professional who helps supervise your hospice care.
Room and board. Medicare doesn’t cover room and board. However, if the hospice team determines that you need short-term inpatient or respite care services that they arrange, Medicare will cover your stay in the facility. You may have to pay a small copayment for the respite stay.
Care you get as a hospital outpatient (such as in an emergency room), care you get as a hospital inpatient, or ambulance transportation, unless it’s either arranged by your hospice team or is unrelated to your terminal illness and related condition.
The Medicare hospice benefit is paid by original fee-for-service Medicare. To understand how the hospice benefit relates to Medicare Advantage plan, Part B or D coverage speak with Medicare or your hospice provider and you might consult the publication Medicare Hospice Benefits – Medicare Hospice Benefits
A Popular Benefit
Hospice care enjoys wide support from patients and patient advocates who are supportive of patients dying with dignity and having control over the final chapter of their lives. It is supported by policy makers who believe hospice can save Medicare funds by having terminally ill patients avoid expensive procedures at the end of life that often provide little lasting benefit. Mean medical spending during the last 12 months of life is reaching $80,000 in the U.S., with 44.2% spending for hospital care (57.6% is hospital spending during the final three months of life). To the extent hospice care can reduce expensive end of life hospital care it has the potential to reduce growth in Medicare spending. Hospice Impact On Medical Spending
Hospice care is also viewed favorably by investors and for-profit healthcare companies who see it offering stable reimbursement, attractive margins and very attractive growth prospects as Baby Boomers age. Because hospice reimbursement is designed to adequately fund small not-for-profit hospice providers, not-for-profit and for-profit operators with scale can generate an excess revenue/profits from spreading their overhead costs over a large number of patients, thereby generating reasonable margins from hospice reimbursement.
Electing Hospice Care
The key issue for patients and their families in electing hospice care is that doing so requires you to forgo additional curative treatment for the condition that is expected to lead to your death in order to receive funding for palliative care designed to give you a dignified death with minimal pain and suffering. As noted above, In order to qualify for hospice care a physician, typically your primary care doctor or a hospice doctor, certifies that you are expected to live no more than six months if your disease follows its typical progression. With this physician’s certification and your election to shift from curative to hospice/palliative care you will qualify for Medicare hospice benefits or hospice benefits from a private insurer. If you live more than six months in hospice care, the hospice benefit can be extended but Medicare manages this by penalizing operators that have average length of stays in hospice care.
Selecting A Hospice Provider
According to the National Hospice and Palliative Care Organization (NHPCO) Medicare paid about 4,200 different hospice providers for services in 2015. About 60% of these hospice providers were profit-making companies and 40% are not-for-profit (Long-Term Care Providers and Services Users in the United States: Data From the National Study of Long-Term Care Providers, 2013–2014 Department of Health and Human Services, Centers for Disease Control, Center for Health Statistics, February 2016 – CDC Report On Hospice Services
Hospice providers served approximately 1.3 million patients in 2013 with an average length of stay of 23 days – indicating an average daily census of about 14 patients per hospice.
The statistics above suggest two criteria for selecting a hospice provider 1) for-profit vs. not-for-profit and size. Many hospice providers are small not- for-profit operations. For-profit companies tend to be larger in size, as are some well established not-for-profit organizations, such as Gilchrist Hospice in Baltimore. Smaller operations may offer more personalized care options but larger operations may have their own specially designed dedicated inpatient hospice units and greater resources to Invest in family grief counseling, for example.
Your physician or a social worker/discharge planner at a hospital should be able to recommend or refer you to one or more hospice providers. A simple online search on “finding a hospice provider” results in links to larger for-profit and not-for-profit providers in your area (Heartland, Amedysis and Gilchrist in Baltimore) and links to referral services, such as A Place for Mom, an Internet focused senior housing and care referral company, and the National Hospice and Palliative Care Organization (NHPCO). Keep in mind that referral services will only refer you to organizations that are members of that organization or agree to pay a referral fee.
The Medicare.gov/hospice compare website provides ratings for hospice providers with percentage scores for a number of objective and subjective measures including results from user surveys. The site allows you to search for specific providers and provides near particular zip codes. See Medicare Hospice Compare. Some of this data is likely self-reported but still appears useful for comparing providers.
Before committing to a particular hospice provider a prospective patient and their family should ideally meet with the provider to assess the staff who will oversee and deliver care to your loved one, share information about your family’s situation and discuss options for delivering hospice care in a way that best meets your families needs. Care will most likely be delivered at home with family members engaged in the hospice care delivery process. It can also be provided in a seniors housing or skilled nursing facility but this may require the family to pay for the coast of board. If required, typically right at the end of life when 24/7 oversight is needed, the location of care may be shifted to an inpatient hospice care facility and you should understand when and how such a facility might be used. You may wish to check on the location and quality of the inpatient option.
I welcome comments and questions on this blog and hope it aids you finding a good death for you and your loved ones.
I had lunch yesterday with Robert Kramer, Founder and Strategic Advisor of the National Investment Center for the Seniors Housing and Care Industry (NIC). In the course of our conversation, Bob mentioned that National Development and Epoch Senior Living were proposing to develop 130 units of upscale senior housing on the former headquarters of GE Capital Corporation in Stamford, Connecticut. http://www.courant.com/business/hc-br-plans-former-ge-building-developed-into-senior-living-home-20180815-story.html. This led me to re-post my blog from February 2016 on the opportunity to reuse suburban office locations for seniors housing – see below.
The Wall Street Journal on Tuesday, February 9, 2016 featured an article entitled “Office Glut Strains Suburbs – Landlords, officials at odds over revamping vacant campuses as firms leave for cities”. The article highlights a growing trend of major corporations abandoning leafy suburban headquarter’s campuses for urban locations where transportation options are better and it is easier to attract tech-savvy Millennials. The article focuses on the relocation of Pearson Education from its Upper Saddle River, N.J. site to locations in Manhattan and Hoboken, N.J.
The site Pearson is leaving is a 47 acre site in a wealthy town of about 8,000 people located about 30 miles northwest of Manhattan. It features a “bunkerlike” structure of grey concrete built in 1973 for Western Union with 470,000 sq. ft. of space and few prospects. The suburban couplex is owned by publicly traded Mack-Cali Realty Corp. (CLI). The building previously generated annual revenue of $8.6M but after testing the market, Mack-Cali found no office takers. The company is proposing to replace the former Pearson Education headquarters with 240 apartments, which some in the town oppose because it would change the character of the community and generate expenses for public services while bringing in less taxes than a corporate office property. Other locations noted in the WSJ article with similar former headquarters locations include: the former Bell Labs headquarters in Holmdel, NJ; BASF’s former North American headquarters in Mount Olive, NJ and the former home of Merck & Co. in Readington, NJ.
