What Happens to Senior Living in the Age of Coronavirus?


A global contagion savagely striking our nation’s elderly is upending the senior housing industry and causing baby boomers to rethink how they want to live during their golden years.

The severity of the coronavirus pandemic caught real estate investors and senior housing operators by surprise after the first major COVID-19 outbreak occurred at a Kirkland, Wash., nursing home on February 28. 

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“We had some tragedies before people really understood the characteristics of this virus,” CBRE (CBRE) National Senior Housing Executive Vice President Lisa Widmier told Commercial Observer. “We’ve had to learn our lessons the hard way.”

The combination of a highly infections disease, aging adults’ higher risk of dying from COVID-19 and the communal design of senior living communities made these facilities and those occupying them especially susceptible to deadly outbreaks.

Coronavirus deaths in skilled nursing facilities surpassed 10,000 on April 22, comprising roughly one in five fatalities in the United States, the Wall Street Journal reported. More than 3,500 nursing home residents died in New York from COVID-19 in the past two months, the highest figure in the country.

That prompted New York Gov. Andrew Cuomo on April 23 to require that nursing home operators provide protective equipment and check temperatures of staff members, notify the state and family members of positive cases of the virus, and isolate ill residents or risk fines and the loss of their licenses.

Cuomo also warned New Yorkers to keep their parents away from nursing homes which he called “ground zero” for the pandemic.

“Nursing homes are the top location where this predator feeds. It puts together vulnerable people in one location,” Cuomo said in an April 22 briefing. “We’ve tried everything to keep it out of a nursing home but it’s virtually impossible. Now is not the time to put your mother in a nursing home.”

No one is putting their relatives in any senior complex right now. Nursing homes, which make up 43 percent of the nation’s senior housing stock, and assisted living facilities, which make up 38 percent, have faced increased scrutiny as positive cases have risen.

“It may certainly make people hesitate for a while because any time you have people living together in groups it is easier to have infection spread,” UCSF School of Nursing Professor Charlene Harrington told CO. “It’s due to the fact that they don’t have enough staff and the infection control practices are not good.”

But operators of retirement communities, those senior apartment complexes with minimal or no health care services, are also facing stalled enrollments and rising costs as operators spend more of their funds on protective equipment for employees and states extend shelter-at-home policies.

Real estate investment trusts have taken a nosedive on NASDAQ. Shares of health-care–focused REITs fell 43 percent in March, making it one of the poorest-performing real estate asset classes next to hotels and malls, the Wall Street Journal reported. That compares with a 12.51 percent drop in the S&P 500 for the month of March.

Stock prices for Sabra Health Care, which has leases for 296 nursing homes and senior centers, fell 62 percent in the first three weeks of March. And two of the nation’s largest REITs, Welltower (WELL) and Ventas Inc., both saw their shares tumble 45 percent over the same period, the Journal reported.

Sabra CEO Rick Matros told the New York Times the sector may need more money from the federal government now that senior facilities are under financial stress. Welltower CEO Thomas DeRosa sought to reassure investors by saying the firm is focused on keeping residents safe.

“We have made progress on the procurement and distribution of critical supplies, including PPE, and will continue to pursue all available options to further assist our operators throughout this pandemic,” DeRosa said in a statement to investors.

But investors have two immediate financial concerns about senior housing — the decline in enrollments and increased expenses. Septuagenarians aren’t moving in the middle of a health crisis and while states are ordering people to stay in their homes. Vacant units in senior living complexes may sit on the market for months.

For those seniors who had been planning on downsizing or taking advantage of the social aspects of a retirement community, the timing couldn’t be worse.

“People want to move in when they can use amenities,” Rick Swartz, a director in Cushman & Wakefield (CWK)’s senior housing capital markets group, told CO. “They don’t want to be isolated in a unit, so they’ll wait until the building is able to operate on a more open basis. And it’s much more difficult to lease today because projects are not allowing tours, so you have to do video or virtual tours.”

The costs of operating a senior housing facility are also rising just as rent revenues are drying up. Companies that run senior complexes have had to secure scarce face masks, gloves, and other protective equipment for staffers and health care aides who help residents. Some operators are boosting salaries to compensate and motivate weary workers and even stocking food pantries on-site so their employees don’t have to make an additional trip to a grocery store.

“This has increased temporary expenses and the market looks at this and says, ‘We don’t know how long this will last,’ ” Swartz added. “That has a negative impact on the REITs’ senior housing properties.”

Then there are the long-term concerns. Some analysts believe there will be an uptick in demand once restrictions ease and life returns to some level of normalcy.

“Seniors are not living paycheck to paycheck,” Widmier said. “They have the financials to pay for the rent and there’s no application of eviction restrictions in those communities because it involves care.”

Others aren’t so sure. Those who invest regularly in the stock market likely saw their 401k plans lose value over the past two months, scrambling their nest egg. Housing values could also decline as demand withers away, keeping aging boomers in their homes longer than they may like. And adults who lost stable jobs this spring could move in and be forced to rely on their elderly parents during a prolonged financial skid.

The longer a coronavirus-fueled recession lasts, the more it could drain a family’s resources.

“This is going to deplete a lot of resources and wealth for individuals who will be less able to pay out of pocket,” said Harvard Medical School Professor David Grabowski. “Communities don’t want to do Medicaid or the low-income side of it. You’re sort of stuck. How many individuals will be able to afford these communities? It will be smaller than today.”

There could also be a stigma around communal living thanks to the horrific stories at nursing homes being broadcast in local news stations across the country. Real estate investors and operators know the difference between a nursing home, an assisted living facility, a continuing care center, and an independent living complex, but the public may not distinguish between them — especially if coronavirus cases keep spreading.

