Senior Living Industry

What’s Next for the Senior Living Industry?

The downturn in the credit and housing markets and the ensuing economic recession have created difficult financial problems for the retirement and senior living industry. Occupancy rates at many facilities have declined or are declining, as more seniors are choosing to stay in their homes rather than move into senior living communities. This development, in turn, affects facility owners, who in some cases, are finding it difficult to operate profitably, which in turn leads to distressed sales, bankruptcies, and, in some cases, facility closures.

America’s seniors have not been immune to the recent economic downturn. For some, it is affecting long-term housing and care options. The downturn has reduced the value of senior’s homes — in many cases the single, most valuable asset that many seniors own. Unfortunately, this crisis has struck when the cost of long-term care continues to increase.

As a result, seniors, like all Americans, have become increasingly reluctant to sell their homes for fear of the price they would receive. Long-term care facilities (independent living facilities, assisted living facilities, nursing homes and continuing care retirement communities or CCRCs) are feeling the effects of this reluctance, with fewer seniors moving in. Those that appear to be most affected by this trend are facilities that employ an entrance fee model like CCRCs — requiring a large, up-front fee to secure a unit at the facility for the life of the resident. Those following a rental model, while still feeling the effects of this trend, have faired somewhat better.

As a result, facilities and financial institutions are employing creative strategies to assist seniors in these difficult market conditions. 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 acts as a bridge loan that allows seniors to enter long-term housing, then pay off the line of credit once their home is sold.

Long-term care facilities are also offering an array of new financing options, allowing seniors to finance entrance fees or monthly rental payments. Some are waiving certain fees or offering introductory rates to entice seniors to move in. Still others are offering seniors assistance selling their homes, sometimes agreeing to purchase the home if it does not sell within a specified time period from the move-in date. Finally, certain developers are changing their business models, constructing facilities in phases and guarantying each resident will have appropriate housing no matter what level of services are needed, irrespective of the stage of the facility’s development.

Just as senior living facility owners and operators are finding it increasingly difficult to maintain revenue streams, in part due to the decrease in occupancy rates, capital for merger and acquisition activity is similarly more scarce than in the past. A majority of the merger and acquisition activity in the senior living industry has involved underperforming or lower-quality properties, although some recent transactions indicate a reversal of this trend.

Unfortunately, until the credit and housing markets return to normalcy (with the new “normal” being different than in the recent past), seniors may continue to delay selling their homes and moving to senior living residences. This means that operators will need to continue to utilize creative methods for attracting seniors to their facilities. It also means that distressed sales and bankruptcies in the senior living industry may be likely to continue.

—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.