None of the real estate owners or developers cited by the WSJ were mentioned to be considering a continuing care retirement community (CCRC) as a primary reuse for these corporate office sites or as a principal use in a larger mixed-use complex that might combine office and retail and non-age restricted housing together with a CCRC. Yet, a CCRC would appear to offer a number of benefits. Principally, a CCRC would:
Target the existing older, affluent residents of the wealthy suburbs where these former headquarters are located.
Likely generate more in tax revenue than would be required to service the CCRC because CCRC residents would not have children in public schools.
Generate less in the way of traffic congestion than conventional apartment or condominium development and less than a former corporate headquarters.
Generate spending in the community for existing or to-be-built retail space.
Generate demand for additional healthcare and other services that might be found in the community or incorporated on the site.
Generate greater demand for employment on the site and potentially taxes than would a conventional housing development.
CCRCs typical range in size from about 250 units including a mix of independent living, assisted living, memory care and skilled nursing or healthcare units/beds to as many as 2,000 units/beds in large complexes that have principally been developed by Erickson Living. While there is an emerging trend among seniors housing developers, like office developers, to consider higher density, mixed use urban locations, I believe there is still significant demand for suburban CCRCs, particularly in wealthy, aging, hard to develop locations, like northern New Jersey, where the corporate headquarters sites noted above are located.
CCRC’s are typically developed in either an entrance-fee or rental format. In an entrance-fee format, residents pay an upfront fee that may be partially or fully refundable. This fee is used to repay construction debt and the non-refundable portion is amortized over time to reduce the monthly cost of housing and care. In a rental format, there is no entrance fee, more long-term financing is used and monthly rent must cover the full cost of housing and services. The largest CCRC campuses typically incorporate multiple casual and formal dining venues, pools, gyms, lecture halls, entertainment and recreational amenities and may include full physician practices and their own health plans as well as health centers that provide therapy space.
In 2014, while I was still working in investment banking, I pitched seniors housing as a reuse for some undeveloped or partially developed suburban office locations to a publicly traded suburban office REIT. However, the sites this company had available at the time were not as large or as well located as the corporate headquarters’ sites noted above and were not well suited to CCRC developments of scale. While CCRCs are well outside the comfort zone of most office owners/developers, outright sale of large suburban headquarters sites for this purpose or joint venture development with existing owners of suburban headquarters sites and CCRC developers or healthcare REITs would appear to be a very viable option for such locations, particularly in cases where a CCRC would be an element in a larger mixed use campus that might include some conventional apartments (potentially for staff), retail and office/healthcare uses.
I am republishing this blog post, originally issued in December, 2015, because it was recently cited in a podcast by Steve Monroe, Editor of Senior Care Investor, a well regarded industry newsletter, as being prescient about predicting issues being faced by senior housing and care facilities today.
I have been pessimistic about maintaining occupancy and pricing and the risk of overbuilding in private-pay seniors housing. I shared these concerns, along with lessons learned from the last industry downturn, with the NIC Future Leaders Council at the annual conference of the National Investment Center for Seniors Housing and Care (NIC) in early October and will express similar views when I speak at the Senior Living 100 Conference in March.
Since I am more pessimistic about the risk of overbuilding than NIC MAP® Data Service and many industry professionals, I recently reviewed my assessment by examining the most recent census population projections to estimate demand and updated 3Q15 NIC-MAP information on supply. This blog summarizes the results of that review.
NIC MAP Assessment
NIC MAP data indicates a total supply of U.S. institutional quality private-pay seniors housing units (independent living, assisted living and memory care) as 1,404,000 units as of 4Q14. It shows construction as a share of inventory for the top 99 markets as of the 3Q15 of 3.3% of existing majority IL supply and 7.9% of majority AL including memory care. If I apply these same shares to the inventory of seniors housing for the nation (1.404 million units), then I estimate that there may be 72,838 units under construction as of 3Q15.
NIC staff estimates that these 72,838 units will be delivered over a two-year period for average annual construction of approximately 36,400 units. This compares to peak construction levels of approximately 45,000 units in the late 1990s when the last significant overbuilding occurred.
NIC MAP’s statistics on demand and supply focus on two key items, % growth in the supply of private-pay seniors housing and the percent of the 75+ household population, or penetration rate, required to fill anticipated construction. Comparing NIC MAP 4Q14 supply in the top 99 markets to the most recent U.S. Census 2015 population forecast for the entire U.S. 75 + population, NIC-MAP data shows a penetration rate for occupied private-pay seniors housing of 6.25% of the 75+ population in 2015 at a 90.05% occupancy level. The 75+ population is projected to grow at a compound annual rate of 2.9% between 2016 and 2020 while the seniors housing supply is projected to increase by about 2.6% in 2016 if we assume that half of the units NIC MAP estimates are under construction as of 3Q15 are completed in each of the next two years.
The absolute growth in the entire U.S. 75+ population at a 2.9% annual rate is expected be nearly 626,000 annually. At a 6.25% occupied penetration rate, this equates to demand for 39,125 new seniors housing units annually between 2016 and 2020 compared to annual unit growth from new construction according to NIC staff of 36,419 (72,838/2). The market’s ability to absorb projected levels of new construction would appear even better on a net basis if obsolete units being removed from the market were to be deducted from the estimated growth in supply based solely on units under construction. Using NIC MAP estimated supply growth rate (without any assumed demolition) the 75+ occupied penetration rate could actually decrease to 6.1% in 2020 while still keeping private-pay senior housing occupancy at the 90.1% level as of 3Q15 and filling projected development at its current rate to this same level of occupancy.
The key takeaways from this analysis of Census and NIC MAP data are:
Private-pay seniors housing construction levels in the US are elevated compared to recent years but below late 1990s peaks.
Demand is sufficient to accommodate current levels of construction because the 75+ population is growing at 2.9% annually between 2016 and 2020 vs. supply growth of about 2.6%.
Growth in the 75+ population between 2016 and 2020 will produce sufficient absolute growth in demand at a 6.25% penetration rate (39,125 units annually) to absorb projected seniors housing supply growth (36,125 units annually).
With the exception of some select markets, NIC MAP data indicates occupancy can be maintained without an increase, and even with a small decrease, in the 75+ occupied penetration rate of private-pay seniors housing.
Some older obsolete units will be removed from the market, further brightening the prospects for private pay seniors housing compared with estimates of supply growth based solely on units under construction.
Many industry leaders report little evidence of overbuilding in their markets.
