Assisted Living is Relatively Strong

Assisted Living is leading the senior housing pack according to NIC, says Matt Valley 

at NREI Online:  

The occupancy rate at assisted living properties rose to 88.3% in the second quarter, up 50 basis points from the same period a year earlier, according to NIC’s analysis of the nation’s top 31 metropolitan statistical areas. The average monthly rent at assisted living properties rose 0.7% during the same period to $3,525. That follows a 1.4% rent increase in the first quarter.

“The number one point is that the fundamentals in this asset class are holding up much better than a lot of other property sectors,” says Michael Hargrave, vice president of NIC MAP, which tracks key metrics in seniors housing quarterly and provides that data to owners and operators, developers, lenders and other interested parties. Hargrave is referring to the troubled hotel, multifamily, office and retail sectors, where loan delinquencies continue to climb as net operating income contracts.... 

Pent-up demand is a driving force in the assisted living sector today, explains Hargrave. “Assisted living is more needs-based. You can only hold off putting mom into an assisted living facility for so long,” emphasizes Hargrave. “Secondly, over the past few years the assisted living supply, or inventory, hasn’t been growing as fast the independent living inventory.”...

Construction activity across the seniors housing sector has bottomed out, Hargrave says. He anticipates the growth rate of new construction to be about 1% annually for the foreseeable future. 

Re-purpose Condos as CCRC's?

What can be done with partially empty or unsold condominium developments?

Multi-Housing News talked to the CEO of an apartment REIT.  I noticed a couple things relevant to senior living:

"Jay" Olander says that his Grubb & Ellis Apartment REIT is buying properties in the American South, following population movements and anticipating more than 90 million additional people in the U.S. by 2030.  [So I'm paying attention to the future of the CCRC industry in the South.]  He is avoiding Arizona, Las Vegas, and Florida where there was significant over-building of single family homes and condos.

He also spoke about 'fractured condo deals' - where a single investor purchases a number of units in a condo development in order to run a rental housing operation.

If you have a large mass of units, fractured condos may make  a lot of sense. Any time there’s a mixed ownership, that means there’s a mixed contribution to the common elements. So it just depends on how much you control... you have to control a lot of the property to be able to control the common area elements, to be sure it’s well-maintained.

In the right location and given sufficient local demand for continuing care retirement living, could distressed condos be an economical way for a successful CCRC operator to acquire a new campus at a substantial discount?  There would, of course, be major renovation costs to renovate to make the property suitable for its new use.  

IRS Changes Rules for CCRC's Refundable Entrance Fees?

From a recent article:

The Internal Revenue Service surprised and alarmed retirement community operators recently when it challenged an operator of luxury continuing care retirement community’s tax treatment of refundable entrance fees.

Classic Residence by Hyatt...followed industry practice by treating the refundable portions of residents’ entrance fees as loans with obligations to repay. In December 2009, the IRS sent a notice of deficiency for almost $129 million for the 2005 tax year to Classic insisting that the company should have treated the more than $318 million it received in mostly refundable entrance fees that year as taxable income “from rental/occupancy of the living units.”

Will this ruling stick and how might it change CCRC financial management?  Are operators actually alarmed?  Erikson, for example, which operates many communities (including Ann's Choice near me in Warminster, PA) still highlights its "Refundable Entrance Deposit" as a key selling point.