NIC’s popular “Leadership Huddle” series of webinars continued on May 7, again drawing well over a thousand registrations. “Confronting the New “Normal”: A Conversation between Operators, Lenders and Private Equity Providers During a Pandemic,” featured another panel of senior decision-makers, discussing what they’ve learned and how they’re managing their businesses at this stage of the pandemic. One of the nation’s largest assisted living operators, a leading debt provider, and a major private equity provider were all on-hand to discuss the pandemic’s impact on operations, financing, current and future investments – and people – as the crisis continues.
As with previous “huddles,” the discussion, moderated by NIC Chief Economist Beth Mace, began with a presentation of the latest data and insights from the weekly Executive Survey, which showed a majority of survey respondents continuing to site softer occupancy rates and a deceleration in move-ins.
John Moore, Chairman and CEO of Atria Senior Living, provided analysis that he and his team have been conducting since the pandemic first hit Atria in early March. Using daily COVID-19 testing data, Moore’s team has been able to track the virus’ progressive spread, peak, and stabilization, particularly in the New York area, where the company has a concentration of properties. His charts offer a startling image of an outbreak that, at its peak, saw infection rate, as a percentage of tests conducted reach as high as 56% in one day in April. While his presentation offers hope that the virus has peaked in New York, it also indicates that the virus is still a threat throughout much of the nation.
Using available daily data, the Atria team has been able to make timely decisions as it reacted to the pandemic. A report the company recently released on its website and addressed to “the extended Atria family” features statistics on the numerous activities the company has engaged in. Armed with its data, Moore’s team was able to pre-supply New York area properties with PPE, which the company had previously purchased and warehoused, ahead of the peak. They also hired over 1,000 additional staff, provided food for staff, as well as N95 masks and PPE for those staff members commuting in the New York-area and their families.
The approach was creative and entrepreneurial: “We started buying PPE early. We have a kitchen supply vendor here in Louisville who has a warehouse and was out of business so we took it over…we centralized PPE and shipped it from there.” Moore’s presentation included images from the warehouse, as well as an air-freighter they hired to distribute equipment. The company also now has its own brand of hand-sanitizer, “We know a guy who knows a guy who has a still and we made five million gallons of hand sanitizer,” Moore said. The company also has proactively produced information, including templated letters and communications, for Executive Directors to use when impacted. The report can be found on Atriaseniorliving.com.
From the perspective of Steve Blazejewski, Managing Director at PGIM Real Estate, navigating the pandemic has been more about communicating with both operators and investors. “I think our role really has been one of support for our operators, and then communication the other way, to our clients,” he said. He described approving wage increases and other expenses, such as food, PPE, and other supply needs.
As a lender, Chris Taylor, Managing Director at Capital One Healthcare Real Estate, expressed how pleased he’s been with his operators: “We’ve been really, really impressed with the operators and how they’ve responded to this…it reminds me why we are active in this space. We put the residents and their care and service first.”
When asked about what activity is currently occurring in his business, Taylor indicated his team is focused on their existing portfolio and handling any issues that might arise. Looking ahead, he expressed hope that activity will pick up, “As weeks and months go by and people start to conclude what the new normal is, it will be time to look at more opportunities. I think we’ll see more of that, but frankly, deal activity has been relatively low.”
Blazejewski is also taking a, “pause, and wait and see” approach: “For the deals that we do have, particularly on developments, we’re trying to, frankly, take some more time until we get better visibility, just in terms of where the economic recovery is going to be, how long it’s going to take, what’s going to happen to labor costs, what’s going to happen to construction costs, and things like that.” He also explained that the acquisition pipeline is “on ice right now…It’s really difficult to pursue an acquisition of some size when you can’t even walk a building or tour it, you can’t get anyone to come into the building to inspect it, you can’t get your license because a lot of government offices have shut down.”
Capital markets, meanwhile, “lack clarity,” according to Blazejewski. “There’s very little pricing discovery right now, and we’re seeing a very significant bid/ask spread on various deals.” However, he expressed optimism on the sector, “We still think seniors housing has a very bright future. We’re conscious of where we are in the cycle, and we need to be making decisions for the medium and long-term, but obviously the immediate conditions and the current situation have impacted decision-making.”
Mace asked panelists for their thoughts on the “headline risk” faced by the sector, noting that papers are featuring headline stories on the pandemic’s impact on nursing homes on a daily basis. Blazejewski pointed out that media reports often fail to differentiate seniors housing from skilled nursing, “There have been a lot of articles in the Wall Street Journal and other publications…that do conflate the two. We think that is generally inaccurate and we do try to combat that, where we can.” He also expressed concern on the data coming out in reports, “I think we have a lot of blurry data right now. It’s going to be very difficult to dig through that and determine what the real success rate or failure rate was, for performance.”
Answering the same question, Taylor said, “I think we have a huge opportunity as an industry to really show how we differentiated ourselves, versus the general population, in taking care of seniors.” Asked about his anticipation of challenges, such as write-downs and recapitalizations in his portfolio, he responded, “It’s way too early to talk about whether we’ll have challenges in the portfolio to that level,” and expressed a willingness to work with his partners over the long-term.
Blazejewski also see opportunity, “I do think there’ll be probably 6-12 months of pain in terms of cap rates. We think that may provide some opportunity for us, in terms of buying, as long-term investors and holders.” He also anticipates a return to dynamics like those of just a few months ago, “where Class A cap rates might have been 5% or 6%. I still think it’ll be there in a couple of years. You still have a demographic wave coming. That’s not going to change. I still think you’re going to have strong investor interest in the space, and I still think you’re going to see a lot of searching for yields in the capital markets and from institutional investors.”
As he looks ahead, Moore expects current projects, nearing completion, to go ahead with opening plans. His team is currently testing all of their employees and will open new properties in New York and San Francisco with further testing of new hires, and potentially also periodic testing. He said, “As testing opens up, that could be a breakthrough for seniors housing, and new growth.” He described new procedures for move-ins, which include testing, quarantine, full-PPE, and new technological tools designed to keep residents and families safely connected. “Technology is becoming a bigger deal for everybody, and not just in communicating. We’re about to roll out an app for family members, so they’ll be able to see what their mom’s or dad’s temperatures were on our daily temp checks.”
Asked about telehealth, Moore responded that they’re using it more, “Hospitals are aggressively opening up to telehealth networks.” He described deals with healthcare providers, such as Northwell, on Long Island, delivering telehealth urgent care to many of his communities.
Taylor also sees continued cooperation with healthcare partners: “I do think we will continue, as NIC is highlighting, to emphasize the relationships between seniors housing and care providers and the healthcare system.”
Wrapping up the discussion, panelists were asked to summarize their current thinking, and field questions submitted by attendees. Blazejewski sees that the crisis is no longer in its earliest stages, but still presents plenty of uncertainty. He’s engaged in planning for numerous different scenarios. Mace also emphasized that scenario-planning will be very important, pointing to a just-published NIC Insider article she wrote, encouraging the practice for planners.
All the panelists, while agreeing that the sector’s fundamentals remain strong, also agreed that macroeconomic factors, as we head into a recession and face uncertainty, will likely play an important role in the sector’s future. For now, though, Moore, as he decides how to proceed, is looking at data on the penetration of the virus on a daily basis, and is still focused on adhering to strict protocols, and testing staff, to keep his residents safe every day.