Investors still believe in skilled nursing properties—even though many beds are empty at nursing homes because of the coronavirus pandemic.
A handful of investors are buying seniors properties… and the prices they are paying, on average, are even higher than before the pandemic. The existing owners of skilled nursing properties have largely been able to hold onto their properties without defaulting on their loans, even though fewer of their beds are full. Extra funding from government programs has helped. Some nursing homes are also caring for residents with more acute medical needs who would have otherwise stayed in hospitals.
Investors also continue believe that the need for nursing home care will grow after the pandemic is gone.
“The alternatives to skilled nursing are extremely limited. The long-term need is there,” says James Graber, managing director for CBRE Valuation & Advisory Services, working in the firm’s Dallas offices. He is also CBRE’s Seniors Housing and Healthcare practice leader.
Very few properties bought and sold
Investors spent $540 million to buy and sell skilled nursing communities in the fourth quarter of 2020. That’s roughly half (54 percent) of the $991 million they spent in same period the year before, before the pandemic struck, according to Real Capital Analytics, based in New York City, and the National Investment Center for Seniors Housing & Care (NIC MAP), based in Annapolis, Md.
It seems like a big drop in sale volume. But it’s much closer to a normal volume of transactions than the $436 million investors spent in the third quarter of 2020, which was only about a third (36 percent) of the $1.2 billion they spent the year before.
“Technically, it’s coming up a little bit,” says William Kauffman, senior principle for NIC. “There are deals happening.”
These buyers are often smaller investors and regional players who are fulfilling their own long-term strategic plans to expand their business. Their commitment to nursing homes help them see past the problems caused by the coronavirus pandemic, says Kauffman.
These buyers aren’t getting finding any bargains, however. They paid $81,127 per unit on average over the 12 months that ended in the fourth quarter of 2020, according to preliminary data from NIC MAP and Real Capital Analytics. That’s up from $80,450 per unit the year before—perhaps because these investors are focused on buying higher-quality properties.
“Pricing has not really moved to the downside,” says Kauffman.
Empty beds at nursing homes because of the pandemic
Average prices have stayed strong for skilled nursing properties even though many have fewer residents in the pandemic. Just 74.7 percent of the beds at skilled nursing properties were occupied in October 2020. That’s down more than 10 percentage points from 85.2 percent in February 2020, before the pandemic shut down much of the U.S. economy.
“There is an expectation that occupancy rates will be challenged until the vaccine,” says Kauffman.
Many skilled nursing properties miss short-term residents who they used to serve as they recovered from brief hospital stays. “Even though elective surgeries are now allowed, some people are not electing to have them that require a skilled nursing stay,” says Kauffman.
Nursing homes have also lost residents because some families have taken loved ones out of nursing home to care for them at home in an attempt to avoid outbreaks of coronavirus infection that have struck some nursing homes, says Kauffman.
Managed care organizations and many state Medicaid programs already encouraged seniors to continue to live at home and receive “home health care” services when they could. These home health programs are much less expensive than nursing homes.
“The industry has certainly been challenged by the move to home health,” says Kauffman. “There was already a big push to move seniors to lower cost settings than nursing homes. The pandemic has accelerated trends that were already happening.”
Some good news for skilled nursing properties
Not all the news has been bad—some nursing homes have found new residents to help make up for the seniors they lose to home health programs. That’s because managed care organizations and state programs are also trying to save money by encouraging elderly people to spend less time in hospitals. Instead, some of these seniors can get the care that they need in a nursing home as they recover from acute health need.
These “acute care” patients typically need more intensive care than nursing home residents dealing with more chronic health issues. “The better nursing home operators have gone after these higher-acuity patients,” says Kauffman.
“Some communities have been able to increase their reimbursements,” says CBRE’s Graber. “The change is based on the high acuity.”
Nursing homes have also been helped by federal money provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2021. The CARES Act provided money to help nursing homes pay for extra costs caused by the pandemic, like disinfection. The CARES Act also allows nursing homes to receive higher Medicare reimbursements for caring for seniors infected with coronavirus at a nursing home, instead of sending them to a hospital for care. Congress also reversed funding cuts that had previously cut into how much nursing homes get in reimbursements
“There have been limited distressed sales,” says Kauffman. “Government funds have allowed operators to stay afloat… If they can hold on, they will.”
