Global families

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GLOBAL INVESTOR 1.07 Basics — 34 Figure 2 Assisted living facility construction After peaking in 1998 –1999, construction of assisted living facilities has dropped off markedly. This phenomenon poses positive valuation and cash flow implications, but also creates long waiting periods. Source: American Seniors Housing Association Number of units 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Table 1 Senior housing facility continuum Depending on the level of care needed, various categories of senior housing facilities are available. Many offer specialized care, while others can offer more than one option on their premises. Source: Assisted Living Federation of America, Credit Suisse Type of facility Independent living Assisted living 1997 1998 1999 2000 2001 2002 2003 2004 2005 Low level of assistance provided Moderate level of assistance provided High level of assistance provided Nursing Alzheimer’s care/dementia Continuing care retirement communities Gregory Siegel: What determines one’s decision to enter a senior housing facility? Stacey C. Maines: A senior’s decision to move is not always clear. In concert with his or her family, he or she needs to assess, among other things, his or her current living situation. The major question is: “Are my needs being met?” As our older adult population ages, their social support network begins to fade. A harsh reality is that more and more of their friends are dying or moving into alternative housing. In addition, health factors and decreased driving independence makes it more difficult to get out of the home. They become more and more isolated and, in some cases “prisoners in their own home.” While there may be “at-home” solutions, for many, a move is a strong possibility, if not the only option. Beyond social needs, what other factors are involved? Stacey C. Maines: Physical barriers often play a role. For example, stairs may be more difficult to manage, a large empty home may be more difficult to maintain, a bathroom is too far from the bedroom, or rooms cannot easily accommodate wheelchairs. Also, with age generally come more health-related issues. Older adults may require more medication assistance, insulin coverage for diabetics, dialysis, more frequent doctor visits, etc. From a family standpoint, after one spouse dies, families often want their widowed seniors closer to them. It is well documented that, given the rapid increase in US health care costs, senior housing is quite expensive. How do seniors afford housing facilities? Stacey C. Maines: Obviously, income and assets play a significant role. If there is no home to sell and there are few assets, one may be applying for Medicaid [the US publicly funded health program for people that cannot afford medical care]. Unfortunately, many programs do not accept Medicaid, including most independent living facilities. Lack of financial resources may unfortunately limit options. There are certainly a number of types of housing alternatives. How do seniors decide on which one is right for them? Stacey C. Maines: I always ask my clients/families, “What are your needs now and what are your needs going to be in the future?” For example, if someone was deemed to be a classic candidate for an assisted living facility, but was diagnosed with brain cancer, he or she would likely require a great deal more care within a month or two, not to mention anticipating the possible onset of dementia. Overall, I would discourage making a move twice. The basic idea is “aging in place.” If you are entering a facility and are borderline appropriate, or already at the highest level of care, where do you go from there? A move at any age is traumatic, and the impact on a senior even more so. Moves should be as few as possible. One last question. What are your views on the future of senior housing? Stacey C. Maines: Obviously, people will continue to have more options and more say in where they can go. The current generation of “super seniors” did not expect to live well into their nineties, and often beyond a century. As adults, they thought they would retire at 65 and have a few good years as an active adult. They did not imagine living as long and with health problems. They were not prepared to be paying for, in many cases, 20 years of some form of care or assisted environment. Not too many years ago, nursing homes were the only option if one could not live at home. Now, with assisted living and independent living facilities on seemingly every other corner, there are a few steps before a nursing home.
GLOBAL INVESTOR 1.07 Basics — 35 Often the stay in a nursing home is now less than a year. One other trend is family involvement. There seems to be a resurgence of families reuniting in later years. Also, the increase of cell phones make “distant” family members more accessible and more involved in care issues. We definitely see fewer and fewer “abandoned” seniors. If nothing else, our generation will be better prepared. Investment opportunities within senior housing From an investment perspective, the long-term growth prospects of the senior housing industry appear quite favorable. Demographics are a major factor in this positive growth story, given the aforementioned preponderance of the older generation. Supply and demand dynamics are also attractive for the senior housing sector, with limited new construction of facilities in recent years. Over the past six years, according to the American Seniors Housing Association, the number of additional assisted living facilities has declined precipitously, from approximately 30,000 units developed in 1999 to just over 5,000 in 2005 (see Figure 2). From a real estate valuation / cash flow perspective, these facilities should likely continue to thrive, given the ongoing demand for assisted living care. In fact, with robust demand and limited supply, occupancy rates have risen in recent years, and according to the National Investment Center, currently stand at 89 %. Occupancy rates are even higher in independent living facilities and CCRCs, ranging in the low-nineties. A noteworthy social downside to the high occupancy rates is longer waiting periods (sometimes up to several months) for many seniors who desire to enter a housing facility. Finally, as noted, the rapid rise in health care costs also provides cash flow growth opportunities for senior housing facilities. Amid the growth in senior housing and long-term care, many health care REITs have proliferated. While the sector is decidedly a US phenomenon, we expect that such REITs will inevitably evolve in both Europe and Asia due to overall REIT expansion in those regions, coupled with similar demographic trends. With a limited supply of senior housing facilities, most health care REITs also tend to operate other types of structures, such as hospitals or related medical facilities. Currently, there are 12 US-based health care REITs, with a total market capitalization of USD 20 billion. Collectively, the health care REIT sector is still somewhat small relative to overall REITs, comprising only 5 % of the total REIT index (FTSE NAREIT index: USD 422 billion market cap). The largest health care REIT is Health Care Property Investors, Inc., with a current market cap of USD 4.5 billion. Based in Long Beach, California, Health Care Property has approximately USD 4.4 billion of real estate holdings somewhat evenly split among senior housing, hospitals, skilled nursing facilities and medical office buildings. The company is geographically dispersed within in the US, with 534 health care properties located in 42 states. For pure senior housing specialization, Health Care REIT, Inc., with a market cap of USD 2.6 billion, manages 477 facilities focused solely in the senior housing sector. In the US, independent living communities offer senior citizens a buoyant lifestyle with common activities. Photo: Nick White/Gettyimages Stacey C. Maines, MSW, LSW, is a licensed social worker with more than ten years experience in providing supportive counseling, awareness and education to families in crisis. She holds a master’s in social work from New York University. Ms. Maines has been in private practice as a geriatric care manager and has worked in a variety of long-term positions offering services to the institutionalized elderly. She currently specializes in community-based education and marketing.
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