First Quarter 2024 Senior Housing Returns; NPI Now Includes Seniors Housing as Standalone Sector 

NCREIF publishes the most widely used private real estate investment benchmark in the U.S., the “NPI” (NCREIF Property Index), which tracks investment returns of more than 12,000 properties that are held by institutional investors. Seniors Housing is now included as a standalone sector in the NPI, a long awaited and highly important recognition for the sector that NIC has been striving toward.  

For more than two decades, NIC has participated in NCREIF membership and has appreciated the opportunity to bring NIC’s senior housing expertise to the organization, highlighting the property type’s unique investment characteristics.  

In the first quarter of 2024, NCREIF published its new Expanded NPI, which grew the index from real estate’s traditional “4 Food Groups” (Office, Retail, Industrial, Apartment) to include Seniors Housing. This sector is comprised of four subsectors: Independent Living, Assisted Living, Continuing Care, and Skilled Nursing.  

This expanded index – which now breaks out Seniors Housing from an “Other” subsector outside of the Index into its own standalone sector included in the Index – is important because private equity institutional investors are evaluated based upon their portfolio holdings versus their designated benchmark. As a result, a zero allocation to any category within the benchmark, e.g., Seniors Housing, requires an explanation to clients. Overall, including Seniors Housing in the flagship NCREIF index raises its visibility with investors and makes it more difficult to exclude from investment portfolios, which in turn should help drive capital into senior housing and care.  

When preparing to launch the Expanded NPI, NCREIF inquired whether senior housing should be included in the Residential sector. NIC highlighted the following distinctions for senior housing: 

  • Demand factors differ from traditional Residential and result in lower resident turnover, driving market fundamentals and investment returns that are uncorrelated (or at least less correlated) to traditional Residential.  
  • Higher level of operations than traditional Residential ranging from Lifestyle Coordinators at Active Adult communities; to dining, laundry, and transportation at independent living properties; to health care, ADL, and memory care services at assisted living and memory care communities. 
  • Due to larger operations and dual mandate of housing and care at higher acuity communities, senior housing operates under different regulations. 

Learn more about senior housing investment returns in the most recent quarter and longer term here

Insurance Trends in the Senior Housing and Care Sector

Senior living operators encounter several challenges when placing commercial insurance, driven by the unique risks associated with senior living communities and the evolving insurance market. Key challenges include aging infrastructure, regulatory compliance, litigation risks, natural catastrophes, business interruption risks, property valuations, rising costs, and fluctuating market conditions. Staying informed on commercial insurance market trends is crucial for accurately projecting budget expenses, as insurance can be one of the top five largest expenditures for operators in the senior living space.

Starting in the third quarter of 2023, the general and professional insurance market for senior living has experienced a significant shift. The impact of COVID-19 on the industry turned out to be less severe than anticipated, as many operators avoided major losses due to court closures, which lead to a backlog of cases and significant delays. Consequently, claims were settled for much less than they would have been under normal circumstances, resulting in deflated losses compared to typical industry losses.

This perceived profitability attracted new entrants to the senior living sector, drawn by inflated prices and favorable loss history. Additionally, previously dormant markets began to ramp up operations, increasing competition and driving down pricing. As a result, operators are seeing savings on their renewal premiums and favorable quotes on new acquisitions.

Despite the current market conditions, some GL/PL (General Liability/Professional Liability) carriers, such as those that previously offered historically low rates, are withdrawing from the market due to unprofitability. While the market is softening now, this trend may not last indefinitely as certain carriers continue to exit due to insufficient margins​.

Management Liability is currently experiencing a softening market, similar to GL/PL. Before COVID-19, carriers faced substantial losses due to the rise in business litigation and the associated defense costs. While D&O (Directors & Officers) underwriters remain concerned about uncertainties stemming from global tensions, inflation, supply chain disruptions, and the scaling back of government subsidies, the market has seen an influx of capacity with new carriers entering, though many are initially focused on providing excess coverage. The reduction in excess pricing has led some carriers to lower premiums across the tower, including for primary coverage, thus beginning to push down primary rates.

Regarding commercial property insurance, placing coverage with admitted insurers remains challenging due to persistent issues such as natural catastrophe losses and inflation. However, 2024 is emerging as a transitional period for the E&S (Excess & Surplus) market, thanks to favorable reinsurance treaties that are creating healthy market capacity, poised for growth, increasing competition, and rate deceleration.

