Beth Burnham Mace spends a little more time in her Boston office these days, thanks to a new research tool that reduces her need for site visits to assess underwriting opportunities in seniors housing.
As vice president of research for AEW Capital Management, a pension fund advisor, Mace uses a variety of databases to validate her research of office, industrial, multifamily or retail properties. Only in the last 18 months, however, has she had a similar resource to provide local statistics on the seniors housing industry.
That new information source is the Market Area Profiles (MAP) report, published quarterly by the National Investment Center for the Seniors Housing Industry. Known as NIC, the center is a financial research organization launched by seniors housing providers in 1991 to supply the industry with information about business strategy and capital formation.
“It's definitely a time-saver,” Mace says. “In the past, it was difficult just to gauge the inventory in any given market. You had to pound the pavement or get the information any way you could, maybe surveying through phone calls, or with property tours or the Internet.”
MAP ranks the nation's 30 largest markets based on four metrics: occupancy, construction, revenue per occupied unit, and penetration rate, defined as the number of units or beds per senior household in a given market.
An associated online directory enables subscribers to customize data by property type, region, or even proximity to a specific address to assess the balance of supply and demand, pricing or other market conditions in a particular area. NIC provides analysis in a separate MAP Trends report, which is sent to subscribers each quarter.
While the MAP reports won't replace local market studies for competitive pricing analyses, Mace says, they do provide a valuable snapshot of a market.
Until now, buyers frequently had to rely on a broker or the seller of a seniors housing property to provide relevant market data, says Mike Roderer, director of budgeting and finance at Tampa-based Horizon Bay Senior Communities. Now, investors can use MAP reports to determine how well the data matches up with their own research findings, a process Roderer calls “a sanity check.”
Subscribers use MAP reports in several ways. The data helps operators compare rental rates and fees in a local market, and provides information on units under construction. This analysis can warn investors or operators of future competition. “This is far and away the most objective reporting tool we've seen in the industry. It has definitely made my life easier from a forecasting and underwriting standpoint,” Roderer says.
Filling a transparency void
One underlying goal of the MAP launch is to attract new sources of capital to seniors housing, says Michael Hargrave, NIC's sales and marketing director. “The transparency of data needed to attract smarter, more efficient capital to the seniors housing industry hasn't always been there,” he notes. “This is really the biggest effort ever to put this industry on a similar footing with the hotel and multifamily industries.”
Tracking the nation's major markets also will enable investors to keep their pulse on supply and demand. A construction boom in the late 1990s led to a supply glut that took several years to burn off.
Construction peaked with 32,666 assisted living units completed in 1998. The oversupply caused the occupancy rate to dip from 95% to 92% in that year alone, reports NIC. Unfortunately, developers failed to exercise any restraint in the go-go days of the late 1990s. Construction continued with the completion of 31,273 units in 1999 and 14,096 in 2000. Occupancy hit bottom at 84.5% in 2001. By the second quarter of 2005, the occupancy rate had risen to 88.5%, but was well below the levels of the late 1990s.
“If the industry had a service like MAP back then, it could have tracked on a quarterly basis the rate of change in units under construction as a percentage of inventory,” Hargrave says. “The industry would have seen the red flags a lot quicker. Banks and REITs would have been equipped to make sound investment decisions, rather than simply riding a wave.”
The price of knowledge
So, what do users pay to play? Annual subscriptions to MAP range from $1,900 to $25,000, depending on the number of markets covered and degree of detail provided. One-time reports start at $299.
In markets not covered by MAP, a lender might shell out as much as $20,000 to survey one market, only to learn that a deal isn't feasible, says Daniel Hogan, director of research at Columbus, Ohio-based Red Capital Group, an investment and mortgage bank that serves the seniors housing and multifamily industries.
Although NIC has published national data on the seniors housing market each quarter since 1999 in a free report called the NIC Key Financial Indicators, MAP data is far more detailed. The information is gleaned from quarterly surveys that track roughly 1 million residential units and nursing beds, roughly 27% of the nation's 3.7 million senior housing units, according to NIC estimates.
Those survey responses from property managers are verified against licensing registries, although licensing requirements vary by state so not all property types are tracked at the state level. Additional research and cross-checking is carried out via the Internet. “The more information we have to verify an individual property's data, the better,” says Bernie Smith, COO at ProMatura Group in Oxford, Miss. ProMatura is the data collection firm NIC hired to gather statistical information for MAP.
NIC has invested more than $1 million to construct and launch MAP, and the current base of about 50 subscribers doesn't yet cover the ongoing operational costs, although the research tool is approaching a self-sustaining level, Hargrave emphasizes. Early indications suggest customer retention won't be a problem. Every customer that signed on to the service in 2004 renewed for the current year. In fact, price shouldn't deter those who have paid for similar reports focusing on the apartment, office or other sectors of commercial real estate, according to Mace, the researcher at AEW Capital. “The price is comparable to Reis or Torto Wheaton Research,” she says.
Reis currently doesn't track seniors housing and has no plans to do so. Torto Wheaton Research reports on senior living as a subsection of apartment construction, using information provided by McGraw-Hill Construction Research & Analytics, but that report doesn't provide the exhaustive market breakdowns available from MAP.