Why I Am Concerned
I don’t dispute the NIC-MAP data factually or the view of many industry leaders but I believe they overlook three key items: (1) the increasing age of entry of new residents into private-pay seniors housing, (2) near-term growth in the senior population is concentrated in the “younger” 75 – 79 age group and (3) high turnover means newly constructed seniors housing is very competitive with the existing supply. These are the items that make me pessimistic about the near-term performance of private-pay seniors housing.
Increasing Age Of Entry – Different studies report different numbers for average age of senior housing residents and average entry age, but it is fair to say that in 2008/09 studies the average age of residents ranged from 82 in majority IL properties to 84 in majority AL properties and has moved higher. Estimated entry ages for IL and AL are now closer to the mid-80s according to many operators. This is important because much of the growth in the supply of private-pay seniors housing is in AL and Memory Care units that appeal to seniors over age 85, while much of the growth in the 75+ population will occur in the younger end of this age cohort.
Near-Term Growth Concentrated in Seniors Less Than 80 – The chart above shows projected population growth from the most recent projections of the US Census Bureau for the 75-79, 80-84 and 85+ age groups for the periods 2016–2020, 2021–2025 and 2026-2030. Focusing on the 2016–2020 period you can see that growth is highest for the 75-79 age group, while much lower for seniors 80 and above. As a result, when NIC MAP and others use a 75+ penetration rate it may overstate demand for private-pay seniors housing because residents are not moving in on average until 82 – 84 and perhaps 85 or higher for AL.
The chart below further refines population growth for seniors between age 80 and 87 to illustrate how dramatically growth is skewed toward seniors less that 85 between 2016 and 2020.
Near-Term Outlook Looks Worse On 80+ Penetration Rate – If we look at private-pay seniors housing penetration rates for the 80+ rather than 75+, the 4Q14 penetration rate for occupied units is 10.1% at the national level. Annual projected demand between 2016 and 2020 for the entire 80+ population at this penetration rate is only 23,123 units, compared to current construction levels of 36,400 units per year and the 80+ penetration rate would have to rise to 10.8% in order to maintain senior housing occupancy and accommodate unit growth at current levels to 2020. (This analysis assumes that the rate of construction as a share of inventory exhibited currently for the 99 markets is the same for the non-99 markets as well.) Slow growth in the 80 – 87 age group most likely to move into private-pay seniors housing (particularly in the 85+ age group) and the need for a significant increase in the 80+ penetration rate in order to maintain current occupancy levels raise concern about the industry’s ability to maintain private-pay seniors housing occupancy and rate and accommodate new unit growth near term, even if we assume some reduction in the supply as obsolete units are removed from the market.
Turnover – Data for YE2014 as reported in ASHA’s The State of Seniors Housing 2015 shows turnover rates of 26.2% for majority IL properties and 51.6% for majority AL properties for a weighted average of 36.5%. With a total private-pay seniors housing supply of 1.404 million units and a 90.05% occupancy level, this means that 462,000 units need to be filled annually just to maintain current occupancy. These relatively high rates of turnover, particularly for AL properties, mean that the existing stock of private-pay seniors housing is constantly competing with any newly constructed units and any degree of overbuilding is likely to quickly put pressure on occupancy and pricing in the existing stock, in my view.
When Will Supply Demand Improve – In order to assess when demand/supply conditions for private-pay seniors housing will improve, in the chart below I project growth in the supply of seniors housing into the future assuming the same rate of annual growth in supply seen in 3Q15. This rate of growth (5.24% weighted average) is applied to the supply at the beginning of each five year period and held constant over each five-year period. Once we pass 2020, as the chart indicates, the future of private-pay seniors housing is increasingly bright, with higher demand driven by increased longevity and, after 2026, the long-touted and final arrival of the baby boomers to an age when they might actually consider seniors housing.
However, when you look closely at the above numbers, you see that 80+ demand begins to exceed the growth in supply only slightly in the 2021-2025 and really strong demand from 80+ seniors relative to the level of supply growth does not begin to appear until after 2026, when the Baby Boomers (1946 to 1964) begin turning 80.
Reasons For Near-Term Pessimism – While not every seniors housing market will get overbuilt and many high-barrier-to-entry markets may avoid the adverse impact of additional private-pay seniors housing development, I believe the data above supports my pessimistic view on private-pay seniors housing occupancy, rate and the risk of overbuilding over the next 3 – 5 years. If we keep building at current levels as a percent of supply and we focus on demand from 80+ seniors, it appears that the seniors housing industry will substantially overbuild the market over the next five years. In the period from 2021-2025, the amount by which projected 80+ demand will exceed projected supply growth should be sufficient to help absorb some of the excess supply created in 2016-2020 but may not be high enough to support a significant increase in occupancy or rate or a true senior housing boom. The golden age in terms of demand is really a post-2026 event assuming supply growth continues at today’s rate, the health of baby boomers at 80 is about the same as today’s 80 year olds and boomers will find seniors housing as it is currently being designed and built attractive.
Keys To Success In A More Competitive Environment And Future Arrival Of The Boomers
In order to outperform in the more competitive environment for private-pay seniors housing that I see over the next 3-5 years, I believe operators should:
Limit new development near term
Focus on high barrier to entry markets
Try to reduce turnover
Design/Redesign/Market properties to attract under-80 or early 80s seniors by focusing on IL rather than AL and rethinking locations and amenities to appeal to “younger” seniors
Increase their equity cushion and line up capital in order to be able to bid for more attractively priced acquisitions if occupancy and rates fall and some new product cannot be filled as anticipated
In future blogs, I will discuss some of the cutting edge product that I believe will appeal to Under-80 seniors and look at the housing alternatives to private-pay seniors housing for this age group such as staying in their homes or choosing mixed age condos and apartments, using support services where necessary.
I want to acknowledge the help of my friends at NIC in preparing this blog, even though it takes a more negative view on the near-term outlook for the industry. I particularly want to acknowledge the help of Robert Kramer, Beth Burnham Mace and Chris McGraw. Dave Schless at ASHA also reviewed an early draft and gave me his feedback.
I do not intend to malign NIC MAP data in this blog post. The advent and growth of NIC MAP data is a great tool for the industry and one that should help us avoid the rampant overbuilding seen in private-pay seniors housing in the late 1990s. NIC MAP makes no statement about the appropriateness of the 75 plus penetration rate and demand, per se. NIC MAP adopted the 75 plus household cohort a number of years ago because it has been traditionally been used in the sector by feasibility analysts and others.
I also want to acknowledge two industry reports that cover some of the same material noted here but reach somewhat different conclusions. These are: Beth Mace’s Demographic Update Commentary, circulated by NIC in July, 2015 and Phil Downey’s and Larry Rouvelas’ A Projection of Demand for Market Rate U.S. Seniors Housing 2010 – 2030 published by American Seniors Housing Association Winter 2013.
