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Recently, I had a conversation with Priority Life Care CEO Sevy Petras that got me thinking about the current era and future of senior living.
Petras said she came away from the NIC Fall Conference this year with a lot of new ideas and fresh optimism. From my perspective too, the conference was indeed full of concepts to take the senior living industry into its next chapter.
Petras went a step further and told me she felt the industry was poised for a new “renaissance period.” She specifically pointed to the senior living industry’s many decades of longevity and its newfound status as a burgeoning but major asset class. She also noted operators’ elevated proficiency in caring for older adults born from the Covid-19 pandemic, while they are also experimenting with new technology that could change operational practices for the better.
“When you look historically at the Renaissance period, you see all of the different things that flourished,” she told me. “Renaissance periods are when people feel comfortable to take a risk.”
Petras isn’t the only one who sees the industry in a new era. LCS President and soon to be CEO Chris Bird told me he also thinks the senior living industry is currently “transforming and evolving to be more dynamic, personalized, and focused on the needs of our residents.”
“Some may call that a renaissance period, but our team sees it as an immense opportunity and something we have been forecasting – and planning for – for years,” he told me.
Looking across the industry, I can definitely see the makings of a new era at hand. But while some operators are entering a renaissance period, the bifurcation between operators that are performing well and those that aren’t – as reflected in recently released data – tells me that others might be locked in the dark ages.
In this members-only SHN+ Update, I reflect on the state of the industry in 2024 and offer the following takeaways:
- How decades of experience and adversity have helped the senior living industry reach its “young adulthood”
- New ideas that are flourishing in 2024 and what might come next
- How the gap between high- and low-performing operators will spell the difference between them seeing a renaissance or the dark ages
Senior living reaches young adulthood
Senior living has come a long way from its humble beginnings more than 40 years ago.
What started as simple homes and hotel-like communities for older adults in the 1970s and early ‘80s evolved into private-pay assisted living and other product types in the late ‘80s and early ‘90s. In that time, the industry has weathered several crises, such as the Savings and Loan Crisis in the ‘80s and ‘90s, the Great Recession in the mid-2000s and most recently, the Covid-19 pandemic.
Petras compared the current period to the industry entering its “young adulthood.”
“Young adulthood – in your 20s – that is when you take risks,” Petras said. “You are able to use knowledge that you’ve gained and mistakes that you’ve made. And you’re old enough to look at the example of your elders, who did things right and did things wrong.”
She highlighted the Covid-19 pandemic as the industry’s latest grow-up moment. In Petras’ eyes, the pandemic and all its pressures have led more operators to invest in coordinated care and other ways to keep residents well for longer.
At the same time, she also sees many different models sprouting up to meet the needs of the incoming boomer generation. She pointed to the rise of the active adult model and other affinity communities as evidence that the industry has pivoted to meet the wants and needs of the boomers.
I can see why Petras is so optimistic about new kinds of communities hitting the market. In 2024, the senior living industry is ripe with new ideas, from models that pair active adult dwellings and preventative health care to more senior living companies spinning up their own growth funds with capital partners.
At the same time, she noted that technology is getting more advanced. More senior living operators across the industry – Priority Life Care and LCS included – are using complex data collection methods to learn more about their residents and employees to make better-informed decisions. At the same time, REITs such as Ventas (NYSE: VTR) and Welltower (NYSE: WELL) are investing resources and time into platforms that help operating partners do just that.
The ongoing transformation of senior living toward a more data-centric industry is what Bird told me he is most excited about.
“Once we apply the power of deep data analysis to things like health and wellness, we will shift from reactive care to predictive, tailored care to better meet our residents ahead of major challenges and improve their wellness journey,” he said. “We are far ahead of others in this space, and I am glad that our technology ‘renaissance’ began over a decade ago and has positioned us well to meet the desires and needs of our customers.”
