investing in seniors housing properties: opportunities and

Prepared for WMRE WebinarAugust 12, 2021

Presented by:Chuck Harry, Chief Operating Officer

Beth Burnham Mace, Chief Economist

Investing in Seniors Housing Properties: Opportunities and Challenges

©2019 National Investment Center for Seniors Housing & Care (NIC)

National Investment Center for Seniors

Housing & Care (NIC)

NIC is a 501(c)3 organization whose mission is to enable access

and choice by providing data, analytics and connections that bring

together investors and providers.

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Today’s WMRE Webinar Presentation

• The 2021 NIC/WMRE Investor Sentiment Survey

Results

• Investment Trends

• Investment Thesis for Seniors Housing: Opportunities

and Challenges

• Seniors Housing Market Fundamentals


The 2021 NIC/WMRE Investor

Sentiment Survey

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2021 NIC/WMRE Investor Sentiment Survey Results

Online Survey of 189 Respondents | June 10 – June 20, 2021

• 90% of respondents report an average increase in COVID-19 related

expenses of 9.1% and 49% expect to incur a permanent increase in

expenses due to the virus.

• The COVID-19 pandemic has had the biggest impact on recent

occupancy rates.

• Nearly half of respondents expect no change in seniors housing

investment in the near term, while 51% expect to see more investment

the long term.

• Roughly 57% of respondents anticipate seniors housing construction

starts to increase over the next year. Overbuilding is not a large concern.

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2021 NIC/WMRE Investor Sentiment Survey Results (cont’d)

• More than half of the respondents believe that seniors housing is in a recovery or expansion phase vs. 50% last year who believed it was in a recession or at a trough.

• 80% believe occupancy rates will improve by at least 2.5 percentage points.

• 42% expect greater availability of equity capital over the next 12 months and 36% expect greater availability of debt capital.

• Cap rate expansion of 37 basis points on average anticipated.

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Significant Factors Affecting Seniors Housing Occupancy

Source: NIC/NREI Investor Sentiment Survey, Summer 2014 - 2021

Factors Affecting Seniors Housing Occupancy in Past Six Months

(Share of Respondents Indicating Very Significant Impact)

2021 2020 2019 2018 2017 2016 2015 2014

New Competing Properties 46% 40% 63% 69% 59% 62% 59% 47%

State of the U.S. Economy 48% 55% 43% 50% 40% 55% 12% 62%

State of the U.S. Housing

Market 47% 30% 39% 41% 39% 47% 20% 60%

Rental Discounts/Incentives 34% 34% 34% 36% 34% 34% 29% 29%

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COVID-19 Pandemic Dwarfs Other Influencing Factors

Source: NIC/NREI Investor Sentiment Survey, 2014 - 2021

Factors Affecting Seniors Housing Occupancy in Past Six Months(0 to 100%)

COVID-19 Influence

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2021 2020 2019 2018 2017 2016 2015 2014

New Competing Properties State of the U.S. Economy State of the U.S. Housing Market

Rental Discounts/Incentives COVID-19 Pandemic

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Source: NIC/NREI Investor Sentiment Survey, 2020, 2021

Expected Change in Seniors Housing InvestmentPercent

0

10

20

30

40

50

60

70

More No Change Less

Near Term 2021 Long Term 2021

2020: 34%

2021: 61%

2020: 18%

2021: 37%

More Bullish Sentiment on Investing in Seniors Housing

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Most Believe We Are Past Recession and into Recovery

Stage of Cycle

Source: NIC/NREI Investor Sentiment Survey, 2021

Stage of Real Estate CyclePercent

0

10

20

30

40

50

60

2021 2020 2019 2018

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Recent Survey Shows Weaker Investor Preference for Seniors Housing

Source: NIC/NREI Investor Sentiment Survey, 2015 – 2021

How Do You Rate the Attractiveness of Investing in Each Property Type?Mean Score, Scale 1 (Extremely Unattractive) to 10 (Extremely Attractive)

7.0

6.37.2 7.2 7.3 7.3

7.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2021 2020 2019 2018 2017 2016 2015

Seniors Housing Apartments Industrial Office Hotels Retail

12©2019 National Investment Center for Seniors Housing & Care (NIC)

Investment Trends

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Sluggish Transactions Markets, But Picking Up

U.S. Seniors Housing & Care Transaction Volume1Q08 – 2Q21

Source: NIC MAP® Data Service, Real Capital Analytics (RCA)

