Future of the senior living industry

Dramatic downturns in the credit and housing markets, coupled with the economic recession, have created financial problems for the senior living industry. Facility occupancy rates are rapidly declining as more seniors choose to stay in their homes. This seriously affects facility owners, making it difficult for some to operate profitably. Consequently, we’re seeing more distressed sales, bankruptcies and even facility closures.

America’s seniors have been among the hardest hit by the economic downturn. The value of many seniors’ homes has dropped. Unfortunately, this crisis has struck while the cost of long-term care continues to increase.

Like all Americans, seniors have become increasingly reluctant to sell their homes for fear of low sale prices. Long-term care facilities, such as independent living and assisted living facilities, nursing homes, and continuing care retirement communities (CCRCs) are feeling the effects, with fewer seniors moving in. Facilities most affected by this trend are ones that employ large, one-time entrance fee models like CCRCs. Those following rental models have faired somewhat better.

As a result, facilities and financial institutions are employing creative strategies to recruit seniors. At least one lender has developed a home equity line of credit program to be used for entrance fees, deposits and rents until seniors can sell their homes. The program provides bridge loans – paid off once homes are sold – that allow seniors to enter long-term housing.

Long-term care facilities are also offering an array of options. Some are waiving certain fees or offering introductory rates to entice seniors. Others offer assistance selling homes, sometimes agreeing to purchase them if they do not sell within specified time periods. Finally, we’re starting to see developers changing their business models, constructing facilities in phases and guaranteeing each resident will have appropriate housing no matter the level of services needed or the stage of the facility’s development.

For senior living facility owners and operators, it is increasingly difficult to maintain revenue streams – due in part to the decrease in occupancy rates. Finding capital for merger and acquisition activity has also been a challenge recently. While the industry’s transactions have involved underperforming or lower-quality properties over the past few years, recent deals indicate a possible reversal of this trend.

Unfortunately, until the credit and housing markets stabilize, seniors may continue to delay selling their homes and moving into senior living residences. This means that operators must continue to utilize creative methods for attracting seniors – and that distressed sales and bankruptcies in the industry are likely to continue. However, very recent transactions in the merger and acquisition market may be glimmers of hope for the near future.

—Michael A. Okaty

Partner with Foley & Lardner LLP, founder and chair of the firm’s Senior Living Industry Team. He can be reached at [email protected] or 407-244-3229.