That is not to mention the demand runway the industry has in front of it. Demand has continually outpaced the rate of newly built communities in 2024. The industry could possibly hit an average occupancy of 90% by 2026, provided current penetration and unit absorption rates hold. In fact, senior living companies must develop communities 3.5 times faster than today if they hope to meet the sizable demand ahead, numbering tens of millions of baby boomers.
Indeed, the sheer demand ahead has companies like LCS excited for what comes next, Bird said.
“We have a huge uptick in seniors 80+ over the next 6 years, an increase of 35%,” he said. “And we will all see the effects of having fewer new starts to meet that demand deeper into 2025.”
All of these factors have helped push the industry from a relative outlier property type to a “recognized industry and asset class in the world of real estate,” Petras said.
Investors seem to see it that way, too. NIC data shows the average transaction price per unit moved up to $130,000 and $117,980 on a quarterly and rolling four-quarter basis, respectively – “another sign that valuations are beginning to turn in a positive direction,” according to a recent Cushman & Wakefield investor survey.
Almost half of investors who responded to the survey are moving ahead in 2024 with core-plus investment strategies. About a third of them said they see assisted living communities as the most attractive for investments, while a little fewer than a quarter said the same about active adult.
Private capital investors are currently the primary buyers for senior living properties, have amounted to about 50% to 60% of investment activity over the last three years, the survey showed.
Interest rate cuts – assuming more occur – should spur more investment activity. In some cases, investors are taking unique strategies to deploy their dollars.
In August, Priority Life Care launched its own fund to spur future growth. Since then, investors have reached out with interest, a trend which Petras believes will only intensify in the coming years as they look for ways to deploy their dollars in senior living.
“People are looking for places where they’re going to get a higher return on something they believe in and understand,” she told me.
That said, she does think that the senior living industry must now morph into an even more perfect form – something more “clean-cut” akin to the multifamily or industrial sectors. But at the end of the day, she believes senior living offers a unique mix of housing, hospitality, health care and engagement that “no other industry has.”
“Our plans in the next five years are to grow our platform, but grow it with institutional capital that we know is long for our business,” Petras said. “That is going to be a combination of straight third-party management … and opportunities where we see it makes sense to invest together on the real estate.”
Renaissance period for some, dark ages possible for others
I think the argument for senior living’s renaissance period is convincing. But while part of the senior living industry is thriving in the sun, I see another part of the industry that is potentially still stuck in the shadows.
NIC data showed about 17% of senior housing communities in the 99 NIC MAP primary and secondary markets reported stabilized occupancy below 80% in 2019. In early 2024, that share had ticked up to 23%.
According to more recent data from Trepp, about 19% of senior living properties in its dataset are not fully covering their debt service payments.
“What that means is the borrower or the owner is having to [pay] out of their pocket every month to cover debt service. At some point, they probably decide they don’t want to do that,” said Lonnie Hendry, Trepp’s chief product officer, during a recent NIC webinar. “So this is a pretty good indication of maybe where some of that pent-up delinquency and distress … starts to play itself out over the next 24 to 36 months.”
While he doesn’t think 19% of senior living operators will ultimately be delinquent on their loans, he does see the current senior living loan delinquency rate of about 1.6% rising in the years ahead.
Of course, the senior living industry has made some big gains in occupancy in 2024, including most recently in the third quarter of the year. But even if operating revenues are increasing and overall expenses are stabilizing, leading to higher NOI margins; I think there are still pockets of distress in the market that won’t fade as easily.
Debt maturities are still another obstacle. The Cushman and Wakefield authors added:
“The mounting loan maturities, now at $19 billion expected within the coming 24 months, and fund-life expirations are expected to encourage transaction activity with increased investment activity from those who are well capitalized and less reliant on leverage. These catalysts however have yet to materialize in a meaningful way as most lenders programmatically work through their portfolio, loan extensions continue, and equity investors opt to hold their performing assets until more certainty returns to the market.”
The good news is that the industry is heading in the right direction this year. But the climb will be higher for senior living operators currently in the trough than nearing the peak. In other words, some providers will be riding high on a renaissance – others will be in need of a resurrection.
