Assisted living occupancy is beginning to see a rebound in rates for 2022, after experiencing declines in 2020 and 2021. As of the second quarter of 2022, senior living occupancy stands at over 81%, with 30% of senior living communities seeing occupancy rates above 90%. Based on 2022 figures, assisted living communities appear to be recovering at a higher rate than independent living communities. And while both sectors (assisted living and independent living) continue to improve occupancy rates from their pandemic low, they both are still below their pre-COVID levels. Before COVID, independent living occupancy was 84.7%, and assisted living occupancy was 89.6%.
In this Article …
- So, is this a good time to get into senior housing?
- How do I start a senior housing project?
- What’s involved in a senior living feasibility analysis?
- What happens after the feasibility study?
- Include senior living occupancy in your plan
- There are still headwinds facing the industry
- Assisted living occupancy is important, but it’s not the only thing
So, is this a good time to get into senior housing?
Yes and no. While we continue to see increasing occupancy rates and expect that to progress as we move through the fourth quarter and into 2023, it is still essential to do your homework. It’s vital to conduct a feasibility analysis to properly evaluate the viability of the market you are interested in. Even if you’re an experienced operator, many financial sources may require you to obtain an analysis from an independent third-party expert. But, here are some additional factors to consider:
Are you experienced in senior housing operations?
Having experience in operating senior housing communities is a big plus in the eyes of lenders. Maintaining excellent occupancy rates and achieving solid profitability are powerful indicators of your operating prowess. The fact that you have successfully operated independent living and/or assisted living facilities means you have an established track record.
How well capitalized are you?
Financing sources much prefer you to have “skin in the game”. In their eyes, it makes them more committed to the project and more likely to devote the proper resources to make the project successful.
Have you done a project like this before?
Whether it’s assisted living or independent living or another part of the post-acute care spectrum, having prior experience is advantageous. Plus, if you’re looking at a new build or an addition, or an acquisition, having done a similar project, including achieving stabilized occupancy rates quickly, in the past shows you know what you’re in for.
How do I start a senior housing project?
A feasibility analysis is the best place to start. If you’re an experienced operator and your lender accepts a study you’ve conducted, you’re set. (Even experienced operators seek outside expertise to examine the viability of a project. It provides an independent, expert set of eyes to vet the findings.) However, if you’re not an experienced senior housing operator or your lender is requiring a third-party expert to complete the feasibility study, then it’s time to identify an outside expert party to formulate the analysis.
What’s involved in a senior living feasibility analysis?
Whether you’re doing the analysis yourself or you’re engaging an expert to do the analysis, there are a few things to know about a feasibility study.
Identify the primary market
It is important to identify the primary market for the project. The primary market can be defined as the geographic area from which a majority of the senior housing residents will originate. This area forms the basis for several other areas in the analysis.
Specify the demographics of the market
In the case of independent living and assisted living facilities, there are no government or in most cases, insurance payors. Therefore, it’s important to understand the income demographics as well as the age demographics of the primary market.
Conduct a competitive analysis
An essential aspect of a feasibility study is to properly and fully evaluate the competition for your project. This is best done by a set of knowledgeable eyes and an onsite visit to competing senior housing projects. Another aspect of a competitive analysis is the identification of potential for inventory growth with the addition of competing units. It’s also a helpful way to identify rental rates in the market, occupancy rates of your potential competitors, and judge the relative quality of your potential competition. Knowing your competitors well will help you to establish the bar that your project must exceed in order to experience success.
Analyze the metrics
Key analyses include penetration rates and bed need calculations. These figures serve to support the observations and conclusions of the feasibility study. In addition, they can support potential pent-up demand for the project, which could result in a healthy occupancy rate upon census stabilization. Conversely, they can indicate low demand and the potential for poor performance.
What happens after the feasibility study?
The best next step is to formulate a financial feasibility analysis which is a fancy way of saying a pro format financial analysis. This requires specific operational knowledge and takes into consideration factors such as rental rates, occupancy rates, staffing costs, and a whole host of other operating costs.
Presuming that the results of the feasibility analysis and the financial feasibility analysis meet your expectations, it makes logical sense to build a business plan.
Include senior living occupancy in your plan
An oft-omitted component of a senior housing business plan is the marketing plan. And when it is included, the issues of occupancy growth, occupancy rates, and census stabilization are many times inadequately addressed.
Senior housing occupancy should be the focus early
In the case of a start-up project, it is not unusual for the marketing team to be brought on early, even four to six months prior to the expected opening. Their focus? Fill those senior living units so that by the time the project opens, you’ve already pre-filled as many of those units as possible. The drive to grow occupancy rates must start early. Those senior living communities that achieve their stabilized occupancy quickly will minimize their start-up losses and enjoy a positive bottom line earlier!
Once your occupancy rates are up, keep them up!
The marketing plan should not only address how you will grow your senior living occupancy rates but also how you will keep them stabilized at a high level. It does no good to have a healthy senior housing occupancy rate, only to have it fall back down due to neglect. Articulate how you intend on monitoring the occupancy rates, and what your plan is to make sure that they remain stabilized at a high level.
There are still headwinds facing the industry
The challenges that are facing senior living providers are substantial. Issues such as staffing, reimbursement, and increasing regulatory involvement will continue to exist in the future. But, we are seeing growth in independent living occupancy as well as other senior housing sectors. And while the occupancy rates have not returned to their pre-COVID levels, they have certainly improved over the past few months.
Assisted living occupancy is important but it’s not the only thing
Yes, we’re seeing positive signs of growth in senior living occupancy. But, that is not the only element to focus on. As we’ve mentioned in this post, there’s a whole host of other factors to evaluate, many of which have a material effect on senior housing occupancy rates. And don’t forget, there are many operating issues whether you’re building an independent living community or an assisted living community, or even a memory care community.
So, if you’re considering building a new community, adding on to an existing one, or acquiring a community, take time to fully evaluate the venture. And don’t be hesitant to ask for help! As Benjamin Franklin once said, “By failing to plan, you are preparing to fail”.