THIS OLD HOUSE
The downturn hits senior housing, but Oregon may suffer less than other markets.
BY JASON SHUFFLER
The ravaged condo and residential markets in Oregon have received most of the attention in the housing collapse, but the downturn, which has sapped many retirement funds, finally is reaching another housing sector: senior-living communities.
Nationally, occupancy rates at independent retirement and assisted-living communities in major metropolitan areas have dropped 2% in the past year, according to the National Investment Center for the Seniors Housing and Care Industry, a Maryland-based industry research group.
While occupancy and new admissions are falling around the nation at senior-living communities, industry analysts say Oregon may not see as sharp a decline as the recession unfolds. In the Portland metro area, average occupancy decreased about 2% in the last year. In contrast, occupancy fell nearly 6% in Seattle and 9% in Tampa in the past year, according to the NIC.
The Portland metro area has fared better than other major metropolitan areas for several reasons.
Senior activities at Cherrywood Village, a retirement community in Portland owned and operated by Generations Retirement Communities.
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Keren Brown Wilson, now a professor of gerontology at Portland State University, convinced the state in 1981 to subsidize early assisted-living housing models with Medicaid waivers. It was the first state in the nation to do this, and it spurred the development of assisted-living facilities, and later independent retirement communities. The sector exploded in the 1990s, pushing membership in the Oregon Health Care Association, the trade organization representing operators, by fivefold. “We went from zero to 60 overnight,” says Linda Kirschbaum, program director of the association.
For two decades, senior housing, ranging from swank retirement enclaves to assisted-living communities, has been robustly constructed around the state. Developers and owners have long considered it a sound investment as an aging population seeks, and needs, different housing options. “Back in the 1990s, everybody and their brother was building one of these things,” says Mark Bryant, an analyst at Cushman & Wakefield of Oregon, a global real estate valuation firm.
The rapid growth led to a state moratorium in 2001 on new licenses for assisted-living communities, a move experts say has since helped maintain a healthy balance of supply and demand.
The growth has been beneficial for seniors in Oregon, says Wilson, now the president of the Jessie F. Richardson Foundation, a nonprofit that advocates for innovation in senior housing. But she is concerned that a deeper slowdown in the industry could have disastrous consequences for the long-term care of the state’s elderly.
Wilson says the state has an inadequate supply of affordable and low-income housing options for seniors. Private-pay operators generally avoid offering more units to Medicaid recipients because they say payments don’t cover costs. If development grinds to a halt, so does the prospect of owners and operators offering more low-income housing units.
Wilson also fears more seniors could be forced to live with their children or to forgo moving to medically assisted living, putting their health at risk.
Analysts and operators agree the independent retirement community segment of the industry is most vulnerable right now. Selling one’s home and moving into a retirement community is a lifestyle choice that can wait, but moving into an assisted-living community is usually based on a medical need that might not be able to patiently ride out a recession.
|Occupancy rates at some retirement communities are starting to soften as the economy hits the wallets of retirees who cannot sell their homes to finance a move into senior housing and the amenities offered there.|
The prospect of a steeper dip in occupancy and new residents is also troubling news for owners and operators trying to manage debt and rising costs and still a pull a profit at the end of the quarter.
As individual senior-housing operators in Oregon feel the ripple effects of the housing bust, many also fear what may lie ahead. “We know 2009 is not going to get any better,” says Kathleen Calobeer, regional VP of marketing for Salem-based Revera Assisted Living, which operates 10 communities in Oregon.
Sunwest Management, the giant Salem-based senior-housing operator, sold seven of its 270 communities in December because of its inability to pay the bills. “Sunwest is putting a black eye on the industry,” says Mark Bryant of Cushman.
Another example of the economy eroding senior-housing occupancy is in Salem. At Capitol Manor’s sprawling 34-acre independent and continued-care retirement community, prospective residents have a choice between luxurious studios and three-bedroom villas. The entry fee into a two-bedroom apartment is $220,000.