In recent years, supply chain disruptions, particularly in steel and lumber, contributed to rising loss costs. Carriers responded by correcting building valuations, increasing their rates and pushing for per-location limits instead of blanket limits. With much of the work on building valuations now completed, the focus has shifted to Business Interruption (BI) values, which carriers view as critical data for mitigating risks amid a bleak hurricane forecast.

Admitted carriers still anticipate continual rate increases this year, along with higher wind, hail, and water damage deductibles. Additionally, many admitted carriers are reducing their appetite for areas prone to catastrophe exposures, pushing more risks into the E&S market. Given that many senior living buildings are now 20 to 40+ years old, admitted carriers require detailed information on roof, plumbing, sprinkler systems, electrical, and structural improvements. Investing in regular updates and maintenance, along with robust risk mitigation, will help operators manage and reduce insurance premiums.

The commercial insurance market for senior housing and living is in a state of flux, influenced by both lingering effects of the pandemic and broader economic factors. While the current environment presents opportunities for cost savings and increased competition, the long-term outlook remains uncertain. Industry stakeholders must stay vigilant, adapting to changes in underwriting practices, market conditions, and emerging risks. By understanding these trends and proactively managing their insurance portfolios, senior living operators can better navigate this evolving landscape, ensuring they are well-positioned for future challenges and opportunities.

What’s the Economic Outlook for Senior Housing and Care? Is an Interest Rate Cut on the Horizon? 

Economist Swonk to Brief Attendees at 2024 NIC Fall Conference.

Evidence continues to mount that the Federal Reserve could cut interest rates as soon as this September, a move that would lower borrowing costs and interest expenses, and potentially boost capital expenditures in the senior housing and care sector.

The latest inflation report released July 10 showed that the June consumer price index (CPI) dipped 0.1% from May, the first time since May 2020 that the monthly rate declined. The 12-month inflation rate clocked in at 3%, less than the 3.1% forecast by economists.

With potential monetary shifts on the horizon, distinguished economist Diane Swonk will take the main stage to present a timely keynote address on the economy at the 2024 NIC Fall Conference (September 23-25 in Washington, D.C.).  A globally recognized advisor to policymakers and business leaders, Swonk is currently the chief economist at KPMG. 

“By the time the NIC Fall Conference convenes, CPI figures for July and August will have been released,” said NIC President and CEO Ray Braun. “We’ll see if inflation continues to ease and what that means for future decisions by the Federal Reserve.” He added that Swonk’s presentation on Sept. 24 will help Conference attendees gauge economic conditions as they plan for 2025.

Faced with continued worker shortages, industry stakeholders are also closely watching the labor market. In his semi-annual monetary policy report to Congress last week, Federal Reserve Chair Jerome Powell not only discussed declining inflation, but also a cooling labor market.

The unemployment rate rose to 4.1% in June, the highest rate since November 2021. The Federal Reserve’s mandate from Congress is to maximize employment and keep prices stable, targeting an inflation rate of about 2%. Rising unemployment would foreshadow an interest rate cut to spur hiring.

But Powell indicated in his testimony that more evidence was needed that inflation has been tamed before cutting interest rates. He did not specify that a rate cut is likely this year or give any hints about the timing of a possible cut.

Economists think a cut could come on Sept. 17 at the meeting of the Federal Open Market Committee, which determines interest rates. However, that prediction was clouded when the government announced that wholesale prices rose in June just a day after the encouraging news of the drop in consumer prices.

How will these factors impact senior housing and care?

Swonk’s keynote session will provide a comprehensive analysis of the current economic environment and its influence on the industry. She will explore rate policy, rate expectations and the impact of the upcoming elections on fiscal and monetary policies.

Attendees can also expect to hear Swonk address:

  • Ongoing regulatory pressure on regional banks’ liquidity and its consequential restriction on the flow of debt capital.
  • The role of the private credit market.
  • Predictive indicators that signal changes in economic conditions.
  • Strategies to navigate economic uncertainties and leverage knowledge to advance the senior care landscape.

To register for the 2024 NIC Fall Conference, click here.

Senior Housing Occupancy Increases for Twelfth Consecutive Quarter in Second Quarter 2024 

The NIC Analytics team presented findings during a webinar with NIC MAP Vision clients on July 18 to review key senior housing data trends during the second quarter of 2024. 

NIC Analytics utilized a relatively new webinar format in which the second half featured a deep dive on a special topic. In July’s webinar, Arick Morton, CEO of NIC MAP Vision, discussed trends in Artificial Intelligence and the senior housing outlook with Lisa McCracken, NIC’s Head of Research and Analytics. NIC hopes participants enjoy this new webinar format and welcomes any comments or suggestions.  

