SNF Occupancy Projected to Fall Further in 2017

Anyone hoping for skilled nursing occupancy to bounce back this year might want to adjust their expectations.

Occupancy for skilled nursing is projected to dip 40 basis points in 2017, hitting 86.4% by year-end, according to a recently released Marcus & Millichap Seniors Housing Research National Report for the first half of 2017.  The Calabasas, California-based Marcus & Millichap is one of the largest national real estate brokerage firms, and also provides research and advisory services.

In creating its forecasts for the report, the firm included data from its own research services arm, as well as from the National Investment Center for Seniors Housing & Care (NIC) and CoStar Group Inc.

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The occupancy slide is occurring even as inventory is pulled, with approximately 600 beds removed from service in 2016, the report noted.

Skilled nursing faces a complicated environment, with Medicare and Medicaid reforms continuing to create turbulence, while regulatory oversight, labor pressures, and other challenges are adding to the headwinds. Occupancy declines have been pegged to several factors, including increasing numbers of short-stay transitional care beds and pressure from managed care organizations to lower length-of-stay.

“There are a lot of things stirred in the pot for skilled nursing,” Marcus & Millichap Associate Rick Lynn told Skilled Nursing News.

Still, there is some upside in skilled nursing.

Certificate-of-need laws in many states constrain supply, so investors still see skilled nursing as a potentially smart long-term play, given that the aging population should create a surge in demand in coming years, Lynn said.

This is one reason why the price-per-bed for skilled nursing reached its highest level in five years in 2016, hitting $91,600.

Average skilled nursing rent also should continue an upward trend, climbing 2.7% year-over-year to $3,189 a month in 2017.

Private capital primarily is driving skilled nursing transaction velocity, the report stated. Real estate investment trusts (REITs) are mainly interested in independent and assisted living at the moment, while they have been offloading skilled nursing assets.

And even lower occupancy might not necessarily mean that providers’ bottom lines are taking a hit. If occupancy goes down but Medicare revenues go up as the result of converting long-term care beds to rehab units, that could actually increase profits, NIC CEO Bob Kramer said last year.

The outlook for less needs-based senior housing, namely independent living and continuing care retirement communities, is brighter. Independent living can expect strong demand to push occupancy up 10 basis points this year, to 91.8%, according to the report.

The occupancy projection for CCRCs is even better. A 20 basis-point annual increase should push occupancy to 91.1% by year end.

These predictions show that people see private-pay senior housing as desirable and are opting to move in to communities, Lynn said.

Consumers are being aided by accelerating home prices, the report pointed out.

Single-family home prices have bounced back following the Great Recession, and the homeownership rate for those older than 75 has fallen toward 75%, from a high of 80% in early 2013. This suggests that older adults are tapping home equity to move into senior housing communities.

Written by Tim Mullaney

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