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Beaten but not broken

November 12, 2010
by Patricia Sheehan, Editor-in-Chief
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Long-term care developers are itching to build, imploring lenders to “show us the money”

Like a post-acute resident in a skilled nursing facility, the health of the U.S. economy can be summed up in a single word: fragile. The recovery is definitely underway, but it's touch and go, according to the pundits and prognosticators who analyze every economic indicator, from gross domestic product and housing starts, to employment rates and foreclosure statistics.

To the 1,800-plus attendees at this past September's National Investment Center for the Seniors Housing & Care Industry (NIC) conference in Chicago-the networking and deal-making event for long-term care owners, developers, brokers, and bankers-the slightest sign of economic recovery offered a beacon of light at the end of a long, dark tunnel. Developers and owners, in particular, have been hammered in recent years by declining occupancies, nonexistent credit, and relentlessly dismal news.

NIC President-and industry cheerleader-Bob Kramer sums up the mood among attendees as “cautiously optimistic,” despite having weathered “some of the worst economic conditions since the Great Depression.” But unless you're a developer with a proven track record, a spotless credit history, and a healthy relationship with your banker, your chances of securing funding for that next CCRC or assisted living project are pretty slim, at least for the near term.

By the numbers

Construction activity in the senior housing sector has slowed to a crawl over the past year in the nation's top 100 metro markets and is even slower when compared to two years ago, according to the Seniors Housing Construction Trends Report, which was often referenced during the NIC conference. Produced jointly by NIC and the American Seniors Housing Association (ASHA), the report provides an overview of current construction activity for seniors housing properties as of March 31, 2010.

Supply of Investment-Grade Seniors Housing and Care Properties in the U.S.

By Property and Unit Counts across Property Types, Campus Types, and Care Segments | Estimates as of 4Q09*

* Estimates are representative of properties with at least 25 units/beds that charge market rates for the housing and services offered.

** One nursing bed is equivalent to one unit.

Source: National projections based on NIC MAP Data & Analysis Service

By Property Type

Number of Properties

Number of Units**

Majority Independent Living Properties

3,840

812,500

Majority Assisted Living Properties

6,315

475,500

Majority Nursing Care Properties

10,975

1,491,000

Total

21,130

2,779,000

By Campus Type

Number of Properties

Number of Units**

CCRCs (Must offer IL and NC)

1,905

601,000

Freestanding Properties (e.g., IL only)

14,715

1,600,000

Combined Care Properties (e.g., IL and AL)

4,510

578,000

Total

21,130

2,779,000

By Care Segment


Number of Units**

Independent Living (IL) Care Segment


670,000

Assisted Living (AL) Care Segment


503,000

Memory Care (MC) Care Segment


105,000

Nursing Care (NC) Care Segment


1,501,000

Total


2,779,000

“We've identified about 129 new senior housing facilities being built with an additional 58 expansion projects, for a total of 14,603 units starting construction in the past year, which in context is really quite a modest level of construction,” says ASHA President David Schless. “That's about 32% less than what we saw the previous year, and down about 57% from two years ago.” Of those new construction projects, about 31% are classified as senior apartment product; 30%, independent living product; 20%, assisted living product; and 19%, nursing care product.

In the past year, reports Schless, Dallas was the busiest market for construction activity, followed by New York, San Francisco, and Chicago. However, “busy” isn't what “busy” was three years ago. “The general themes are very modest levels of construction activity and, given the capital markets, one wouldn't expect to see significant change in that right now,” cautions Schless.

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