Seniors Housing Leaders Optimistic on Sector's Resilience
The 7th Annual InterFace Seniors Housing Southeast event, the industry’s largest and longest-running regional conference, was held in November as a virtual conference, connecting the leading owners, operators, investors, developers, and financiers of seniors housing in the Southeast as they discuss the challenges the industry faces and the outlook for 2021.
Permanent Changes as a Result of COVID-19
While the COVID-19 pandemic has led to plentiful short-term changes in the Seniors Housing industry, there are a handful of changes that are here to stay. Virtual tours of facilities, telemedicine for residents, and an overall increase in attention to resident’s mental health could all be permanent changes, according to the speakers on “The Power Panel.” Furthermore, an increase in the digital presence and the power of social media have become key characteristics required of operators to stay in-front of potential new residents and maintain overall connectivity with current residents and family members. One cannot ignore, nor deny, the negative headlines Seniors Housing is currently experiencing, and the industry will need to find ways to mitigate these negative perceptions, such as professional associations retaining public relations firms or promoting affirmative perceptions across social media. “The Power Panel” believes this interconnectivity and a viable culture within the community will be crucial components for success moving forward.
As a result of implementing these permanent changes, there will be new expenses such as PPE, hazard pay and cleaning. Increased rents may arise in order to keep or maintain the profit level due to these higher expenses, and “The Power Panel” finds that going forward, intense attention to cleaning and isolating residents who are sick will obviously become more common. Operators are still trying to figure out how this is going to “pencil out,” post COVID-19 vaccine with increased costs and expense levels.
As in almost every economic downturn, the panel believes we could see plenty of distressed opportunities within the industry. Newcomers throughout the business that were going to come online right now are scared, and those “non-involved” investors now want to exit the Seniors industry. The pandemic has heavily affected development plans, although both construction and development were difficult even before COVID, with everyone searching for that prized “unicorn market.” “The Power Panel” fully believes the Seniors industry was in for rough patch, even before COVID-19, due to sheer oversupply coming online, such as 19 projects that were scheduled to be delivered in McKinney, TX alone - in just one year.
Financing Slowly Returns
From the financing side, lending sources are slowly starting to come back, but there was heavy disruption. As reality sets in, lots of lending on the Seniors debt side has backed away: underwriting deals has become tougher, leverage has gone down, while requests for recourse has gone up, development and new construction financing have become very difficult. COVID-19 has now softened metrics and both debt and equity can be much more selective now. Comparing this economic shock to the 2007 cycle, the amount of equity that most people have in deals is greater today. And yet, some of these deals will probably still be completed with less bank debt.
Managing Expectations for 2021
The panel asserts that transactions are getting done today, but at a much slower pace than in the past three to five years, and “The Power Panel” collectively believes there will be some pain in deals over the next 12 to 18 months. Expectations across the board for 2021 is that it will be a healing year, with a vaccine hopefully delivered by Q1 2021. Lastly, although 2020 has been a demanding and mentally taxing year, positives have emerged as a result of COVID-19, and we should be encouraged as it relates to how well the Seniors industry has handled the pandemic. The dislocation of labor markets has translated well, and healthcare has risen to the forefront as a stable career opportunity. A major increase in job interest within the industry has allowed owners and operators the opportunity to hire the top candidates to join the workforce. Strong market demand and long-term capital will encourage investments: once overall occupancy improves and a COVID-19 vaccine is produced, “The Power Panel” fully believes money will pour back into the Seniors industry. This sector has always been “forward looking” and is one of the bright sectors within real estate. The Seniors Housing business is providing a critical service, and the industry has to be brilliant in the basics in order to guide the industry back to stabilization.