Senior housing has a wide range of property types with varying levels of support and services. These property types can be categorized along a continuum depending on the health needs of the older adult, from housing in which the senior needs little to no support, to complete dependency on others for care.
There are two major categories of service provided by assisted living facilities. One category is known as "conveniences", and the other is known as assistance with daily living, or ADL's. The basic services are similar to those found in independent living facilities. These basic services form the costs for the rent at the facility. If additional services are needed, they are ADL's (Assistance with Daily Living), and often include service as shown on the adjacent chart.
Four out of five residents need help with housework, laundry, medications, transportation and meal preparation. As outlined above, these services provide the basis for two, and often three tiered pricing structures for assisted living. There is typically a basic services package, with additional tiers of service, (and costs), depending on the additional needs of the residents.
The population at an assisted living facility is typically older, with residents in declining health. A portion of the population will experience health changes that will require movement to a skilled nursing facility. Some residents die. From the perspective of the landlord, maintaining stable occupancy requires constant marketing to new potential residents. According to industry sources, the median length of stay is 22 months, or an annual turnover of 55%.
Demographic trends for senior housing is positive. According to the 2000 Census, there were 34.1 million elderly Americans making up about 13% of the total population. This elderly population is expected to more than double by 2030 to 72 million, making up 19%; of the total population. As of the 2000 Census, there were 3.8 million Americans aged 85 and older, about 1% of total US population. But is category is expected to more than double by 2030 and become 2.3% of the total population. By extrapolation, in 2050, one in five Americans could be elderly.
Most of this forecast growth will occur between 2010 to 2030, when the Baby Boom generation enters their elderly years. This growth will lead to growing demand for senior housing.
The MetLife 2012 Market Survey of long term care costs reflects a median monthly rent of $3,324/month. The median rates range widely depending on the state, with Arkansas with the lowest median rent at $2,355 per month, while Washington DC at the high end at $5,933/month. The survey also concluded the median costs of three different assisted living service tiers which are:
Only 4% of the residents used the basic service which included 5 services. Sixty one percent used the standard service of 6-10 services. Thirty one percent used the inclusive service which included 10 or more services.
A study that focused on the adult children of assisted living residents found that there is some willingness to contribute to their parents assisted living costs. The NIC National Survey of Adult Children found that 26% would contribute to rent for their parents. Of this 26%, 35% would contribute under $250/month, 37% would contribute up to $500/month, and 21% would contribute up to $1,000/month. The survey found that of the adult children actually contributing to their parents rent, the average assistance was about $600/month.
Approximately 95% or better of funds to pay for assisted living rent comes from primarily private sources. Additional sources of revenue may come from Veteran's Benefits (Aid and Attendance), and from Medicaid. If Medicaid is used, the rent levels and operating margins are typically less than the private pay residents. Other sources can include long-term care insurance, and sale of assets of the resident, including homes.
The typical assisted living facility has three major space allocations which are:
Common areas often account for up to 50% of facility space. Common areas can include:
Typcial residential units at an assisted lving facilty are designed like small apartments. The unit mix includes studios, one bed, and two bed units. The average size of these units are as follows:
Unit mix is based on the economics of the community at build-out. Typically the percentages of the apartment types listed above are:
Like any other property type, Assisted Living Facilities can be overbuilt. That said, the age and health conditions of baby boomers will deteriorate as the aging process marches forward.
Given Covid 19, the country is in a recession. To understand the impact of the recession on on the economics of Assisted Living Facilities, it can be helpful to look at the impact of the last recession on Assisted Living Facilities.
During the Great Recession from December 2007 - June 2009, the sub-prime mortgage crises led to the collapse of housing prices in the US. For Assisted Living Facilities, the recessionary pressure was felt with lower occupancy levels. That said, survey's of rents showed steady increases above CPI, with the lesson that occupancy may fall, but rents are likely to increase, cushioning the impact of increased vacancy. According to Genworth Cost of Care Survey in 2013, rents for one bedroom apartments in assisted living facilities increased by 4.55% from 2012 to 2013, and the five year compound annual rent increase was 4.26%.
The take away finding is that the industry is heavily tired to the future growth of the senior population, with the first wave of baby boomers starting to enter the senior housing pipeline. This anticipation of future benefits will keep investors betting on Assisted Living Facilities into the foreseeable future.