Key takeaways from the second quarter data included the following:  

Takeaway #1: Occupancy Increased for the 12th Consecutive Quarter  

  • The occupancy rate for the 31 NIC MAP Primary Markets rose 0.5 percentage points to 85.9% in the second quarter.  
  • This marked the twelfth consecutive quarter of occupancy gains, driven by consumer

Takeaway #2: Occupied Units Continue Climbing to Record Highs 

  • The total number of occupied senior housing units set another record high in the second quarter, rising to nearly 607,000 units for the 31 Primary Markets.
  • This trend is similar for the Secondary Markets at nearly 330,000 occupied units and shows that today more older adults than ever before are residents in senior housing properties. 

Takeaway #3: Annual Inventory Growth Rate Remained Low 

  • The inventory growth rate for both assisted living and independent living remained relatively low at 1.6% and 1.3% year-over-year in the second quarter, respectively.

Takeaway #4: Senior Housing Units Under Construction Least Since 2014  

  • The number of senior housing units under construction in the Primary Markets continued to decline and stood at less than 27,000 units in the second quarter of 2024, which was the lowest level in 10 years.
  • By property type, majority independent living properties and majority assisted living properties each comprised roughly half of the construction under way.
  • As a share of existing assisted living inventory, units under construction totaled 3.9%, well below its peak of 10.2% in 2017.
  • For independent living, units under construction totaled 3.6% of existing inventory, down from its peak of 6.7% in 2020.

Takeaway #5: Construction Activity Still Slow in Most Markets

  • By metro area, this heat map shows which markets are experiencing the most construction activity.
  • The blue tones on the right side of the chart for the most recent quarter indicate that construction activity is relatively “cool” in most markets.
  • And the markets that are shaded brighter red had the most construction as a percent of inventory in the first quarter. This group continues to be led by Washington, D.C., and San Jose, followed by Los Angeles and Denver.
  • At the other end of the spectrum are markets where there is very little construction underway, although we no longer observe any markets with zero construction.

Presidential Debate Highlights Need for More Policy Dialogue 

NBC’s Chuck Todd and former HHS Secretary Mike Leavitt to unpack the upcoming election at the 2024 NIC Fall Conference. 

The first presidential debate of the 2024 election was short on policy but long on theatrics as President Biden and former President Donald Trump squared off on stage in Atlanta.  

Few insights beyond the obvious were provided into how the candidates’ policies might impact senior living. But the debate did showcase the fact that the campaign ahead is likely to be filled with more twists, turns and surprises. 

“The debate lacked policy specifics,” said Ray Braun, president and CEO at the National Investment Center for Seniors Housing & Care (NIC), Annapolis, Maryland. “The industry is watching how these candidates will address the issues that affect our business.”  

The debate comes at a pivotal time for the industry amid congressional hearings, heightened media attention, initiatives to enhance accountability in healthcare and the future role of private capital.  

With a high-stakes election on the line, the 2024 NIC Fall Conference is fittingly being held in Washington, D.C., (September 23-25). Recognized as the senior housing and care industry’s premier event for networking and educational programming, the NIC Fall Conference is known for its high-profile speakers.  

This year, attendees can expect to get an insider’s view of the upcoming election during the keynote opening session on September 23. The session features NBC Chief Political Analyst Chuck Todd and former U.S. Secretary of Health and Human Services, Mike Leavitt.    

The must-see keynote session—just six weeks before the election—will unpack the state of the race, regulatory changes, and the economic impacts and policy shifts that will fundamentally reshape the future of senior living. The speakers will also explore the potential policy outcomes of divided government control versus single-party dominance. 

During the Wednesday presidential debate, the candidates touched briefly on several industry-related issues.    

  • Inflation is still too high. Rising expenses and wages are a continuing challenge for senior living owners and operators. Both candidates said they would address inflation.  
  • The 2017 tax cuts are set to expire in 2025. The outcome of the election could determine whether the cuts are extended which could impact owners.  
  • Immigration reform could ease workforce shortages, though how to deal with immigration was a contentious issue on the debate stage.    
  • The topic of regulation was mentioned, along with the future of entitlement programs.  

As the campaign unfolds, industry stakeholders will be watching for more policy signals. The 2024 NIC Fall Conference promises to be a vital forum for attendees to deepen their understanding, stay informed about emerging issues, and engage in meaningful discussions with peers and experts. 

Learn more about the 2024 NIC Fall Conference and register, here