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Distress Sales Remain Low

0%

10%

20%

30%

40%

50%

60%

70%

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

08Q1 08Q4 09Q3 10Q2 11Q1 11Q4 12Q3 13Q2 14Q1 14Q4 15Q3 16Q2 17Q1 17Q4 18Q3 19Q2 20Q1

Distress % of Total Sales

U.S. Seniors Housing & Care Sales Associated with Distress1Q08 – 2Q21

Source: Real Capital Analytics (RCA)

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Seniors Housing Pricing Off of Recent Lows

Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit1

U.S. | 1Q08 – 2Q21

Source: NIC MAP® Data Service, Real Capital Analytics (RCA)

1. Preliminary Data

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Seniors Housing Investment Returns

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

One Year Three Years Five Years Ten Years

NPI Apartment Hotel Industrial Office Retail Seniors Housing

NCREIF Annualized Total Returns by Select Property Type1Q11 – 1Q21

Source: NCREIF, NIC MAP® Data Service

17©2019 National Investment Center for Seniors Housing & Care (NIC)

Investment Thesis for Seniors Housing:

Opportunities and Challenges

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Investment Thesis

• Need-driven industry with strong demographic growth

• Baby Boomer Greatest Generation to Lucky Few to Burgeoning Baby Boomers

• Fewer caregivers--Adult Children, Labor Shortages, High Divorce Rates

• Product Diversification (…think hotels from Motel 6 to Ritz)

• Affluent, Forgotten Middle Market

• Low Acuity, High Acuity (Private-pay Seniors Housing, Memory Care, End of Life, Active Adult)

• Aging and Obsolete Inventory

• Physical structures and specs are evolving in post-Pandemic world

• Two-thirds of stock is over 17 years of age

• Integral Part of Healthcare Continuum

• Facilitation of provision of care cemented during pandemic

• Resident Value Proposition: Life-enhancing Aspects of Socialization (vs.

Isolation) and Population Health Management

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Investment Thesis (cont’d)

• Compelling private sector investment returns and sizeable risk premium

• Considered a core real estate asset class by some

• Significant transaction volumes and liquidity in the sector

• Fragmented sector with consolidation opportunities

• Multiple financial structures: private equity vs. RIDEA REIT structure vs. REIT

NNN structure

• Plentiful debt availability and supported by Fannie Mae, Freddie Mac and HUD

• Low delinquency rates

• Portfolio diversifier—less dependent on economic cycles.

• Governmental and social policy changes regarding healthcare and costs and

changes in post-acute care payment and delivery systems

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• COVID-19 recovery trajectory

• Very low current occupancy rates

• COVID-19 related headline risk

• Consumer preferences

• Home as competitor or complement?

• Squeezed margins related to COVID-19 related expenses and revenue potential

• Fragmented and relatively small CRE sector, with small-sized properties that can be affected by local market

• Safety and infection containment concerns

• Quality operator shortage

• Property age and obsolescence

• Care coordination/changes in healthcare industry

• Large middle market opportunity due to affordability challenges

• Incorporation of technology, although COVID sped up implementation of telehealth

Seniors Housing Challenges

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Labor costs and scarcity

Seniors Housing Challenges

45% 45%

14% 18%

31% 26%

6% 8%

W29 W30

Something else

Too much competition

Cash balances/liquidity on balancesheetLow occupancy rates

Staff turnover

Attracting community/caregiving staff

NIC Executive Survey – Biggest Challenges to the Organization

Waves 29 and 30

Wave 29 responses collected May 17 to June 13, 2021

Wave 30 responses collected June 14 to July 11, 2021Source: NIC Executive Survey

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63%10%

6%

6%

6%4%3%

1%Increasing wages

Flexible schedules

Student outreach

Referral bonuses

Hiring bonuses

Something else

Retention bonuses

Recruiting events

Job sharing

Enhancing benefits

NIC Executive Survey – Most Effective Method for Attracting New StaffWave 30

Increasing Wages Most Effective Method for Attracting Staff

Wave 30 responses collected June 14 to July 11, 2021Source: NIC Executive Survey


Seniors Housing Market Fundamentals

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Market Fundamentals: Key Themes Second Quarter 2021

1. Demand as measured by net absorption reversed course after four

quarters of being negative and was positive in the second quarter of

2021.