“People may say over the next few years, ‘How did this building do over COVID?’ ” Swartz said. “They may look at this as a test for how that building is managed.”

That could force privately held senior housing companies to do more aggressive messaging and even release data to show how they fared in the pandemic compared with nursing homes.

“In six months, we may see reports suggesting … what [the] fatality rate looked like for nursing home versus assisted living versus senior centers,” said Grabowski. “Senior living will have to make the case [that] they weren’t so bad. And if it was bad, it’s something they’ll have to deal with.”

But investors aren’t walking away from the senior housing sector. After all, the nation’s 78 million baby boomers have to live somewhere, and the oldest of the generation are still about a decade away from needing the social and health care services that retirement communities have traditionally provided.

“Historically, this has been a lucrative area for investors based on social models, but it’s been hard for them to stick to that model,” Grabowski said. “They were originally largely based around real estate and now they’re being asked to be a health care model. Some are doing it well but it’s a more challenging business.”

But the jarring uncertainty the pandemic brought to the housing market and the economy as a whole will make the sector re-examine how to make senior living profitable.

“No one knows how fast the recovery or how deep the impact, whether this is a V-shaped or W-shape recovery,” Robert Kramer, an adviser and founder of National Investment Center for Seniors Housing & Care, told CO. “All of their focus is trying to get their operators what they need in this crisis to protect their residents and survive this time. There will be companies that don’t survive this time.”

The ones who do could be companies with deep pockets whose executives tracked the disease’s spread and acted quickly.

Tucson, Ariz.-based senior living company Watermark launched a task force in mid-February to determine how to protect its 8,390 residents in 58 retirement communities across 21 states from the coronavirus’s probable arrival.

“We made a decision several years ago to hire within the hospital and wellness industry so that we wouldn’t be myopic,” Watermark Chairman David Freshwater told CO. “We needed to broaden our thinking and makeup of our company.”

As news of the outbreak afflicting cruise ship passengers from Japan and seniors in a Seattle-area nursing home broke in late February, Watermark installed sanitizing stations and signs at entrances warning about COVID-19. The senior housing company also launched a coronavirus page on their website to communicate any policy changes.

“It’s like playing chess. We saw what happened in Kirkland, Washington, and said, ‘OK, what do we need to stay ahead?’ ” Watermark CEO David Barnes told CO.

When the number of positive cases jumped to 500 nationally by March 8, Watermark canceled group activities, restricted visitors to staff and service workers, and shuttered communal dining rooms and recreation centers.

A Watermark spokeswoman wouldn’t say how many cases they have dealt with, only that the “vast majority of our communities have no positive test results.” But the company did acknowledge spending $300,000 on protective equipment and setting up protocols enabling residents to get tested and treated at nearby hospitals away from the rest of the community.

“Early on, they were getting pushback from folks about how we were being too restrictive, but later on they were getting pushback from folks about not being restrictive enough,” Barnes said. “Now those same residents wrote us letters saying, ‘Thank you so much, you were right; you got out ahead in front of this.’ ”

Keeping seniors safe now may be the best way to ensure companies stay in business in the future. So is building housing products that baby boomers will want to live in.

Kramer, who launcheda new consulting firm focused on senior housing innovation, believes there will be a return to a premium on personal space instead of communal dining halls, recreation centers and computer labs.

“There will be significant design changes that come about,” Kramer said. “You’ll need to be thinking of desk nooks and study nooks in people’s apartments. What was popular five years ago absolutely won’t fly in the future.”

Seniors may also trade expensive micro-units in dense, urban centers like Boston, New York and San Francisco for more space in suburban settings or college towns. That could be a boon to nonprofits like Kendal Senior Living Communities, which runs retirement centers near Oberlin College and Dartmouth, Kramer said.

“Land is a lot cheaper and boomers can be spread out, but they still have vibrancy and intellectual community of sports, culture and ongoing learning where you take classes,” Kramer added. “That way, boomers get [their] desire for continuing education and culture and the arts.”

A long-lasting economic slowdown would also create demand for affordable properties once seniors are ready to downsize. Swartz, who works with five dozen different senior housing operators at Cushman & Wakefield, knows of several developer clients who are exploring less-expensive housing products.

“You may see less of the luxury-oriented product and more middle-market product where units are a little smaller and [have fewer] frills,” Swartz said. “There’s a huge population that cannot afford most of the new product that’s been developed over the last five to 10 years, and the industry was exploring methods of lower-cost solutions before COVID.”

The Chicago-based firm Standard Companies, which owns 3,700 units across 26 properties, has found success catering to middle- and lower-income seniors in areas of the Midwest, Northeast, and in California.

The company acquires existing buildings and utilizes affordable housing tax credits and Section 8 vouchers to rehabilitate older buildings with new fixtures and amenities. Standard also brings in some health services which could be a selling point for seniors who still need health services but prefer the autonomy of an independent building and can’t afford to move to Florida or Arizona.

“In the affordable field, people are still connected to their community and they may not be able to cash in and move to somewhere else,” Standard partner Robert Koerner told CO. “There’s a huge growth of the demographic of senior citizens whose incomes aren’t enough to pay market rent.”

Once the pandemic ends, seniors may find that being in a retirement community of some kind is more attractive than aging at home alone.

“The senior population is much safer in independent living and assisted living communities than they are if they’re living at home and going to the grocery store,” Widmier said. “Many seniors are realizing that they should be in a more controlled environment.”