NIC has a virtual treasure trove of data related to the seniors housing and care sector that can provide insights into operations for both operators and investors. In the coming months, as we begin a new year and decade, NIC’s Analytics and Research Teams will provide such insights. This is a condensed version of NIC’s first Actionable Insight article, published in the February NIC Insider newsletter, and serves as a preview of more to come. As always, we appreciate feedback and commentary on this article as well as our monthly NIC Insider articles and our two frequently updated blogs—NIC Notes Blog and Senior Care Collaboration Blog.
ACTIONABLE INSIGHT: For this article, NIC’s analysis shows that on a rolling four quarter basis, the average time to construct a new seniors housing property—either assisted living or independent living—takes nearly two quarters longer today than it did in 2014. This suggests that when underwriting a new seniors housing property development, a longer time frame should be considered between the time when a project breaks ground and the time when it is opened for occupancy.
EXECUTIVE SUMMARY: Construction, delivery pipelines, and development are hot topics in the seniors housing sector. Anecdotes abound regarding the time to opening from the time ground is broken on a new property. This commentary uses NIC MAP® data to investigate the anecdotal comments that new property development projects are taking longer today than they did in 2014. The reasons could include but are not limited to changing unit mix and complexity of projects, rising construction costs, changing regulatory environments, and limited availability of trained subcontractors—especially for those who specialize in subtrades that require more skill.
KEY FINDINGS: Key findings from NIC’s analysis include:
- The rolling four quarter average number of quarters between when a new property breaks ground to when it is open for occupancy has increased since 2014. Data from 1Q 2014 through 4Q 2019 for both majority independent living (IL) and majority assisted living (AL) properties for the NIC MAP® 99 Primary and Secondary Markets supports this anecdote.
- For majority IL properties, the analysis showed that the rolling four quarter average number of quarters from groundbreaking to opening increased by 1.7 quarters from 6.1 quarters in 1Q 2014 to 7.8 quarters in 4Q 2019.
- For majority AL properties, the rolling four quarter average number of quarters from groundbreaking to opening increased by 1.6 quarters from 5.1 quarters in 1Q 2014 to 6.7 quarters in 4Q 2019.
- Over this time period for the 99 Primary and Secondary Markets on a rolling four quarter basis, majority IL consistently took longer on average from ground break to opening than majority AL did.
EXPLANATION OF FINDINGS: Potential factors affecting these observations include but are not limited to:
- Freestanding memory care (MC) properties are a subset of the majority AL properties. Freestanding MC properties tend to have smaller unit counts. If the size of a property is a contributing factor to how long it takes for a property to be built, freestanding MC properties may be a playing a role in majority AL averaging a shorter time to open than majority IL through the time series.
- Continuing care retirement communities (CCRCs, also known as life plan communities) also tend to be majority IL properties and tend to be larger properties. Again, if the size of a property is a driving factor in time to opening, CCRCs could be a contributing factor to majority IL properties having longer times to opening.
- Unit counts and/or unit sizes may be getting larger and elongating the construction process, thereby lengthening the time from groundbreaking to opening. Projects may be getting more complex in terms of having more amenities and finishes as well as more common space, therefore taking longer to construct. Additionally, it is common to have two to three product types in each building, which may add to the complexity of the project.
- In general, there are fewer majority IL properties opened in any rolling four quarter period during this time period than majority AL properties. Majority IL averaged 40.3 properties per rolling four quarter period since 1Q14 (i.e., on a quarterly basis, this averaged as 8.8 new majority IL properties per quarter). Majority AL averaged 195.2 properties per rolling four quarters (i.e., on a quarterly basis, this averaged 41.4 new majority AL properties per quarter).
Other external factors contributing to a longer length of time to opening may include:
- Rising costs of construction for all types of construction, residential and commercial, including seniors housing.
- Increased competition for construction labor, especially for the subtrades that require certain skills. During the Great Recession, some workers in the subtrades left the industry and have not come back. This has led to a shortage of trained workers and has made scheduling projects particularly challenging. Often one delay leads to others, as one’s place in the scheduling queue shifts.
- With some areas across the nation experiencing heightened volumes of construction activity and new supply, licensing, approval and regulatory departments have backlogs, which often contribute to delays in construction schedules. Anecdotally, it is becoming more common that a completed project can wait four to six weeks to open due to inspector delays.
- More recently, hurricane and natural disasters have also delayed certain projects for emergency work and repair, ex., electrical hook ups.
LIMITATIONS AND CAVEATS. It is important to note that construction data is revised. NIC occasionally finds out that a project has broken ground after it has done so or that a property indicated groundbreaking prematurely. Occasionally, a property will open sooner than estimated or indicate a shift in the open date. This means that over time there may be shifts to what cohort a property falls into or occasionally potential shifts to length of time under construction before being open for business.
Future analyses could investigate questions around unit mix, frequency of phased openings, and other questions around inventory trends like the relationship between project size and time to opening. Future analyses could also investigate whether the trend observed in the current data continues over time.
CONCLUSION: The rolling four quarter average length of time from a new seniors housing property breaking ground to having open units has increased since 2014 for both majority IL and majority AL in the 99 Primary and Secondary Markets. As of 4Q19, majority IL properties have a rolling four quarter average of 7.8 quarters from ground break to opening. Respectively, majority AL properties have a rolling four quarter average of 6.7 quarters from ground break to opening. These numbers reflect the aggregate trend for the 99 Primary and Secondary Markets, and there is likely variability at the metropolitan market level. Some markets may not be not seeing an elongation of the construction cycle, while other markets are possibly experiencing longer delays (potentially markets with a larger number of projects underway). When putting together plans for development, it makes sense to consider today’s environment of a more elongated construction cycle.
About Beth Mace and Anne Standish
Beth Burnham Mace is the Chief Economist and Director of Capital Markets Research at the National Investment Center for the Seniors Housing & Care Industry (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for 7 years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. While at AEW, Ms. Mace provided primary research support to the organization’s core and value-added investment strategies and provided research-related underwriting in acquisition activity and asset and portfolio management decisions. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service with responsibility for developing forecasts of economic, demographic, and industry indicators for 314 major metropolitan areas in the U.S. Prior to working at DRI, she spent three years as a Regional Economist at the Crocker Bank in San Francisco. Ms. Mace has also worked at the National Commission on Air Quality, the Brookings Institution and Boston Edison. Ms. Mace is a member of the National Association of Business Economists (NABE), ULI’s Senior Housing Council, the Urban Land Institute and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ (CBE), which is the certification in business economics and data analytics developed by NABE. The CBE documents a professional’s accomplishment, experience, abilities, and demonstrates mastery of the body of knowledge critical in the field of economics and data analytics. Anne Standish is a Research Statistician in the Outreach Group at the National Investment Center for Seniors Housing & Care (NIC). At NIC, Anne is an important contributor to NIC’s analytics and has been involved in a number of initiatives focused on the analysis of NIC’s seniors housing time series data. While working at NIC, she received her M.S. in Applied Statistics from Villanova University. She also has a B.S. in Psychological & Social Sciences from Penn State Abington. Prior to NIC, she worked in a range of academic research positions. Outside of having a passion for quantitative research methods and statistical analysis, Anne also has an interest in data visualization.
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