With 10,000 baby boomers turning 65 every day, the seniors housing sector is hot. Seniors housing assets are a highly desirable residential option, offering stable returns for both investors and lenders. But due to continuing mergers and acquisitions (M&A) activity, the sector isn’t without its challenges either. NREI spoke with Josh Rosen, senior vice president and team leader at Capital One, based in Chicago, about the state of the seniors housing industry today. An edited transcript of that interview follows.
NREI: The seniors housing industry did $16 billion in M&A transactions in 2014. How is 2015 looking so far, now that we are about halfway through the year?
Josh Rosen: M&A activity seems to be on par with last year, or potentially a bit stronger. We’ve seen a number of big public sales this year, as well as REIT takeovers that drove up the overall total. The market is as robust as it’s been in a long time.
NREI: How is the increase in M&A transactions impacting the seniors housing landscape?
Josh Rosen: We are seeing a lot more capital in the seniors space than we have in a long time. As a result, this influx of capital is driving a much more robust market than a few years ago. However, this senior care market has a unique set of characteristics, and some of the institutional investors entering the market are not necessarily focused on or familiar with the seniors space, and face the risk of overpaying for properties in such an active market.
NREI: Which areas of seniors housing are growing the fastest?
Josh Rosen: We are seeing significant activity in a new area—transitional care—that has taken the old skilled nursing model and turned it on its head. Many providers have made a big shift, focusing on shorter-term stays—their goal is to get patients the therapy they need, get them well and allow them to return home to their families.
In addition, a large number of new memory care facilities cater to the rising demand for care for Alzheimer’s patients. These facilities are more often private pay than Medicare/Medicaid facilities; a lot of stand-alone facilities are being built nationwide.
NREI: What are some new trends in the industry?
Josh Rosen: Transitional care is a major trend, driving many owners to modernize traditional facilities, putting money into private suites and other enhancements. This short-term model affects the way facilities are built—some have more of a hotel feel than the traditional institutional model. Also, the increasing demand for memory-care facilities is having a significant impact.
NREI: How is the trend of home health care/aging in place impacting seniors housing?
Josh Rosen: It’s definitely more common these days for people to want to remain at home. Transitional care models are designed to allow patients to age in place at home and get the help they need there. The newer acute care model is a tremendous asset to a lot of seniors, and operators are taking note and investing in facilities for short-term stays.
NREI: What’s the greatest challenge to owners and operators of seniors housing properties today?
Josh Rosen: Owners and operators face a dramatically different rate environment, depending on the state they are in. In some states, budget cuts are creating a challenge for operators to maintain a high level of care, with fewer dollars to sustain it.
NREI: How is the problem of employee retention being handled?
Josh Rosen: Owners—particularly new owners who take over a facility—need to recognize the value of employees who understand the residents. They can encourage staff retention through contingent bonuses, flexible hours, providing opportunities for growth, and offering bigger roles and management responsibilities for their most valuable employees.
NREI: Are seniors housing marketing strategies changing in the face of technology?
Josh Rosen: The best marketing strategy is a happy resident. Word of mouth and level of care will always be the biggest factors in attracting residents. For that reason, operators need to provide residents with what they need to maximize stability and comfort. Internet marketing is a factor, but at the end of the day, a home-like atmosphere and strong word of mouth relationships help drive up occupancy.
NREI: How are revenue models through Medicare/Medicaid looking?
Josh Rosen: It hasn’t changed much. Because Medicaid is state-funded, revenue increases and declines vary from state to state. Medicare’s federal funding provides a more stable source of funding to help seniors have a short-term stay and return home to their families.
NREI: What’s your final take-away for seniors housing?
Josh Rosen: People are living longer and maintaining active lives, which has impacted the trend toward short-term care. Overall, the quality of senior care is as good as it’s ever been.