Housing Market Update: Growing Impact on Senior Living Providers
Reprinted from Z-News, a weekly publication of Ziegler Capital Markets
The housing market continues to dominate news across the nation, with words like "morbid" and "dire" applied to the topic in news bylines. The release of year-end data prompts Z-News to once again examine the impact of this crucial market on move-ins to senior living communities.
A key resource for tracking average home prices--an indicator of housing market strength--is the S&P Case-Shiller Index. This index, dating back to 1987, shows relatively stable housing values until a steep run-up began in mid-2000 and reached a peak in mid-2006 before commencing a sharp decline (see Chart A); the most recent release of data for the Case-Shiller index (through December 2008) reveals a decline in the index of home values to early-2004 levels. The year-over-year decline of the index measured 19.2 percent at the end of December, with five of the housing markets (Phoenix, San Francisco, Los Angeles, Miami and Las Vegas) experiencing annual declines of more than 25 percent (see Chart B). Some markets have experienced lower-priced home prices declining at different rates than higher-priced homes; for much of 2008, for example, lower-priced homes in most markets saw prices decline well in advance of the higher-priced homes AND to a greater extent. Other markets, such as Chicagoland, have seen mid-range price declines through all home values.
To study the impact of the housing market specifically on senior living providers, beginning in mid-October 2007, Ziegler's credit analysts have queried senior living borrowers in quarterly continuing disclosure calls with investors whether the housing market is affecting their communities. The charts below track the responses from these borrowers. Chart C shows that the percentage of "stable" Ziegler borrowers (that is, not in fill-up mode) reporting that the real estate market is having an impact on their occupancy rates has stabilized a bit in recent months; this data set actually shows its first decline since tracking began. When only those communities that are pre-selling/filling are tallied (Chart D), a growing percentage, now nearly 80 percent, report a negative impact from the housing market.
As borrowers experience an increasingly higher level of impact due to the current housing crisis or broader economic issues, new move-in and incentive programs are being initiated almost daily across senior living campuses nationwide to expand upon their strategies for attracting potential residents. Through Ziegler research we've learned that the range of program types now employed cover a variety of approaches, some of which include: Advocacy, such as partnering with a local real estate agent to offer free seminars or consultations on moving into a senior living community; Deferral , where a certain percentage of an Entrance Fee is paid up-front with the balance paid after a deferred but pre-determined period of time (usually 6-12 months); Discount, where in some instances all or a limited number of unit types' Entrance Fees have been reduced to 2007 or even 2006 levels, or application processing fees are waived altogether; Incentive, trying to build upon "word of mouth" marketing by utilizing current residents who receive various rewards for referring a potential resident to the community; Loan, which covers a variety of programs like the acceptance of promissory notes in lieu of cash for entrance fee payments (usually interest-free for up to one year) or encouraging depositors to use bridge loans to fill in payment gaps; and Moving, where communities contract a moving services company or have created their own moving services department in order to allow residents to utilize preferred area realtors and receive assistance with the packing, loading, moving, and unloading of their belongings as a complimentary service.
While many organizations are working through these challenging issues on their own, perhaps using one or more of the techniques above, we know that many have reached out to several of the highly qualified marketing consultants available to assist in implementing these initiatives. Ziegler encourages organizations to think about reaching out early for help so that marketing efforts don't lose highly critical momentum and continuity. For assistance in identifying qualified consultants in this area, feel free to contact your Ziegler banker. (Kathryn Brod, Senior Vice President and Jeff Girardi, Research Specialist, Ziegler Capital Markets)
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