Dramatic Moments: 30 Years of Investment in Seniors Housing and Care Part 3

In “Dramatic Moments in History: Another Period of Disruption,” Kurt Read, Chair of the Board of Directors, NIC; and Principal, RSF Partners; provided attendees of the 2020 NIC Fall Conference with a review of the seniors housing and care industry’s performance characteristics since NIC was founded in 1991. This is the third and final post in our blogging series that provide the key takeaways from that session which reviewed the past 30 years of investment in seniors housing and care. In this post, we touch upon NIC’s role through those years, and look to the years ahead, with thoughts from a new generation of leaders sitting on NIC’s Future Leaders Council. 

The Current Disruption 

Heading into the current period of disruption, Read looked at a number of factors impacting the market. The first factor Read looked at was the cost of capital. Looking at cap rates, he showed that the cost of capital has been going down, through the second quarter of 2020. In seniors housing, compared to apartments, the risk premium on seniors housing has been dropping, particularly since the last recession, indicating that investors, prior to the COVID-19 pandemic, were viewing the sector as less risky. “I’m not sure investors are going to agree with that premise in a post-pandemic environment,” Read opined. 

Looking at NCREIF annualized total investment returns, ten-year and five-year returns are still close to 10%. However, Read points out, the one- and three-year returns are now more in line with other real estate asset types. “We’ve gone from being the darling to one of the team,” he said. Transaction volumes, which for the past eight or nine years have been strong, have now stalled. Comparing 2020 with 2008 and 2009, and referring to his discussion on distress cycles, Read pointed out that, “We’re in that time period where there’s very little price discovery.” 

Looking at occupancy decline, Read emphasized the importance of context. He explained how occupancy decline is partly a function of length-of-stay averages, which vary depending on property type. A CCRC, with a ten-year length-of-stay average, will see occupancy drop far more slowly than an assisted living property with a one-year average length-of-stay. Current data reflects this relationship in today’s occupancy decline numbers, by property type. 

NIC’s Role 

Read concluded his review of the seniors housing and care sector by reflecting on the role of NIC during the past 30 years. “All along that time, a small sector, trying to get capital, needed to grow up. How do you grow up when you’re a sector? You get data, and you get together great leaders who challenge each other to get better. That’s what NIC has been about all of these years.” For the remainder of the session, Read introduced NIC leaders, past, present, and future, to share, in their own words, why NIC was founded, what it is working towards today, and where it will lead in coming years.  

The first to speak was NIC Founder & Strategic Advisor; and President, Nexus Insights; Bob Kramer, who said, of the founding of NIC, “The goal was to provide investors with insights and transparency comparable to that which was available for the major commercial real estate property types.” Looking to the future, Kramer said, “NIC has an extraordinary opportunity to provide leadership, both within and outside our industry, on the resetting of the relationship between ‘where I live’ (housing), ‘what keeps me healthy,’ (health), the where and how of healthcare services delivery, and personal care.” 

Data and Transparency 

In his introduction of Kathryn A. Sweeney, Co-founder and Managing Partner, Blue Moon Capital Partners, Read explained that, as NIC got started in the 1990s it became clear to investors that seniors housing and care lacked the data available to investors in other asset types. Sweeney explained why she and others at NIC piloted and launched what is known today as the NIC MAP^® Data Service. “The seniors housing industry suffered a high cost of capital due to the lack of transparency. Institutional investors saw more risk until the industry could be compared to all commercial real estate types,” Sweeney explained.  

NIC launched a NIC MAP pilot, looking at the Charlotte, NC market. NIC convened a task force of operators and investors and also hired ProMatura Group to collect and tabulate the data. Task force members also worked their relationships with operators in the space to get their participation. The result “wasn’t pretty,” said Sweeney, “but we worked out the bugs and launched in the top 31 markets.” Sweeney concluded with the statement, “Today, NIC MAP is recognized as the most trusted data source for a wide range of metrics, information, and insights. Importantly, the lower cost of capital objective was met.” 

Next to speak was NIC Chief Economist, Beth Mace, who discussed not only the NIC MAP Data Service’s offering of data and analysis, but also the many current initiatives, publications, research, and outreach conducted by NIC. “All of these efforts have resulted in making the seniors housing and care sector more accessible, transparent, and easy to understand. It has allowed more institutional capital to come into our sector, which has helped drive down the price of capital and help create more housing options for seniors.”  

Thought-Leadership 

The final two speakers were introduced by Read as, “innovative thought leaders that are pushing all of us, and pushing our industry to push ahead.” First to speak was Dana Scheppmann, Senior Vice President, Capital One Healthcare Real Estate, and leader of NIC’s Future Leaders Council. She pointed out that, as healthcare providers move from fee-for-service to a more “outcomes-based model”, they are challenged both to control patient behavior outside of their care, and to track and quantify outcomes.  

Scheppmann relayed a vision in which the seniors housing and care sector could help resolve both issues. “What NIC can do, to help push this initiative along, is to connect these healthcare providers with these owners, with these operators, to make sure we are pitching to them. We can help them with this initiative.” In partnership with healthcare providers, the sector could help ensure better outcomes for healthcare patients, while potentially also attracting more residents coming from the healthcare system. 

On the potential for facilitating such partnerships, the final word belonged to Kelsey Mellard, CEO, Sitka: “NIC’s greatest success in the future will be their ability to continue to convene and drive a data-informed conversation about the intersection of seniors housing and healthcare delivery.” In thanking both young leaders for their contributions, Read reflected on the future of NIC, saying, “As always, it’s incredibly inspiring to me to see the passionate talent that is attracted to NIC and to our industry.”