NIC defines institutional quality private-pay seniors housing as properties with 20 or more units. NIC normally calculates penetration based by comparing the total supply of private-pay seniors housing in the top 99 markets to the total U.S. 75+ household cohort (not the entire household and institutional 75+ population).
In this analysis, I compare the total number of estimated occupied private-pay senior housing units in the U.S. to the total U.S. population of 75 and over and 80 and over seniors. I believe use of a penetration rate based on actual occupancy rather than including vacant units is more accurate but use of either an occupied or total supply penetration rate would produce essentially the same result as indicated above.
While households are the standard unit of demand for housing of all types, NIC, other researchers and I also use population to measure future demand because the Census Bureau does detailed population projections by age but not projections of households. Various commercial data services do project households by age. One other cautionary note when thinking about demand projections for seniors housing is that male longevity has been improving, meaning more very old two person households and potentially less unit demand for private-pay seniors housing than population projections alone may indicate.
There are also some limitations in how I project supply growth. I use NIC MAP construction estimates as of 3Q15 for the top 99 markets, make the assumption that these units will be delivered evenly over two years and that this same rate of growth is occurring in the rest of the country outside the top 99 markets and will continue in the future.
While I believe the assumptions used in this assessment are reasonable and have reviewed them with NIC staff, I believe it would be very helpful for the industry for NIC, ASHA or an independent academic researcher to undertake a demand / supply analysis using household projections by age, seniors housing supply and construction data for just the top 99 markets and include in this an updated survey of the actual entry ages for seniors housing today. Such a study would allow us to better select an aged-based penetration rate at 75, 80 or 85 and would eliminate some of the uncertainty created by mixing population and supply data for the entire U.S. with occupancy and construction stats for the top 99 markets.
Most seniors and their families see the monthly cost of a senior housing facility as much higher than the monthly cost of living at home with family care, or even with part-time or full-time home healthcare. But the math that most seniors and families use to make this comparison assumes no implied cost for occupying a home without a mortgage, much less paid care than is provided in a seniors housing facility and places no value on the companionship and social interaction that a seniors housing community can provide.
This analysis, using data from a variety of sources, attempts to make a fair apples-to-apples comparison, before and after taxes, of the cost for a senior living at-home without care, living at-home with a modest amount of paid care and living in an independent living, assisted living or memory care facility.
The chart below shows the comparison on a pre-tax basis of living at home with a modest level of care to the cost of various types of seniors housing communities. Bottom Line – The cost of living in a $150,000 home with even a modest level of home healthcare can easily exceed the cost of an independent living community and approaches the cost of assisted living. In addition, a senior living at home with part-time care does not get the companionship and social interaction that a seniors housing community can provide and which many studies show are beneficial for a senior’s mental acuity and well being.
Please read below for details and I welcome your comments and questions.
THE COST OF A SENIOR HOUSING COMMUNITY
The cost of various seniors housing settings is easy for seniors and their families to see because most facilities charge a monthly fee for housing and care. The average monthly cost for this care according to a recent survey by the National Investment Center for the Senior Housing and Care Industry (NIC) is as follows:
Independent Living – $3,076 per month
Assisted Living – $4,722 per month
Memory Care – $6,082 per month
To these costs, we need to add some additional expenses for a senior living in a seniors housing community for social and entertainment activities, transportation and non-housing living expenses. I have estimated these at half the estimated cost of someone living at home based on data from the “A Place for Mom.com” website, at a total of $475 per month. I assume half the cost of a senior living at home for someone living in seniors housing because many of these services are provided in a typical seniors housing facility and are included in the monthly rate. I add another $183 per month for a senior living in a seniors housing community for utilities, cable television, wifi and phone and renters insurance. Adding a combined $658 per month for things like phone, cable TV, some outside meals, transportation and other living expenses to the monthly fee for seniors housing communities brings the total monthly cost for living in senior housing rounded to the nearest $100 to:
Independent Living – $3,700 per month
Assisted Living – $5,400 per month
Memory Care – $6,700 per month
AT HOME LIVING AND HOME OPERATING COSTS
When the total monthly cost for senior housing and care at the above settings are compared to the out-of-pocket costs for a senior living in a $150,000 home without a mortgage they certainly appear formidable. A Place for Mom estimates the monthly out-of-pocket cost for a average senior living at home (in a home we assume is worth about $150,000) without a mortgage to be approximately $2,400, broken down as follows.
Utilities including phone and cable
Three meals per day
Emergency alarm system
Social and entertainment
It is this $2,400 figure (or something lower because the senior in question has curtailed her social, entertainment and transportation expenses) that most seniors and their families compare to the $3,700 to $6,700 monthly cost of facility-based senior housing and care. Therefore,seniors and their families generally see facility-based care as 50% to 275% more expensive than having a senior live at home.
But the above comparison ignores the value of the house in which a senior is living and ignores the cost of caregiving and the socialization benefits that a senior would receive if she were living in a seniors housing facility. Let’s deal with each of these separately.
ESTIMATED HOUSING COSTS FOR $150,000 HOME
To account for the value of the home itself, I estimate implied rent (essentially an estimate of the amount you could earn from renting the house) using a 7% cap rate on the assumed $150,000 value of the home, at $875 per month ($150,000 x .07 / 12), which seems very modest for many U.S. housing markets.
When you combine the above monthly costs for home maintenance, taxes and operation and living expenses of $2,400 per month with the implied rent, we get an estimated monthly housing and living cost for a senior living in a $150,000 home of $3,275 (approximately $2,400 for living and home operational expenses, plus $875 in implied rent).
From the above analysis you can see that the cost of living expenses, home maintenance and operation and implied rent/housing costs for a senior living on one’s own $150,000 home, calculated in what I believe is a conservative fashion, is nearly 90% of the average cost of a senior living in an independent living facility. And in the independent living facility the senior is getting much more interaction with other people, much more socialization and mental stimulation than most seniors get when living at home alone.
ESTIMATED HOUSING COSTS FOR $500,000 CONDOMINIUM
Doing the same math for a senior living in a $500,000 condominium yields estimated monthly living and home operating expenses of $4,449 broken down as follows:
Utilities including phone and cable
Three meals per day
Emergency alarm system
Social and entertainment
The implied rent calculation for a $500,000 condo is $2,917 per month ($500,000 x 7% / 12). Combining monthly living and home operating expenses with the implied rent for a $500,000 condo indicates a total monthly cost of living at home, including implied rent, without care at approximately $7,400.
