Uptick in Construction Lending Seen as 41% of Senior Living Execs Expect Development to Take Off

Operators across the senior living spectrum expect construction lending to pick up after seeing it slowed during the pandemic, with nearly half, 41% of respondents, reporting that they think their development pipelines will increase.

Though it was not immediately clear how skilled nursing executives specifically responded to how development might grow, the National Investment Center for Seniors Housing & Care lending survey, released earlier this month, indicated new construction was increasing for nursing homes. Construction loans for nursing care increased by 8.9% on a same-store quarter-over-quarter basis in the second quarter of 2021, the largest increase seen since the third quarter of 2018.

The recent uptick in construction lending seen in NIC’s most recent survey of skilled nursing and senior living executives, now in its 34th iteration since the COVID-19 pandemic began, indicates that less projects are being shelved due to COVID, though challenges in the sector remain.

“Challenges to the practicality of new construction and timelines persist due to labor and key materials shortages and relatively high costs,” NIC senior principal Lana Peck observed in the report.

Construction costs for lumber have come down since peaking in May though steel continues to be high. The fall construction market report from the Weitz Company indicates that persistent labor shortages are slowing the construction market with 321,000 job openings in construction currently. NIC researchers also included higher costs associated with supply chain disruptions, tariffs and rising energy purchases as current challenges to construction.

Also of note, lead volumes were shown to be improving among senior living and skilled nursing operations with one-third of organizations reporting lead volumes reaching pre-pandemic levels, up from 20% in April.

Nursing care occupancy recovery slowed with 38% of organizations reporting either an increase or a decrease in occupancy, compared to 43% seeing an increase and 25% seeing a decrease in the previous iteration of the survey.

Most occupancy increases were between 0.1 and 0.3 percentage points and roughly half of respondents indicated they expect operating margins to increase.

While many SNF operators are looking for ways to increase acuity coming out of COVID, that may not be the case for all areas of senior care. Roughly two-thirds, 64%, of organizations stated they were not considering changing their product mix, the survey said. In fact, nearly one-quarter, 23%, reported that they were considering expanding their offerings toward lower acuity settings.

The NIC data comes from leaders at 74 small, medium and large senior housing and skilled nursing operators from across the country, collected from Oct. 4 to Nov. 7. Independent owner/operators with one to 10 properties comprised over half of the sample with 30% operating nursing care properties.