Senior Living 101: Primers/White Papers

A couple basic resources..

• SHN Reports - Senior Housing News (SHN) is one of the common industry news/article sources. The link here takes you to their reports, which range from very broad/general to extremely specific and also can cover a variety of topics (market outlook, finance side, , architecture/design, dining trends, etc.). Can download most of these for free. https://resources.seniorhousingnews.com/page/1

• CBRE Market Insight Reports - They do these for senior housing on a quarterly basis. It does a nice job of summarizing macro-level market trends. Covers the operational side of things like occupancy, rent growth, etc. as well as the transaction side (sale volume, cap rates, returns, new development activity, etc.). Also has a page or two showing some "underwriting guidelines" that should be a really good primer on market underwriting assumptions for someone new to the space. http://www.cbre.us/real-estate-services/real-estate-industries/seniors-…

COVID is beating the asset class up right now but people who are invested in the space and know it well are bullish long-term. Leasing interest/activity is already starting to turn the corner a little bit and once more communities start opening up and accepting move-ins then hopefully occupancy starts moving in the right direction in a few months. National media has done a horrible job distinguishing between senior housing and skilled nursing during the pandemic, they are drastically different products with a different resident profile. There certainly have been outbreaks and issues at senior housing communities, but by and large most of facilities in the headlines are nursing homes, not senior housing. The hope is that as a more need-based product (especially assisted living and memory care) that demand is simply getting pent up while things are shut down and that once the doors are opened move-ins will pick back up and fill the units that are sitting vacant right now. Some think that seniors will be hesitant to move into a congregate care environment post-COVID, and while there's probably some truth in that I think there's also a lot of people who have realized during the course of this that they can't take care of themselves or they can't take care of their parent (from the perspective of an adult child). And those people are going to start looking into senior housing.

Development activity is already dying down, which is probably a bigger deal here than other asset classes as new supply had been one of the larger issues in recent years. So that should help market occupancies once things start moving in the right direction. Groups that can weather the storm and continue to pursue new projects should see some construction cost savings, which can be huge numbers here because senior housing projects need so much common space. Definitely going to be some new design ideas due to COVID, a common/basic one I've heard is creating smaller pockets of neighborhoods within larger communities so that it can be easier to quarantine one neighborhood without materially impacting the operations/function of the rest of the community.

Last thing I'll touch on is we're hoping to eventually see some relief in labor costs, which are usually around 60% of the expense load for a senior housing community. Labor costs had been a challenge over the last couple years as with unemployment so low it was really hard to attract and keep high-quality employees. You're competing with things like retail, hospitality, and restaurants, especially for the lower wage positions, and generally you're going to have to pay a few bucks higher to be successful because most people would probably rather work at Target versus a senior housing community (where they might have to do something like clean up shit) if given the same wage. So with such a tight labor market it was getting tougher and more expensive to staff buildings, and the thought is that with retail/hospitality/restaurants getting beaten up that senior living could benefit from a larger labor pool.

Again, overall in the long-term people who know this space well are bullish. The demographics are extremely favorable and the need-driven nature of the product makes demand quite resilient, even in challenging market environments.