When the above figure is compared to the cost of seniors housing, you can see that the estimated monthly cost of a senior living in a $500,000 condo is almost twice the cost of independent living and 36% higher than the cost of assisted living. You can argue that comparing the cost of a $500,000 condo with the average cost of seniors housing is an unfair comparison because these facilities would cost more in an expensive real estate market. But I believe the calculation on a $500,000 condo is fair for the Baltimore market, where I Iive, and I believe it is fair to say that when a true apples-to-apples comparison of housing, home operation and living costs for senior is made to the cost of living in a seniors housing facility, the difference is smaller than most seniors and families realize before even taking into account the cost of care.
HOME CARE COSTS
From the above analysis, we see that the cost of a senior remaining at home is less than the cost of any type of seniors housing community, even independent living, for a senior in a modest $150,000 home. However, as soon as any degree of paid home healthcare is provided the cost advantages of living at home disappear.
According to A Place For Mom and other surveys conducted by insurance companies offering long term care insurance, the cost of in-home care ranges from $14 – $24 per hour. Certainly at the lower end of this range we are talking about a companion or an aid, not a trained nursing. If you assume only four hours of care per day and only five days per week with family providing care on weekend, the monthly cost of this much home healthcare would range from $1,120 ($14 x 4 hours x 5 days x 4 weeks) to $1,920 per month ($24 x 4 hours x 5 days x 4 weeks). If we use the average of these two figures, the monthly cost for four hours of home healthcare five days a week is $1,520.
When you add the cost of four hours of home care during the week to the cost of housing noted above, the monthly cost of housing plus a modest level of home health would be approximately:
No cost is assumed for family care on weekends.
As the chart at the beginning of this post indicates, as soon as a modest level of home care, in this case four hours per day five days a week, is added to the cost of a home, home operation and living expenses, the cost of living at home with home care, even for a modestly priced home, easily exceeds the cost of independent living and is nearly 90% of the cost of an assisted living facility.
In general terms, healthcare costs exceeding 7.5% of income of a senior’s income are deductible. This includes long term care costs if the senior is chronically ill and is is being cared for pursuant to a plan of care prescribed by a licensed health care practitioner.
If a family member younger than age 65 is paying for care, healthcare costs exceeding 10% of the income of the family member paying for care are deductible. This can apply to home care prescribed by a licensed health care practitioner but not a senior’s housing costs while living at home.
In a seniors housing facility the cost of healthcare provided in assisted living or a memory care facility that exceeds 7.5% of income may be deductible if required by a senior’s medical condition and it is possible that the full cost of facility-based care including housing component may be deductible if living in such a facility is considered essential for medical reasons. See IRS Publication 502 https://www.irs.gov/publications/p502/ar02.html for more information and consult with an accounting professional for more complete information.
AVAILABILITY OF GOVERNMENT ASSISTANCE
While many people believe it does, Medicare does not pay for long-term custodial care at home or in a seniors housing facility. It may pay for short-term home health, therapy or nursing care at-home or in a facility if is prescribed by a physician in response to a particular medical need.
Medicaid will pay for long-term custodial care in skilled nursing facility but only after all other resources are exhausted. Some states have waiver programs that allow Medicaid to be used for assisted living and memory care or at-home community-based care, but as is the case with nursing home care, Medicaid will pay only after all other resources are exhausted. In addition, the last proposed Republican repeal and replace of the Affordable Care Act included significant cuts to Medicaid that could potentially reduce the availability of Medicaid funds for long term care for seniors.
Veteran’s benefits include increased Veteran’s Aids and Attendance Pensions payment for care in a seniors housing or long term care facility under certain circumstances and seniors who qualify for Veteran’s benefits should investigate this option.
The chart below shows the average monthly cost of care for skilled nursing (nursing home), memory care (dementia), assisted living and independent living facilities in the Baltimore/Washington region for 2015. It also shows the cost for 24 hour / 7 day a week home health aide care and 24/7 home health aide care supplemented by 7 hours each week of registered nursing (RN) and licensed practical nursing (LPN) care in an attempt to replicate the level of care an individual might receive in an assisted living or skilled nursing facility.
The monthly cost in 2015 of facility-based care in the Baltimore/Washington region ranges from $2,912 in an independent living facility to $5,659 in a one bedroom unit in an assisted living facility to $6,234 in a memory care facility, and $9,990 to $11,270 for care in a skilled nursing facility (nursing home) in either a semi-private or private room. For a resident needing assistance with three or more activities of daily living (bathing, transferring, etc.), or with any significant degree of dementia, an independently living facility would probably not provide adequate care without supplemental home healthcare, so the effective range for the monthly cost of care for a senior needing a moderate to significant level of assistance in a specialized seniors housing and care facility in the Baltimore/Washington region in 2015 was $5,659 to $11,270.
To see description of the various types of senior housing and care facilities see my page Senior Housing Options http://wp.me/P64zBK-w.
Home health aides cost $21.73 per hour in 2015, and would cost $14,603 monthly if provided on a 24/7 basis assuming no differential for night shifts. A licensed practical nurse was $53.94 per hour and a registered nursing was $77.88 per hour. In the above example, I assumed an hour a day of both LPN and RN care in addition to 24/7 home health aide care to estimate the monthly cost of care equivalent to that delivered in a skilled nursing facility to be approximately $18,294 per month. Many families care for seniors with a combination of care by family members supplemented with limited time by home health aides or other paid caregivers. While this type of arrangement can result in lower cost than facility-based care, it is clear that the cost to provide 24/7 aid and nursing care at home far exceeds the cost of obtaining such care in an assisted living, memory care or skilled nursing facility. Even when less than 24/7 paid care is provided the cost of facility-based vs. home care is often closer than families expect once the cost of utilies, home upkeep and forgone rent or sales proceeds are considered.
The other big advantage to facility-based care over 24/7 home care, even if you can afford it, that I believe many families overlook, is socialization. Seniors being treated at home, even by the most dedicated family caregivers and aides, spend a lot of time isolated from human interaction. At well-run senior housing and care facilities, interaction among the residents and between residents a diverse group of staff provide more interpersonal and intellectual interaction and stimulation than can be achieved at home, which can be very important for a seniors’ mental health and emotional well being.
Planning For The Future Cost of Care
If the raw cost of care and learning that the government will not help you pay for it (See prior post “The Government Will Not Pay For You Long Term Care”) are not sobering enough, seniors and families trying to plan for long term care need to understand the probability of needing such care, the likely duration of such care, and its future cost. I hope to explore these issues more fully in a future post on long term care insurance and other financing options. But to illustrate the future cost of care for planning purposes here, I have assumed an average length of stay (LOS) for skilled nursing and assisted living care of 24 month, 36 months in memory care and 39 months in independent living. I have then assumed 2.5% inflation for 35 years because the average entry age in to an assisted living or skilled nursing facility is about 85 and the time many people start seriously considering long term care insurance is age 50.