2. Nonetheless, the occupancy rate for seniors housing in the Primary

Markets was unchanged due to growth in new inventory.

3. Occupancy improved in the Secondary Markets with gains in inventory

relatively limited relative to improvements seen in demand.

4. Occupancy in nursing care increased after four consecutive pandemic-

related quarterly declines.

5. Construction starts accelerated in the second quarter of 2021, following

a year of slowing activity.

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Impact of the Pandemic on Seniors HousingMarket Fundamentals Was Significant

Seniors Housing FundamentalsPrimary Markets | 1Q06-2Q21

60%

65%

70%

75%

80%

85%

90%

95%

-16,000

-11,000

-6,000

-1,000

4,000

9,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Inventory Growth Absorption

All Occupancy Stabilized Occupancy

Source: NIC MAP® Data, powered by NIC MAP Vision

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26% of Properties Have 90% or Higher Occupancy

Seniors Housing Property Count by Occupancy Cohort Primary Markets | 2Q20 vs. 2Q21

2Q20

28.9%

12.1%

16.1%

21.0%

21.8%

46.1%

13.1%

15.9%

15.3%

9.6%

46.1%

11.7%

15.9%

16.0%

10.3%

2Q211Q21

2Q21 Average (Mean) Occupancy: 78.7%

2Q21 Median Occupancy: 81.7%


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Occupancy Increased in Secondary Markets in 2Q21

Seniors Housing FundamentalsPrimary Markets | 1Q06-2Q21

60%

65%

70%

75%

80%

85%

90%

95%

-16,000

-11,000

-6,000

-1,000

4,000

9,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Inventory Growth Absorption

All Occupancy Stabilized Occupancy


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Seniors Housing Occupancy by Property Type

Seniors Housing Occupancy RatesPrimary Markets | 1Q06-2Q21

81.8%

75.5%

78.7%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

IL AL Seniors Housing


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Some Markets See Uptick from Record Low Occupancy Rates

70%

75%

80%

85%

90%

95%

100%

SJ

PO

R

SF

SE

A

NY

BO

S

DC

OR

L

TA

M

MIN

PH

I

BA

L

MA

P31

DE

T

SD

DE

N

CIN

CH

I

SA

C

LA

KC

DA

L

PIT SA

PH

O

ST

L

MIA

RIV

CL

E

LV

AT

L

HO

U

Seniors Housing Occupancy by Metro MarketPrimary Markets | As of 2Q21

Occupancy Range (4Q05 - 2Q21)

Current Quarter Occupancy

Year Ago Occupancy


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Construction Starts Ticked Up in 2Q21

Seniors Housing Construction Starts (Units)Primary Markets | 1Q06 – 2Q21

5480

0

3000

6000

9000

12000

15000

18000

4-qtr moving sumMajority Independent Living

6622

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20210

3000

6000

9000

12000

15000

18000

4-qtr moving sum

Majority Assisted Living


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‘16 ‘17 ‘18 ‘19 ‘20 ‘21

# Contributors

Per Qtr

Note: Absolute volumes are impacted by # and type of data contributors each quarter

New Construction Loan Volume ClosedPrimary Markets | 3Q16 vs. 1Q21

0

200

400

600

800

1,000

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

Mill

ion

s

Seniors Housing

Nursing Care

New Construction Loan Volume Tapered Off for Seniors

Housing Since 1Q 2020

Source: NIC Lending Trends Report, NIC Analytics

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NIC Lending Trends Report

• Capital market conditions for senior housing & nursing care

• Snapshot of sector lending 2016 through 1Q 2021

• Volumes, delinquencies, more

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Access highlights and full study report,The Impact of COVID-19 on Seniors Housing,

on nic.org

https://info.nic.org/covid-19-mortality-in-congregate-care




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Are You New to the Industry? Use the NIC Investment Guide as a Primer

• Definitive source for navigating

the seniors housing and care

property sector.

• Data, accurate insights, in-depth

analysis.

Sixth edition available

on NIC.org

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NIC Notes: Insights on Important Industry TrendsUpdated Several Times a Week

• Seniors Housing

• Skilled Nursing

• Ideas and Discussion

• Market Trends

• CCRC

• Economic Trends

• Regulatory Environment

• Workforce

• COVID-19

• Executive Survey Insights

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https://fallconference.nic.org/

investing in seniors housing properties: opportunities and

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