With higher occupancy rates and better coverage of debt service, the senior housing industry is perking up, a new survey indicates.
While it's still tough to secure financing for new projects, lenders have become more receptive to senior housing than in past years, said David Schless, executive director of the American Seniors Housing Association in Washington.
These trends may be comforting to healthcare providers eyeing the senior-living industry as a potential business diversification strategy.
ASHA's survey, conducted with Coopers & Lybrand, is summarized in The State of Seniors Housing 1995. The report, released last month, provides an overview of the industry's operational and financial performance based on fiscal 1994 data collected from 272 senior housing facilities.
The survey provides data on congregate or independent-living units, which are designed for people who purchase services like meals or housekeeping as part of a monthly fee or rental rate but require little assistance with activities of daily living. The survey also includes assisted-living units, designed for people who need some assistance with activities such as bathing or dressing, and continuing-care retirement communities, which combine congregate units and nursing beds and also may include assisted-living beds.
One limitation of the survey is the lack of historical data. Prior-year data are excluded because each year's survey draws responses from different samples of senior housing owners and managers, Schless explained. However, when this year's responses are compared with the previous year's report, some trends begin to emerge, he said.
One clear trend is the strengthening of occupancy rates. In 1993, median occupancy among all types of senior housing increased to 91% from the mid-80% range, Schless said. In 1994, the median rate for all types of senior housing climbed to 95%. Among assisted-living properties, the median rate was 97%.
While congregate-living units continue to struggle under a load of debt, the survey showed some improvement for other segments of the industry. In 1993, just 43% of congregate units covered debt service, compared with 64% in the 1994 survey. By contrast, 77% of assisted-living properties and 86% of CCRCs covered their debt service, up from 73% and 75%, respectively.
Schless attributed these signs of increased financial stability to a "maturation within the industry" among financiers, managers, developers and consumers. "There's just a greater understanding of what this product is and who it's serving," he said.
During the 1980s, the industry misunderstood seniors' needs, Schless said. Properties were too upscale and projections for filling units were too optimistic.
Today, more than a third of the residences surveyed (37%) have been acquired, rather than built, by their current owners. The acquisition activity, which resulted from overbuilding in the 1980s, has helped weed out the "neophytes," Schless said.
Because of the high volume of previously underperforming properties available, acquiring CCRCs and congregate residences can be substantially cheaper than building from the ground up. In 1994, the median acquisition cost per unit for a CCRC was $50,804, or 57% of the median development cost. The median per-unit acquisition cost for congregate care was $45,867, or 59% of the median development cost. The exception is assisted living, a hot new sector of the senior-living business for which the median development cost of $45,536 is $1,708 cheaper than the cost to acquire.
At $28,569, CCRCs generate the highest median revenue per occupied unit, followed by assisted living at $19,456. But assisted living generates a median net profit margin of 8.7%, edging out CCRCs, which posted a net margin of 8.4% margin.
Despite healthy profits, lenders remain somewhat conservative in lending money for new construction because of the industry's earlier difficulties. "Those that are getting capital have good, successful track records," Schless said. However, capital is available for acquisitions and refinancings, he said.
The industry's performance also is enticing hospitals and healthcare networks hungry for new revenue streams. Schless expects to see more joint-venture partnerships by hospitals in the senior-living business.