R: Ripples from housing crisis slow senior living
Fri May 23, 2008 7:56pm EDT
By Kim Dixon
WASHINGTON (Reuters) - The free fall in U.S. home prices is forcing many elderly Americans to postpone plans to move into senior housing developments until they are able to sell their homes.
Occupancy rates have flattened in the estimated 2.1 million senior housing beds professionally managed by both companies and nonprofit organizations. The facilities are an alternative to nursing homes and range from housing that offers light housekeeping for independent residents to assisted living units providing health care for residents with some medical needs.
"We've felt the pinch," said David Freshwater, who three years ago sold his chain to Sunrise Senior Living, and now runs a group that invests in the sector. "People don't want to sell when they have a price in their mind and Millie down the block sold her house for that amount."
Assisted Living Concepts and Capital Senior Living are among the companies reporting weaker occupancy rates. Assisted Living's occupancy rate fell to 71.7 percent in the first quarter of 2008, down from 83.7 percent in the same period of 2007, while Capital had a more modest decline.
Brookdale Senior Living had a 1.5 percent decline in occupancy in the first quarter and said it expected "relatively flat" occupancy in the near-term due to the sagging housing market and the overall economic slowdown.
At the same time, share prices in the sector are down about 14 percent this year.
Overall, the outlook for senior housing companies remains bright. The number of Americans age 75 or older is set to jump about 20 percent in the next decade thanks to the baby boom that occurred immediately after World War II. That compares with about 14 percent growth for that age group this decade, according to Brookings Institution research.
But industry officials acknowledge the U.S. housing crisis has had an impact, especially in hard-hit markets such as south Florida, Las Vegas and some parts of California where foreclosures are skyrocketing and home values have fallen.
"Some of the operators are starting to see that even people that have moved in recently are moving out" because they are unable to sell their homes, said Derrick Dagnan, an analyst at Avondale Partners.
CONFLUENCE OF EVENTS
Elderly Americans on fixed incomes are fighting many foes at once.
Among those 65 years and older, nearly a third are postponing retirement due to stock market losses, according to a recent survey by elderly advocacy group AARP, formerly known as the American Association of Retired Persons.
"Many are seeing their income decrease, because their annuities are tied to the prime rate. It's a whole confluence of really bad things happening at the same time," said Jim Dau, a spokesman for AARP.
A fast-growing industry segment called continuing care retirement communities will be hit first, experts said. The campus-style housing has varying levels of care up to skilled nursing, and usually residents live out their lives there.
Continuing care units typically require a down payment or "entrance fee," of $50,000 to $1 million. Most such properties are not-for-profit, but public companies have started to move in, including Sunrise and Brookdale.
"Those most impacted are those middle-class people who are looking to sell a house and move into a planned retirement community," said Larry Minnix, chief executive of the American Association of Homes and Services for the Aging, which represents the nonprofit segment of the industry. "Our members and other owners have to just bide their time."
Unlike senior housing developments, nursing homes which treat the sickest elderly depend largely on the government's Medicare and Medicaid programs to pay the average cost of around $189 per day or $69,000 for a semi-private room, according to a MetLife 2007 survey.
The popularity of nursing homes has fallen in recent years as seniors flock to more flexible new models, like independent and assisted living.
These options are generally not covered by government insurance but are cheaper. For example, the average annual cost for assisted living is about half of nursing homes -- about $36,000, according to the MetLife survey.
Least impacted by the economy are independent living facilities, mostly because they do not provide medical care and are more a "lifestyle choice," according to Avondale's Dagnan.
NOT LIKE A SUN ROOM
At Goodwin House, a continuing care facility with locations in the Virginia suburbs outside Washington, there is a three-year waiting list for some properties, according to spokeswoman Colleen Mallon.
But the environment there is also more challenging as would-be applicants have trouble selling their homes.
"We have (potential residents) say we're not going to even try -- there are already four houses on the market on our block," Mallon said.
To be sure, senior housing is not like most consumer goods.
"There is a need; it can be as simple as 'I can't do these stairs any longer,'" said Robert Kramer, president of the National Investment Center for Seniors Housing and Care Industry, a research group whose members include companies and investors in the sector. "It's not like the decision to add a sun room to your house."
So the key factor is waiting for housing prices to stabilize.
"You can get rid of a house... it's what you want to get for it," said Frank Morgan, a Jefferies & Co. analyst. "Tell me what your view on the housing market is and I'll tell you how long it will take for these occupancies to come back up."
(Editing by Derek Caney)
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