CREJ

Page 20 — Health Care & Senior Housing Quarterly — April 2021 www.crej.com SENIOR HOUSING — INSIGHTS T he last year plus has affected all real estate asset classes in ways we never thought imag- inable when we emerged from our holiday breaks, ready to bring on a new decade in early 2020. When the pandemic began, the senior living industry was impacted signifi- cantly, causing operators to update policies and procedures on a seem- ingly daily basis.We collectively did what we could to keep our residents and employees safe at the onset of a virus that arrived on a bullet train, and whose eradication had no end in sight. Occupancies plummeted quick- ly with the market coupling senior housing, defined as independent liv- ing, assisted living and memory care, with skilled nursing – a segment of the industry that was significantly impacted by COVID-19. Compound- ing the effect of declining revenues was an instant increase in operating expenses, with the necessary personal protective equipment to protect resi- dents and employees nearly impossi- ble to source.When it was located, the price was high. Safety and security is at the base level of Maslow’s Hierarchy within the senior living business, and never has that been more important than over the last year. Very quickly, it became widely understood that senior living is an operating business, not a real estate investment. Since the last economic downturn in the late 2000s, senior housing had enjoyed a steady inflow of capital for investment. It became clear through- out the Great Recession that senior housing performs well in just about any economic environment. After all, your aging parents’ health cares nothing about what is happening on Wall Street. But the last year has been different and has taught us many lessons as an indus- try. For owners of senior living com- munities, alignment has become more important than ever. At the onset of the pandemic, most capital pro- viders ranged from remaining in the background to trying to be supportive by sourcing PPE and other mission- critical supplies in the early weeks of the pandemic. Then as the dust began to settle, a line began to form between capital providers who shared similar values with their senior living operat- ing partners and those who had other objectives to accomplish. Alignment is an important element that should be a keystone concept in any successful joint venture. Roles and responsibilities often are care- fully mapped out in lengthy operat- ing agreements. Many scenarios are considered, with enough gray area for both partners to maneuver through varying situations with room to navi- gate choppy waters. But none of those documents contemplated what start- ed in March 2020. All bets were off. Safety and security became the most important thing, and the sands of fed- eral, state and local regulations were seemingly shifting on a daily basis. Senior housing operators who were very good became better. Part- nerships that were strong became stronger. However, cracks in either of those structures turned into gap- ing holes, creating a divide that was insurmountable to recover by many. For capital providers who had strong cultural alignment with their senior housing operating partners, that bond is now stronger than ever. These are the values that were an immediate match between the two organizations. It had nothing to do with the lengthy covenants spelled out in carefully drafted joint venture agreements. It ended up being good people trusting good people, and for the right reason. For those who began investing in senior housing over the last decade for the allure of compressing cap rates and increasing net operating income, without a true understanding and appreciation for the operational com- ponents of the business, they likely will not have the stomach to continue forth within this asset class. A year of cash flows like the last 13 months have brought us, on top of the opera- tional challenges, will not be kind to the returns that appeared within reach not so long ago. But for those who invest with and alongside qual- ity operational partners, the long term still looks promising. The silver tsu- nami still is out there and is showing signs of returning to senior housing as a fantastic solution for many seniors and their families. Aging at home, or with loved ones who are untrained for dealing with an aging parent, much less while juggling their own busy schedules with children and work, still is a daunting task for many to consider. As vaccines continue to go into arms across the country, and COVID- 19 scales go from their varying colors to a thing of the past, senior living will continue its recovery as an industry. But I believe alignment between capi- tal provider and senior living operator will become more important than ever. The battle scars will be too deep and too fresh for many years to come. Those who went into the pandemic unified, and emerged intact, will carry forth together stronger during the next economic cycle. For those of you with aging parents who will soon be on the search for senior living in the coming years, those are the senior liv- ing communities you will want seek out for your own mom or dad. s Pandemic reveals importance of strong partners Tom Finley Founder and principal, Ascent Living Communities Alignment is an important element that should be a keystone concept in any successful joint venture.