In the table above, the average monthly costs for 2015 in the Baltimore/Washington Region are mutiplied by an assumed LOS in months to get the cost for an expected episode of care. The future value of this expected episode of care is then calculated for 2050 assuming you are thinking about this today at age 50 and planning for costs when you are 85 and are more likely to enter an assisted living or skilled nursing facility. The LOS assumed above are averages and at two years probably a bit high for long-stay custodial skilled nursing care. The average LOS are about right for assisted living and independent living based on actual turnover rates in buildings today. I did not find good data on memory care facility LOS but it is widely recognized to be higher than assisted living because some residents enter at younger ages with early onset Alzheimers and are in better physical condition. When planning for an individual’s need to finance long term care it may be appropriate to plan for longer or shorter lengths of stays and look at the probabities of these but I believe these averages are useful to illustrate the order of magnitude of possible future long term care costs.
I assume 2.5% inflation to estimate the future cost of long term care. The 2.5% inflation factor is about where costs have been increasing in recent years but with increasing wage pressure and inflation expectations higher now that Donald Trump is President-elect, other higher inflation assumptions may be appropriate.
The bottom line is that a 50 year old today might reasonably plan for between $300,000 and $600,000 of long term care costs (an average of $516,483 for AL through private room skilled nursing) and expected to spend this amount over a two – three year period beginning around 2050.
New York Life, which is a long term care insurance provider affiliated with AARP, has an online cost of care calculator that is updated annually. New York Life’s 2015 Cost of Care Survey was designed and implemented by Long-Term Care Group (LTCG), the nation’s leader in long-term care administration services. Each year LTCG surveys thousands of Skilled Nursing Home, Home Health Care and Assisted Living Facility providers to collect cost of care data. The cost of care averages are calculated from over 30,000 different providers at the national, state and metropolitan statistical area level. Other cost of care calculators, including one from Genworth Financial, are also available online.
The figures above are for the Washington / Baltimore Region and are somewhat higher than the national average. I supplemented and verified the LTCG survey data with information from the National Investment Center for the Seniors Housing and Care Industry’s NIC-MAP database, which surveys seniors housing and nursing care properties on a quarterly basis (see http://www.nic.org). I used NIC-MAP data for the Baltimore region, which shows the cost for skilled nursing facility care and care in an assisted living facility 7% – 8% lower than the LTCG survey but similar enough to confirm the LTCG survey data. NIC-MAP is also able to provide pricing data for independent living and memory care / dementia facilities, which I incorporated in my analysis.
On Monday June 6, 2016, The “Ask Encore” column by Glenn Ruffenach in the Wall Street Journal responded to a question from a reader about “what features, at a minimum, should be added to our current home or incorporated in a new home so that we can stay in our home as we get older.” The columnist’s response identified three resources to make a home accessible and adaptable for seniors. These included:
These all appear to be useful resources and the Wall Street Journal column cites the Harvard Study as saying five features, in particular, that make for safe and acceptable homes are: no-step entries; single-floor living; switches and outlets reachable at any height; extra-wide hallways and doors and lever-style door and faucet handles. The Harvard Study indicates that 90% of existing homes have one of these features but that only 57% have more than one.
Research (AARP United States of Aging Survey, 2012) indicates that 90% of seniors would prefer to stay in their own home vs. moving to a seniors housing community and I have no doubt that for some seniors making adaptations to an existing home or buying a new home with adaptable feature may allow them to defer a move to seniors housing for some period of time. However, because of most seniors’ strong bias toward staying in an existing home, I see far too many seniors resisting a move to seniors housing even when this would be more beneficial for their health, their finances and their families.
I believe it is important for a senior and her or his family to also consider other issues when considering whether to modify an existing home vs. moving to a seniors housing community. Chief among these are (1) the location of one’s existing home, (2) the age and medical conditions of the residents, (3) access to companions and support services, and (4) the cost of maintaining a home. The key points I want to make are:
seniors and their families need to think through how making accessibility improvements to a home will meet a senior’s physical and mental health needs over time, not just at a single point in time, and
staying vs. moving should be considered in light of the full occupancy and care costs for each alternative.
Location is important for the resident, her or his family and other formal or informal caregivers. Too often, seniors of advancing age become increasingly isolated in their homes because they are not located where public transportation, taxi or Uber-like services are readily available. If this is the case, as a senior’s ability to drive diminishes, which it invariably does, a senior’s ability to visit friends, see medical professionals, attend social, educational and civic events will be restricted with negative implications for their physical and mental health. If they are living alone, studies have show poor diet and social isolation can take a heavy toll. Technology may be able to reduce these isolating effects in the future but is not yet able to overcome all the location issues noted here.
Location is also important for family members and other formal and informal caregivers. If you live hundreds of miles from your children or if your home is not readily accessible in good and bad weather to formal and informal caregivers, a home modified to be accessible for a senior may still prove unable to meet a senior’s needs over time as their physical or mental health deteriorates and caregivers are needed.
Age and Medical Condition
The age and medical condition of residents is also important to consider when thinking about whether to modify one’s home or move to a retirement community. Physical limitations, such as needing a walker, shower grab bars, lever door handles can help extend the ability of an existing home to accommodate a senior. But, if a senior is 85 or older or has medical conditions that will escalate over time, the benefit of these types of improvements may be short lived and fully modifying a home for a wheelchair equipped senior – completely flat floors, wider doorways, larger baths with turning radius for a wheelchair can get very expensive. In addition, if a senior has early signs of dementia, this condition too is likely to deteriorate over time and may require a more secure setting with full time care at some point, which an individual’s home cannot provide.
Access to Companions and Support Services
The cost to bring qualified caregivers and other support services into one home can quickly exceed the cost of a seniors housing community if care is required on a 24/7 basis. It can also be difficult for a senior or their family to manage care and home maintenance services and to monitor the quality of care delivered in a senior’s home, particularly if the family does not live nearby. The availability of qualified caregivers varies with geography, with access to public transportation and with population density tending to improve the availability of care.
Cost of Maintaining A Home
When comparing the costs of staying in one’s home vs. moving to a senior housing community, seniors and their families too often view the cost of staying in one’s home as only including the cost of making accessibility modifications and do not fully consider the cost of part-time or full-item care, the cost of taxes and maintenance, or the income that can be generated from investing proceeds from the sale of a home. This sticker shock of a $2,500 to $6,000 per month fee for seniors housing may seem a lot less daunting when one makes a accurate assessment of the costs of staying at home. It is also important to understand that the average length of stay for an 85 + senior in assisted living is about two years, so $150,000 in home sales proceeds is usually sufficient to fund an average stay.