Checks and double checks
Price may be in line with other research, but does MAP provide the integrity of data commercial real estate investors have come to expect and demand from research in other sectors? Paul Horvitz, a health care lending executive who was initially skeptical of the MAP service, says the answer is unequivocally yes.
In 2004, Horvitz, president of Dominion Healthcare Financial Corp. in Los Angeles, told a health care trade publication he had reservations about the reliability of MAP data. His chief concern involved an over-reliance on survey responses from property managers, who may or may not choose to reply, or may omit answers or even falsify numbers.
Today, Horvitz is an avowed devotee of MAP. A thorough review of the service at a NIC conference allayed Horvitz's fears about data collection. “They are taking data from sources other than voluntary responders, relying on public records to some degree. That [variety of sources] is more reliable, and there is more data,” he says.
With newfound confidence in the quarterly reports, Horvitz is quick to recognize advantages the profiles offer over individual appraisals as a means of evaluating properties for acquisition or underwriting. “Before, there wasn't enough information in one place to determine cap rates, potential absorption, revenue, or to predict those things on a regional or local level,” he says.
“Now we can do that with this MAP program and feel more comfortable than we would if we were trying to apply some sort of Ouija board effect from an appraisal,” Horvitz adds.
More work to be done
NIC executives hope to expand the MAP project to cover the top 50 markets, though they haven't set a timetable for that goal. For now, the group is working to build its subscriber base and improve the data with better response rates on surveys.
The survey already reflects responses from three out of every four senior living properties in the top 30 markets, according to Tony Mullen, NIC's research director. Eventually, he'd like to see his MAP data incorporated into the National Council of Real Estate Investment Fiduciaries' (NACREIF) property index, which provides performance benchmarks for other sectors of commercial real estate.
“MAP has put the seniors housing industry on the same level as office, industrial, retail, multifamily and hotels in terms of available data on supply and demand,” Mullen says. “That's a historic event. The industry was never able to say that before the MAP project.”
Matt Hudgins is an Austin, Texas-based writer.
Specific definitions enhance usefulness of data
One of NIC's first hurdles in launching Market Area Profiles (MAP) was to develop a data collection system that clearly defined seniors housing property types and price levels. Prior to MAP, seniors housing lacked a standard equivalent to the A, B and C classes of office properties, or the luxury, upscale, and budget designations for hotels.
“If we as an industry wanted to be on a level similar to commercial office, hotels or multifamily, we had to have standardization,” says Michael Hargrave, sales and marketing director for MAP.
In addition to tracking beds and living units by price, MAP distinguishes categories by services offered, and by whether residents rent or own their living quarters. “It's apples-to-apples — I know the information I get on New York is going to be comparable to Boston,” says Beth Burnham Mace, vice president of research at pension fund advisor AEW Capital Management.
That wasn't the case as little as two years ago. Without standard definitions, what one property owner called an assisted living center might be referred to as independent living by the manager of another property. Ideas varied on what constituted other property types as well.
“Market Area Profiles takes some of the uncertainty out of the information,” says Mike Roderer, director of budget and finance at Horizon Bay Senior Communities in Tampa. “Now if you're looking strictly at the assisted living segment, you can go into the system and drill down on the assisted living numbers without the other seniors housing types included in that data,” says Roderer. “That allows you to be very specific and significantly more accurate with forecasts.”
— Matt Hudgins
FIVE MAJOR SENIORS HOUSING CATEGORIES AT A GLANCE
Independent Living
Age-restricted multifamily rental properties that offer meals in a central dining area. Independent living units do not provide residents with daily living services.
Assisted living residences
State-regulated rental communities that provide meals and staff to assist with essential needs, including bathing and medication.
Nursing facilities
Licensed properties that provide 24-hour nursing or medical care.
Dementia care
Providers dedicate beds to residents with Alzheimer's or other forms of dementia.
Continuing care retirement communities
A single property or campus that combines independent living, assisted living, and skilled-nursing units.
SENIORS HOUSING DATA SLICED AND DICED
NIC's quarterly Market Area Profiles provide real estate data for the nation's 30 largest markets. A variety of reports track seniors housing occupancy, revenue, construction and penetration rates. The following sample compares real estate fundamentals in Boston with the top 30 metropolitan statistical areas (MSAs).
| Independent Living | Assisted Living | Dementia Care | Nursing Care | |||||
|---|---|---|---|---|---|---|---|---|
| Boston MSA | Top 30 MSAs | Boston MSA | Top 30 MSAs | Boston MSA | Top 30 MSAs | Boston MSA | Top 30 MSAs | |
| Median age of property in years | 9 | 18 | 8 | 12 | 8 | 7 | 30 | 30 |
| Percentage of properties reporting need to upgrade | 15.2% | 24.1% | 25.7% | 25.9% | 26% | 24.9% | 29.1% | 30.7% |
| Median number of units/beds per property | 79 | 110 | 46 | 54 | 22 | 23 | 117 | 118 |
| Percentage of properties for-profit | 63% | 62% | 66.3% | 72.3% | 84% | 82.1% | 76.4% | 71.6% |
| Percentage of properties owned by chains | 56.5% | 52% | 61.4% | 51.4% | 74% | 64.8% | 53.5% | 48.9% |
| Source: National Investment Center for the Seniors Housing & Care Industries | ||||||||