Certainty in the Face of Change: Why the Shifting Senior Housing and Healthcare Market...

CRE Finance World, Winter 2013

Certainty in the Face of Change: Why the Shifting Seniors Housing and Healthcare Market Will Assurance Partner, Real Estate Tax Partner, Real EstateKaren StoneJeff Walraven Remain a Strong Investment BDO USA, LLP BDO USA, LLP P industries. Other examples: European countries are enduring with, for example, extensive memory care units and long-termSeniors housing facilities are already beginning to evolve to meetthese growing needs. While there have always been some medicalcare elements to seniors housing, today we are seeing a growingnumber of facilities and campuses that strongly combine the twolenty of factors in the global economy can breed uncertaintyin commercial real estate markets. One current exampleis the debate over the “fiscal cliff,” which could producelegislation that impacts a broad range of sectors and under the ambiguity of their own ongoing financial crisis, and care capabilities. Exactly where the line between healthcare and worldwide there are many regulations and rules being debated seniors housing stops will depend not on demand, but on how the that will influence the capital markets. most recent regulatory changes will end up shaping the healthcare industry and how Americans can pay for these services. While healthcare real estate faces similar uncertainties due to upcoming changes — primarily under the recent Affordable Care Change Determined by Financing Challenges Act — it is different in that it has unique fundamentals that allow it As a result of healthcare reform, financing changes both large and to overcome such challenges. Other sectors, such as commercial small are causing shifts in how the industry is approaching seniors office space, are strongly driven by business cycles and shifting housing and care. Some of these are already taking place — today employment trends, but the healthcare sector and subsets such a total of 44 states offer some form of Medicaid reimbursement as seniors housing are driven by a foreseeable need and demand. for assisted living (AL) facilities, according to the Paying for Senior And while the future of the healthcare sector may not yet be Care website. The coverage under such waivers varies, as Medicaid decided, one thing is clear — demand will be increasing. options are different state-to-state and are administered at the state’s discretion, but this may already be leading to a shift from Healthcare and Seniors Housing Increasingly Intertwined higher-cost skilled nursing facilities (SNFs) to more affordable AL There’s no question that healthcare real estate is growing — today facilities. While providing such services may not be beneficial for all three of the 10 largest REITs are focused on healthcare. Of those AL operators, it’s clear that many facilities are already taking this sectors related to the industry, seniors housing in particular is change into consideration and are preparing for that trend to grow. booming. According to the National Investment Center (NIC) for Seniors Housing & Care Industry, the market value of that sector The larger changes to healthcare policy and regulation may be has now reached $270 billion. As they already share many of the leading to a renewed focus on cost-cutting in the industry. SNFs, same demographics and fundamentals, it’s not only likely that already experiencing some pain due to declining Medicaid budgets, both sectors will continue to grow in the future, but that they will are also facing billions of dollars in Medicare reimbursement cuts become increasingly intertwined as they do. over the next 10 years and will now also be accountable to the Independent Payment Advisory Board. In order to address such One of the primary drivers of this growth is, of course, the aging cuts, healthcare facilities will need to trim their dependence on population. According to U.S. Census Bureau data, in 2010 there Medicaid revenue, either by shifting tactics on how they bundle were 40 million people age 65 and older living in the United States, such services, or by moving them entirely to lower-cost AL facilities. accounting for 13% of the population. This segment of the population On a larger scale, we may see more organizations in the future is expected to grow exponentially by 2030, with Baby Boomers developing affiliations as part of accountable care organizations (those born between 1946 and 1964) reaching 72 million, or 20% (ACOs), now that they are eligible to receive Medicare. While none of the U.S. population. As the life expectancies of this group are have seen a Medicare-eligible ACO, such as a network of doctors, also on the rise, this means that a growing number of Americans hospitals and senior-care providers, this could be the new norm for each year will have increasing and ongoing healthcare needs that the industry in the future. must be met by the industry. CRE Finance World Winter 2013 46


CRE Finance World, Winter 2013
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