There is some additional discussion of housing options and issues to consider when moving to seniors housing on this blog www.robustretirement.com. The American Seniors Housing Association also has a new website Where You Live Matters with a lot of information for seniors considering whether to stay in their existing homes or move to a retirement community, including cost calculators. Specific posts on this website that may be of interest include:
On Tuesday, May 17, 2015 I was featured in a question and answer session over breakfast with subscribers of Senior Care Investor, moderated by its editor Steve Monroe. We covered a wide range of topics. I summarize below key takeaways from my Senior Care Investor interview and provide a link to the nearly one hour webcast.
The public markets are much less important for seniors housing and post-acute care than they were twenty years ago when there were as many as 30 public companies including operators and health care REITs. If you review the investment history of seniors housing and post-acute care there have been a number of “pivot points” where stocks in these sectors experienced significant sell offs and then rebounded strongly. These pivot point were driven by overbuilding and reimbursement and operating problems that in some cases led to operator bankruptcies. If you got the timing right, these pivot points provided very attractive investment opportunities in the stocks of private pay senior housing operators, post-acute care operators and health care REITs, with the stocks within each of these industry groups moving on somewhat different events and at somewhat different times.
I see current industry conditions again creating pivot points for investments in senior housing, post-acute care and health care real estate and believe it is the right time for investors to be studying these sectors and deciding when it makes sense to invest.
Private-Pay Seniors Housing – Overbuilding, few publicly traded investment options and operating issues at the largest publicly traded operator, Brookdale Senior Living, Inc. (BKD), have caused most public market institutional investors to flee the private-pay seniors housing space. I don’t see a quick pivot in private-pay seniors housing because capital remains plentiful for new construction, underlying demand from older seniors (80+) is slower than it was before 2010 (see Slow 80+ Pop Growth, Elevated Construction Spark Concern For Seniors Housing on this blog), and issues at Brookdale will take some time to resolve. I also believe private equity investors will await a more receptive market before bringing other quality operators public.
Post-Acute Care – Post-acute care currently has more publicly traded operators with scale than private-pay seniors housing, but deteriorating operating fundamentals and high leverage have also driven public market institutional investors away from publicly-traded post-acute care operators. Major REITs, such as Ventas (VTR) and HCP (HCP) spinning off skilled nursing assets has underlined the risks investors see in this space. Increased use of Medicare and Medicaid managed care and ever expanding use of bundled payments are reducing lengths of stay (LOS), pressuring post-acute care rates and volumes and eroding operator revenue and EBITDA. However, because baby boomers are now beginning to turn 70, the pool of post-acute care patients should grow dramatically over the next 5 – 10 years while the supply of post-acute care facilities and beds is flat or declining and quality operators should be able to attract higher volumes of patients from hospitals if they care demonstrate quality outcomes. A mild flu season and high operator leverage exacerbated poor 1Q16 financial performance. I anticipate pressures on rates and LOS stabilizing and volume growth providing upside for post-acute care operators over a 1 – 2 year period while operators are rationalizing their delivery systems and paying down debt. I believe these factors put post-acute care closer to a performance pivot point than private pay seniors housing.
Health Care REITs – Health care REIT share prices have been buffeted by some of the same issues affecting private pay seniors housing and post-acute care operators but health care REIT share price performance has been much more mixed than that of the operators. Many health care REITs are well diversified, have strong lease coverage and are less exposed to overbuilding and revenue pressures than the operators themselves. Health care REIT stock performance is also significantly influenced by investor’s views on interest rates and overall economic growth. Some healthcare REITs, with more significant exposure to seniors housing or post-acute care issues, such as HCP, presumably its future SpinCo, and CCP, have been more directly impacted by the industry and operator issues noted above. These REITs, and some others, offer larger cap, more liquid investment vehicles than seniors housing or post-acute care operators but likely also have potential for upside from the industry pivot points described above.
Having retired as an equity analyst who followed seniors housing, post-acute care and health care REITs for 15 years, I no longer make Buy, Sell, Hold recommendations. I do recognize that there are significant risks for private pay senior housing operators and particularly for highly leveraged post-acute care operators. However, experience in the 1999 – 2002 crash of private-pay seniors housing and post-acute care and other sell-offs driven by operating underperformance, reimbursement cuts and regulatory issues show that these sell-offs have often proven to be great investment opportunities and have absolutely been a time to look harder at these sectors and develop an investment strategy and timetable rather than to flee the space.
For a more in depth discussion of these issues, listen to the Senior Care Investor webcast by clicking on the link below. Comments, including those with opposing viewpoints, welcome.
Earlier this month I toured The Stories at Congressional Plaza, a new type of “seniors housing” project designed to appeal to seniors as well as those of other ages looking for a high-tech, high-service environment in an urban mixed use setting. The Stories opened in February 2016 and is a joint effort of Federal Realty Investment Trust and Ryan Frederick’s Smart Living 360.
Federal Realty is a publicly traded REIT (NYSE: FRT) that specializes in the ownership, operation, and redevelopment of high quality retail real estate in the country’s best markets and is increasingly developing mixed-use projects in connection with its retail holdings. Ryan Frederick has long been known as one of the leading thinkers on the future of seniors housing through his Point Forward Solutions consulting company. Ryan has now created a new company, Smart Living 360, to work with a retail/mixed use developer, rather than a seniors housing company or health care REIT, to bring us his vision of the future of “seniors housing” in a property designed to appeal to seniors but open to those of all ages.
The Stories is a new 48 units apartment building located at 1628 E. Jefferson Street in Rockville, Maryland. It is part of Federal Realty’s Congressional Plaza redevelopment that includes a high-end shopping center, Federal’s corporate headquarters and an existing 150+/- unit apartment building with structured parking (The Crest), now about 10 years old. The Stories was developed on a site long designated for residential use as phase 2 of the Crest. According to Ryan, Federal became interested in consciously designing The Stories to appeal to the seniors market because they wanted a way to differentiate the projection from other high-end rental projects in the same area of the Rockville Pike, northwest of Washington and Bethesda.
The Stories is designed to appeal to the baby boomer market, now passing age 67, and other seniors with a “younger” outlook, unlikely to consider independent or assisted living or even a continuing care retirement community (CCRC). This market is large and rapidly growing and not well served by well served by conventional seniors housing. While those 75 and up are considered part of the senior housing markets in many market studies, the average entrance age for most dedicated senior housing communities is now closer to 85 than 75 (See Slow 80+ Pop Growth, Elevated Construction Spark Concern For Seniors Housing on this blog – https://robustretirement.com/?p=209.
