Baby boomers drive changes in seniors housing market

By Mitch Morgenstern, SVP, Division Manager, Commercial Banking

How are seniors housing facilities upgrading to meet baby boomers’ needs, while managing cost and regulatory pressures?

Baby boomers (born between 1946 and 1964) began turning age 65 and joining the senior population a few years ago, and they are expected to enjoy longer lives than previous generations of seniors. Longevity is increasing, driven by medical advances, healthier living and public health campaigns (such as initiatives to reduce smoking and curb obesity). In 1972, life expectancy at age 65 was 15.2 years, and by 2010 it had grown to 19.1 years, according to the U.S. Census Bureau. So what does the burgeoning senior population and the accompanying increase in longevity mean for the seniors housing market? What trends are emerging?

Lifestyle communities grow in popularity
One successful trend in the seniors housing market is lifestyle communities that offer relaxation, activities and entertainment. According to a presentation from the National Investment Center for Seniors Housing & Care (NIC) Conference from this year entitled “Innovations in Seniors Housing,” these resort-type communities tie in to people’s desire for experiences, not things. Lifestyle communities can offer activities such as swimming and biking – as well as painting, dancing, and continuing education. 

The Villages, a resort-style community in central Florida, exemplifies this trend by offering golf, performing arts centers and recreational facilities. It also has three town squares, one set up as a cattle town, one as a Spanish square and one as a seaside village. The Oaks at Braselton (north of Atlanta) takes the town square concept into an upscale indoor center, with a small movie theater, lovely chapel, beauty and barber shops, and a spacious wood-beamed community area surrounded by picturesque courtyards and patios. 

Longevity and lifestyle affect seniors housing preferences
While some baby boomers may prefer to relocate to lifestyle communities as they age, many prefer to live in the homes they have inhabited for decades. Whether they have decided to move or not, a growing trend among seniors and baby boomers alike is aging in place. According to a report from the AARP Public Policy Institute, 87 percent of adults age 65 and older, and 71 percent of people age 50 to 64, want to stay in their current homes and communities as they age. USA Today reports that new technology makes it easier for them to do so. Sensors on doors, cabinets, chairs and beds can check and report activity levels to caretakers; innovative dispensers with alarms, timers and flashing lights can manage medications; and video chatting via Skype or FaceTime can enhance connections with loved ones. Such devices can prolong a feeling of independence for the senior, while providing reassurance to family members.

To accommodate the preference most baby boomers have for aging at home, builders have begun to offer a variety of residential housing options. According to the National Association of Home Builders (NAHB), contractors are catering to the more than 76 million baby boomers by adding easy-to-maintain exteriors, wider doors and hallways for easier accessibility, first-floor bedrooms and bathrooms (master suites) to allow for less day-to-day strain on knees and backs, and home offices for those who intend to work past traditional retirement age and would like a flexible workspace at home. 

What do these baby boomer preferences and seniors housing trends mean for investors? What investment opportunities should they consider?

Renovation and operational upgrade expectations
As the needs and desires of the aging population continue to change, those investors who keep abreast of seniors housing preferences and review statistics, demographics and financials are the ones best positioned to determine which opportunities to pursue in the seniors housing and care industry.

An NIC presentation, “Property Valuations for Seniors Housing and Skilled Nursing,” explained that high occupancy rates and low operating margins are good measures for investors looking at seniors housing. Other relevant factors include the area’s current property supply and planned new construction. Investors should also consider property fundamentals, strength of regional operator, median household income, and population of age/income-iqualified seniors.

For investors who wish to redevelop, the NIC presentation “Determining If It’s Time to Redevelop Your Properties” examined refurbishing seniors housing communities to meet the different needs of seniors and baby boomers. The presentation focused on upscale senior living properties in Chevy Chase, MD and Atlanta, GA, and proposed they resize living spaces, build community spaces and address mechanical issues to attract new residents and boost property resale value. Renovation and reconfiguration can make a seniors housing property more attractive to both prospective residents and capital investors. One such example is creating an exceptional modern therapy gym that could include floor-to-ceiling windows, 20-foot ceilings and modern equipment.

But building improvements may not be enough. The NIC presentation “Investing in Operations and Maximizing Your Return” mentioned that investors often provide capital for the real estate side, but not the operations side. Investing in operations is important, particularly at skilled nursing facilities (SNFs). Investors who upgrade SNFs by improving business operations, enhancing system operations and implementing data analytics will be able to create long-term value. With the increased emphasis on Medicare Star ratings for SNFs, data analytics are of particular importance.

Rising wages add cost pressure
Improving overall operations is important. Senior Housing News reported that cost pressures led to Real Estate Investment Trusts (REITs) divesting their skilled nursing assets during 2016. Skilled Nursing properties are under pressure for several reasons, including patient mix changes, shorter lengths of stay and rising wages. 

Wages increased by 2.5 percent in all sectors, by 3.5 percent at SNFs and by 5 to 6 percent at assisted living facilities in 2017, according to an NIC presentation. Wage pressure can have a large impact on cities with strong labor markets (such as San Jose, San Francisco, Boston, Dallas, Denver) and states with rising minimum wages. Senior Living states the average Certified Nursing Assistant (CNA) wage was $13.20 per hour in 2016, and 95 percent of continuing care retirement communities hire CNAs. The facilities pay a premium for certified CNAs and for shift and weekend work.

Regulatory pressures
In addition to cost pressures, SNFs are facing greater regulatory scrutiny. They are responding by cross-training staff, creating a more professional atmosphere and quickly addressing patient concerns. By developing strong data analytics, SNFs can better monitor patient care too. SNFs that have been audited or inspected tend to be fully prepared for inspectors’ questions. While private-pay assisted living facilities (ALFs) have less rigorous inspections, they also need to monitor patient care to avoid regulatory problems.

Adjustments for the future
To survive cost pressures, some SNFs are branching out and adding short-term rehab. Ottawa Pavilion, a 135-bed senior care community in Ottawa, IL, offers comprehensive physical, occupational, speech and respiratory therapy to help patients recover from surgery, cardiac, knee and stroke health issues. The therapy room features state-of-the-art equipment in a spacious, windowed room. Patients who seek an emotional lift can visit the ice cream parlor and Tuscany lounge at the center of the facility.

Other SNFs are attracting residents with fancy amenities and homey atmospheres. The South Bend Tribune reported on the construction of a $6 million premier SNF with 100 beds and a solarium, movie theater and bistro. BellTower Health and Rehabilitation opened in 2016, and is located outside South Bend, IN. To enhance therapeutic recovery, this SNF also offers restaurant-style dining, shopping trips and pet visits.

Conclusion 
The seniors housing market is evolving. From wage pressures impacting SNF operations, to sophisticated lifestyle preferences influencing baby boomers, to market fundamentals and demographics driving investor decisions, changes are afoot and are likely to continue. With the number of seniors expected to reach 83 million by 2050, investors and contractors will continue to focus on meeting market challenges while satisfying the preferences of a growing population.