Insider Newsletter

Special Release | March 23, 2020

Thoughts from NIC’s Chief Economist

By Beth Burnham Mace

It’s the end of the world as we know it…and, no, unlike the lyric in the R.E.M song, I am not feeling fine…And let me add that there may be more fog and clouds than sunshine in many of my comments below.

As we all know, there is great uncertainty in the world today related to the breadth and depth of epidemiological causes and spread of the COVID-19 pandemic across the globe and within the United States. We do know that many of our fellow citizens are getting ill, and some are dying, and that the illness is more severe for our seniors. NIC is extremely concerned by the public health challenge facing all of us and, in particular, older Americans. During this unprecedented global public health emergency, we offer our support to owners and operators of seniors housing and skilled nursing properties nationwide, and our fullest admiration to the healthcare personnel working around the clock to ensure the safety of their residents. The challenges ahead of us can only be met if these frontline healthcare workers receive the support they need as they fight to protect and serve our most vulnerable citizens – older Americans.

That is why NIC supports initiatives in the seniors housing, skilled nursing, and healthcare sectors to ensure healthcare workers get the support they need and deserve. These initiatives include:

  • First, governmental authorities need to give staff of senior care and long-term care communities priority access to personal protective equipment such as face masks and shields. These communities are a critical part of the healthcare continuum.
  • Second, frontline workers in skilled nursing and assisted living also need immediate, no-hassle access to COVID-19 testing in order to keep them safe and stop potential spread of the virus.
  • And third, employers need access to better solutions that enable these essential workers to go to work – where their skills are badly needed – without having to be worried about care for their children. About two-thirds of paid caregivers return home to care for children or an elderly family member. Mandatory paid sick leave to help when schools are closed due to COVID-19 is not helpful right now. With that in mind, some employers have stepped up, offering day care cooperatives or per diem babysitting stipends to provide much-needed backup support. Some employers are providing bagged lunches to caregivers to ensure their kids stay well fed. Paid sick leave for those concerned that they may have been exposed to coronavirus is also essential – and employers hope to see Federal action very soon.

Six Areas of Impact. The COVID-19 pandemic has implications for operators, developers, and capital providers across the seniors housing and skilled nursing sectors. I have identified six areas of likely industry impact.

    1. Residents and Health Care Workers. First is the impact COVID-19 is having on our citizens, residents and staff across the country and the high risk of contagion. At the national, state and local level, the numbers change daily and appear to be growing asymptotically. However, the specific impact on the seniors housing and care sector is less clear. Since early March, operators have implemented strict protocols to prevent and limit the spread of the illness across properties. Extra cleaning and contact prevention protocols, limitations on visits, restrictions on group activities, travel restrictions and other rules have been implemented. Thus far, there have been a limited number of properties with infections.Staffing is another issue and, as addressed in my earlier comments, is the most critical part of keeping our residents safe and out of harms way. Safety protocols, flexible schedules, accommodations to the new reality of social distancing rules with school closures, contingency planning for staffing emergencies, and other planning protocols are part of the solution and should be lauded.
    2. Operations. Second is operations and the impact COVID-19 is having on move-in and move-out rates and occupancy patterns. At this point, there is a lot of speculation and hearsay. Building on its strengths, NIC is therefore launching a new monthly survey to address this need for information. The “Executive Survey” will question operators about move-ins and move-outs, changes in occupancy rates, staffing considerations and construction delivery pipelines.
    3. Economic Impacts. Third, the economic effects of the COVID-19 pandemic are unprecedented and may ultimately herald back to the days of the Great Depression in the 1930s. What was once unthinkable is now occurring. Quarantines and limited social interaction are becoming the norm, shops and stores are being shuttered, entertainment venues closed, and those who can conduct their jobs remotely are working from home, while those who cannot are losing their jobs and paychecks. As a result, jobless numbers are on the rise, those claiming unemployment insurance are projected to total more than 3 million in a matter of weeks, and the unemployment rate will soon jump from its 50-year low of 3.5% in January 2020. Consumer spending, which accounts for two-thirds of the nation’s overall GDP, is being battered. The prospects for negative growth and recession are now upon us. While the short-term impacts are indeed dire, economists are mixed on the long-term impacts of COVID-19 on the economy with discussions on supply-chain disruptions, globalization trends, and business confidence weighing heavily on these views.
    4. Financial Markets. Credit makes the economy spin. Without credit, the economy would grind to a halt. For the last several weeks, we have witnessed the Federal Reserve provide a full-throttle effort at keeping the credit markets open, functioning, and operational. In mid-March, the Fed dropped the fed funds rate back to its 2008/2009 recession low of 0%, implemented another and aggressive round of Quantitative Easing (QE), lowered the discount rate, cut reserve requirements, and implemented new credit facilities. In effect, the Fed is doing all within its power to keep credit flowing.For banks and lenders, capital providers, both public and private, the world has shifted. The cost of capital has changed, terms are changing, and loan proceeds are being re-assessed. Debt financing may be tougher to come by. NIC will be holding “Leadership Huddles,” with the first focused on financial markets. This series of webinars will feature C-suite industry leaders’ insights on the impact of COVID-19 on operations, financing, construction trends, capital markets, transaction markets, pricing and more.
    5. Transactions and Pricing. For many markets, including some in the commercial real estate realm, transactions activity has ground to a screeching halt as a new world order is being called into play. Questions on valuations, comps, and the competitive landscape are emerging. The drop in stock prices for many of the public health care REITS has highlighted concerns about underlying asset values, and this is bleeding over into the private sector valuations as well.As in the Great Financial Crisis (GFC), distressed assets may grow as operational risks unfold, opening up a market for some of investing in distressed assets.
    6. Construction. What has long been a challenge for existing operators may be less so in the near term as construction slows sharply and project delivery dates become extended—i.e., construction pipelines and inventory growth may slow. Cities such as San Francisco and Boston have mandated that all non-essential commercial real estate construction cease for the immediate future, while skilled construction trades workers, many of whom are older, may stay away in other locales. Disruption may also occur as cutbacks in “nonessential” government workers affects the permitting and inspection processes.
      Lastly, supply chain disruptions for materials and supplies may impact construction activity. Since January, when COVID-19 economic effects were first felt, there were limited delays on finished materials from China and South Korea that impacted the U.S. construction market. These disruptions have affected materials pricing and created cost overruns, and they are not expected to end anytime soon.

    In wrapping up, the world has changed. And changed a lot. These changes will affect our industry in myriad ways—some of which are listed above and some of which are still to emerge. These changes will provide a new opportunity for some businesses such as telehealth, virtual video communications systems, cleaning and sanitation businesses. And they may provide opportunity for some operators, such as skilled nursing operators who can serve as overflow care and space from a strained hospital system, which is projected to run out of beds in the very immediate future. Perhaps it’s also a time for ghost kitchens for operators who have capacity to prepare nutritious and safe food for more broad commercial use. But the COVID-19 pandemic will also bring unforgettable grief and sadness—for both individuals and businesses. Collectively, let’s help provide support, solutions, encouragement and assistance for those on the frontlines in our industry and for those behind the scenes in management and decision-making roles. Hooray for them!
    As always, I welcome your comments and feedback.




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