Ryan and Smart Living 360’s vision for The Stories is derived from a view of what “younger” seniors want in a living environment to enhance their wellbeing and tries to anticipate the growing role of technology for enhancing seniors’ lifestyle and delivering the services they want and need. It is also purposefully designed to be flexible so it can adapt to the needs of its target market as they are discovered over time.
To understand what Federal and Smart Living 360 have created at The Stories, you need to think outside the traditional seniors housing box regarding design, services and technology.
Physically, The Stories is a attractive 5-story modern apartment community located in high-income, high-wealth, high-education zip code with a unit mix favoring larger 2 and 3 bedroom units (75% 2 bdrms) over one level of structured parking. With rents from $2,500 to $4,000, The Stories is priced at about half the cost per square foot of traditional IL properties in its market. But unlike conventional IL properties, The Stories does not bundle food service and activity programs into its rent. It is part of a mixed-use project including retail, office and other residential uses in a nice residential area a block off a heavily travel arterial street, the Rockville Pike, MD 355. The property faces other residential uses and fronts on a relatively quiet suburban street.
Units within The Stories look like high-end non-age-targeted residential rental units with small balconies that are designed with largely invisible accommodations for an aging senior market – wider doorways and master baths able to accommodate a wheel chair with higher toilets, easy entry showers, modest grab bars in the bath with studs behind the wall to allow more to be installed, roll out lower shelves in cabinets, electrical outlets further up on the wall, etc. These are accessible units that intentionally look like conventional units.
Common areas include a large fitness room with some specialized equipment for seniors that could also be used by personal trainers or rehab therapists, a central lounge with a refrigerator and cooking equipment and a self-serve coffee bar. There is a small conference room that is designed so that it can also be used for a visit by a health professional or for telemedicine care. The entire building is pre-wired for high speed Verizon Fios internet with pre-installed routers; and service providers are available to install Sonos wireless speaker systems and other electronic amenities in the units. The electronics designed into the building are intended to accommodate increased use of patient self-monitoring and wellness devices that Ryan believes will become increasingly prevalent, sophisticated and integrated over time.
The building offers a secure electronic entry system, with an enhanced concierge called a Lifestyle Ambassador (services described below) manning the front desk during the day. The building is monitored in the evening by management personnel from the larger Crest Apartment building that is located at the other end of the block, across a parking lot from The Stories. The number and length of coverage by on-site personnel is partly limited by the buildings relatively small size, only 48 units.
What really sets The Stories apart as a community that will appeal to seniors is its use of a Lifestyle Ambassador, in this case a hotel industry trained and certified concierge cross-trained in seniors housing design and services. The role of the Lifestyle Ambassador is threefold – 1. Help residents connect with one another and with the outside community, 2. Provide access to any needed services, and 3. Simplify resident’s lives by taking care of pets and plants while residents are traveling and providing other services. Smart Living 360 makes use of many off-the-shelf on-demand services, has prearranged for a wide range of additional services to be available to residents of The Stories and will provide referrals to providers, including:
The goal at The Stories is to offer attractive housing, location and services to enhance the well being of baby boomers and other “younger”, generally healthy seniors without the stigma of a traditional seniors housing community with a large percentage of very old, frail people; and to do it in a flexible way that allows it residents to order in any services they may need and to adapt to rapidly evolving technology for medical monitoring and wellness.
Smart Living 360 hopes to monitor residents of The Stories over time to see if the building’s design and the flexible services it offers will enhance residents’ well being compared to those living in other residential settings. This will be done using the Gallup-Healthways Well-Being Index that measures five factors:
Purpose – Liking what you do each day and being motivated to achieve goals
Social – Having supportive relationships in your life
Financial – Managing your economic life to reduce stress and increase security
Community – Liking where you live and having pride in your community
Physical – Having good health and enough energy to get things done.
What is interesting to me about Smart Living 360’s approach compared to a traditional senior housing facility is that Smart Living 360’s Life Style Ambassador begins with the residents’ wishes and customizes activities and services the resident desires while a traditional senior housing facility has a menu of services into which it tries to fit a resident. I see the Smart Living 360 approach as more resident centric, more personalized and more adaptable over time.
The Stories occupies an interesting place somewhere between non-age-restricted market rate apartments and conventional seniors housing. Interestingly, the project was voluntarily described as 55+ housing in pre-opening marketing material but the developers have now decided to market its advantages for seniors but without the age restriction, which they believe may be a turn-off for their primary but not only target market. Of the first several residents moving in, two are seniors and one is age 29 but liked the amenities.
It remains to be seen whether The Stories will be successful in attracting baby boomers and other seniors with a “younger” outlook and how Ryan Frederick’s vision of meeting residents’ needs and increased use of electronic devices to monitor and enhance health and wellness will come to pass. But I believe, even at this stage, The Stories has some interesting lessons for seniors housing and multi-family developer/operators and institutional real estate investors. These include:
Non-age restricted housing and un-senior “seniors housing”, as I categorize the Stories, may be more appealing to under 80s seniors, and even those over 80 in good health with younger outlook, than more conventional seniors housing projects. For a significant portion of the senior population today and I believe for even a larger portion of the baby boomers, living in mixed aged neighborhoods or even in mixed age buildings like The Stories may be preferable to living in a senior ghetto or in an isolated age-restricted community.
We have already seen obsolescence in seniors housing communities, such as IL projects without sufficient provisions for handicapped residents, IL and CCRC projects without AL and memory care units, AL communities with insufficient common space for gyms or rehab care and IL and AL buildings with too many small units. This history suggests that building flexible design into seniors housing communities, which The Stories has very deliberately tried to do, may be an advantage for the community over time.
Seniors housing located in mixed use projects or higher density urban areas, where services and amenities are close-by, while often more difficult and more expensive to develop than stand-alone conventional IL or AL communities, would seem to offer a lot of appeal for the baby boomer age cohort and other active seniors.
In an age of on-demand services, such as Uber and Foodler, planning seniors housing around services delivered by outside vendors may prove both cost effective and better able to meet seniors desires and needs than the service packages typically available in seniors housing communities.
Seniors, particularly the baby boomer age cohort, are increasingly tech-savvy and should be able to adapt to electronic delivery of health and wellness services, as well as other on-demand services, and may see projects designed to accommodate more high-tech amenities as more appealing than conventional care models.
The resident centric and holistic approach to meeting resident’s needs built into the Lifestyle Ambassador approach that incorporates both social and care needs, seems to offer some advantages over the way conventional seniors housing services are organized with responsibility fragmented between healthcare, activities, dining and caregiving personnel, each of whom may only see themselves responsible for a slice of a senior’s needs. While the staff in any well managed seniors housing project should get to know the “whole resident”, making resident on-demand centric services the organizing principal of your care delivery system appears to offer some advantages and a have a better chance of assuring a residents need are met.