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T he seniors housing and care market is encountering some unchartered waters.The sec- tor is experiencing histori- cally low occupancies and labor constraints; real estate investment trusts largely have become net sellers; and the skilled-nursing sector brings unique challenges relating to reim- bursement changes, regulatory envi- ronments and aging physical plants. According to the National Invest- ment Center for Seniors Housing and Care, seniors housing occupancy remained unchanged year-over-year in the third quarter of 2017, while occupancy in the nursing care sector dipped. Yet despite occupancy challenges, experts agree that market funda- mentals remain strong. Population demographics, including an age wave that is set to boom in the coming two decades, present an undeniable oppor- tunity for those involved in the busi- ness of seniors housing and care. The future brings a strong market outlook with solid fundamentals and tremendous upside for those who embrace the challenges. The Skilled-Nursing Landscape The skilled-nurs- ing landscape faces several new chal- lenges, but those challenges are tem- pered by the oppor- tunities they create. The sector is marked by several challenges in the coming year: 1. Large industry players have come under regulatory scrutiny and class action lawsuits. 2. The reimbursement system con- tinues to evolve. 3. Occupancy has fallen, due in large part to reduced lengths of stay. The upside: Investors now have an ability to acquire SNF assets at a rela- tively low price-per-bed basis. Strong investment yields continue to attract new entrants to the skilled space bol- stering the market for transactions. The market itself is also celebrating a few trends for the coming year: • Technology advancements. Some skilled-nursing communities are beginning to employ remote monitoring solu- tions and predictive analytics to prevent falls and extend length of stay. This also helps retain staff by giving them tools to provide care more efficiently. • Bundled pay- ments scaling back. In November, the Centers for Medicare & Medicaid Ser- vices finalized the cancellation of the mandatory hip fracture and cardiac bundled payment models and, in the same move, also implemented chang- es to the Comprehensive Care for Joint Replacement Model. • Regulatory relief. This fall, the sec- tor saw regulatory relief in the form of the Department of Justice throwing out a landmark whistleblower case against large national skilled-nursing provider HCR ManorCare in November. The action led to a critical “win” for the industry and particularly for some of the larger providers with figurative “targets on their backs.” The Seniors Housing Landscape The last year was undoubtedly a time of challenge for seniors housing owners and operators, relating to two main market factors: 1. A decline in occupancy nation- wide first realized in early 2017. 2. An ongoing staffing crisis for providers, related to a booming over- all U.S. jobs market, wage pressures across the nation and tough competi- tion for workers across nonhealth care sectors including retail, restaurants and hospitality. The upside: Occupancy is leveling off and patient investment capital is still eagerly pursuing seniors housing deals in light of growing demographics. The industry also is beginning to realize some opportunity felt by recent market shifts: • Moderate distress in some markets. Some deals made in 2014 and 2015 haven’t met expected proformas. In the seniors housing space, new sup- ply has come into many submarkets. These trends could lead to turnaround sales by existing ownership under duress and upside for investors look- ing for calculated portfolio growth in certain areas. • REIT rationalization. The investment approach by REITs is evolving. Many REITs are selling noncore assets to pri- vate equity investors and owner-oper- ators and operationally challenged tenants continue to be replaced. Acquisitions are shifting away from net-leased transactions and trend- ing toward traditional joint venture structures as REITs continue to deploy capital seeking to grow rental income behind quality health care real estate. Succeeding in the Future While the future is bound to bring with it a new set of challenges, the outlook remains strong with many opportunities to succeed. For those looking to enter the space, or those already invested in it, investor align- ment with quality operators and sound investment structures remains paramount both in skilled-nursing and seniors housing. s Why challenges won’t stand in theway of success Pamela Pyms Managing director, Blueprint Healthcare Real Estate Advisors Hayden Behnke Senior associate, Blueprint Healthcare Real Estate Advisors Despite occupancy challenges, experts agree that market fundamentals remain strong. Population demographics, including an age wave that is set to boom in the coming two decades, present an undeniable opportunity for those involved in the business of seniors housing and care.