Occupancy started ticking downward at the community in July 2007, says executive director Scott Ferguson. Since then occupancy has dropped 7%. This year the completely private-pay community budgeted for 91% occupancy, and it’s only 90% full.
Ferguson blames the complete collapse of the housing market. In response, the community reduced the entry fee by $30,000.
Not all senior-living communities require such a substantial entry fee. Others only require monthly rent, such as Portland-based Generations Retirement Community, which operates two communities in the Portland area. Despite the state of the economy, occupancy is holding strong in the mid-90% range, says Chip Gabriel, president of the company.
But a further deteriorating economy this year could change all that, says Gabriel. “One of my real concerns is affordability,” he says. If the bad economy takes more bites out of retirement accounts and people can’t sell their homes, Gabriel fears current and prospective residents won’t have enough money to make rent. He hasn’t seen it yet, but he envisions current residents wanting to downsize to smaller, less expensive units.
The downturn has senior-housing businesses looking at other ways to lure paying customers into their communities. They’re lowering entrance fees, allowing residents to move while the sale of their home is pending, or helping prospective residents find other sources of money.
Cherrywood Village is a mix of independent and assisted living. The units rent for between $1,800 and $3,000 per month and the occupancy rate is in the mid-90%.
In mid-March, McMinnville-based Willowcreek Management and Development Company plans to unveil The Springs at Tanasbourne, a 240-unit upscale multi-use senior-living community. The company says leasing of the independent retirement units is at 30% as of mid-December. The entrance fee ranges from $230,000 to $340,000.
“The number of people walking through the door and expressing interest has declined,” says Willowcreek president Fee Stubblefield. The company oversees eight upscale senior-living communities in Oregon, with average occupancy at 97.3%. At its Summit Residences, 12 of 36 lots have sold, which Stubblefield says is ahead of plan.
Stubblefield and his partners recognize the tattered state of the economy and the real estate market could spell disaster for the new project. So the company is toying with a new program that would allow prospective residents to defer the entry fee until they sell their homes.
“It’s not that they can’t afford to move, but if they sell now they lock in their loss,” he says. “There are a lot of people waiting on the sidelines.”
The Oregon Health Care Association sees the economic threat to their 540 members and is working with California-based Life Settlement Financial, which buys life insurance policies from seniors for lump sums of cash; the typical lump sum is $92,500. The association is suggesting the service as a way for their members to help prospective residents pay entry fees and monthly rents.
Consumer advocate groups such as the American Association of Retired Persons of Oregon say the practice, while a legitimate business, can be deceptive. The lump-sum payouts are taxable and seniors may not be able to get another life insurance policy for some time, if it all, the AARP of Oregon says.
“We are just trying to get the word out that this is something you can potentially tap into,” says Kirschbaum.
Peter Mozonas, CEO of Life Settlement Financial, expects business to “boom” this year as elders sideline selling their homes and look for alternative ways to finance their senior-housing needs.
For the most part industry analysts expect development and lending to be modest at best through 2009, but still see growth potential for senior housing in Oregon. “You have to look no further than Portland to see why it’s a good investment,” says Michael Hargrave, NIC vice president. Even though Portland-area senior housing has the fourth-highest penetration rate (the amount of senior-housing units divided by the number of households aged 75 or older) among major metropolitan areas, occupancy remains strong, says Hargrave.
Lenders see an aging population and dollar signs. “The demographics are on our side,” says Casey Moore, managing director of Ohio-based Red Capital Group, a lender specializing in senior housing. “It’s flat through 2011, but after that there will be demand.” In December, the company closed two deals in Oregon.
The state seems to think there’s more room for growth, too. It let the 2001 moratorium sunset in January.
In this economic and lending environment, though, don’t expect to see a building boom like the 1990s, says Kirschbaum. The Oregon Office of Seniors and People with Disabilities, the agency that issues assisted-living housing licenses, says builders still must prove to them there’s market demand before being issued a license.
“When there is a slowdown developers always turn to senior housing,” Wilson says. “It’s something you can do when you can’t build something else.”
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