Earlier this week we discussed how the growing economy and projected increases in occupancy rates and monthly rents are helping to drive the senior housing market. Throughout the year, senior housing owners and investors have been taking advantage of this dynamic to acquire additional properties for their portfolios. Before interest rates rise, as they are projected to do next year, industry participants who are seeking capital to purchase senior housing assets in this strong market should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions and othe
r purposes as well.
Challenges in the Industry
Evidencing further strength in the market, in addition to gains in occupancy and monthly rents, operating margins in the industry also increased during the year. According to a report from the investment advisory firm Cleary Gull, operating margins have increased by more than 50 percent in 2014 from 2.13 percent to 3.24 percent as operators became more experienced and revenues increased.
Right now, the senior housing industry clearly has a number of positive things going for it. However, like all industries, it faces some challenges as well. Many operators are grappling with new laws on the books that will affect their portfolios. Perhaps the chief example of this is the Affordable Care Act and its employer mandate provision that requires larger employers to offer health insurance to all of their full-time employees, or else pay a fine. This mandate takes effect in 2015 for some companies and in 2016 for others, depending on the number of employees that they have, and when it does, it will have a significant impact on the operating expenses and net operating income of the providers that are affected by it. Other challenges that providers face include maintaining high occupancy rates and adjusting to lower reimbursement rates in some states. These challenges are real, but are not insurmountable. Moreover, there are many opportunities in the industry that providers can take advantage of to strengthen their portfolios.
New Opportunities in Senior Housing
New opportunities in senior housing include using new technologies to expand resident services and improve care, and reallocating investment holdings so that they are capable of generating strong returns in a rising interest rate environment. With respect to interest rates, they have been at or near historic lows for a number of years due to the Federal Reserve’s various stimulus efforts. And while low interest rates have been extremely helpful in fueling senior housing growth during the past few years, because they stayed low for a prolonged period of time, many providers have limited experience in managing investments in a rising interest rate environment. Fortunately, according to Cleary Gull some 75 percent of respondents to their survey have begun planning for increases in interest rates, and will hopefully be ready to make any adjustments that are needed to their operations and investments when rates do go up in the future.
The opportunities available to senior housing providers are numerous and significant, and providers that are able to take advantage of them should continue to succeed, even while dealing with a rising interest rate environment and new laws and regulations such as the Affordable Care Act’s employer mandate.