Recently, the Covid-19 pandemic has started to change a lot of aspects of senior housing, including new developments.
Long-term issues that will be caused by COVID-19 in senior developments are not yet apparent, Lending banks and equity markets will be more cautious about senior living. The banks may not want to help create new middle-market projects as well as other changes.
According to Ryan Haller, owner or Orchard Hill Partners, a senior living consulting firm, even though there are going to be a lot of challenges, there are going to be some significant opportunities after the pandemic is over.
Haller believes that this pandemic could create new opportunities for senior living developments that are designed explicitly for middle-market seniors. It is during this same time that lenders and banks may be more selective about what senior living projects than they were in the past.
Haller gave an interview recently to talk about how Covid-19 is impacting the industry, and what gets learned from it.
You have already said that the senior developers at work may have made the same mistakes as before the Great Depression in the past few years. What have they done wrong, what should they do?
I think this is not necessarily the subject of a particular industry. It is more of a macroeconomic theme. What we often see is that when land prices continue to rise and commodity prices continue to increase, how do you bear the cost of construction and development? System impact fees continue to grow every year. The only thing that hasn’t increased is rent, which is commensurate with everything else.
Many of the developments we have seen traditionally do not use pencils. I think most developers have seen some greedy ingredients. You can count as many points as you want, but the fact is that if you can’t raise rents at a rate commensurate with the cost of development, and you have a lot of private equity companies whose standard threshold prices cannot be met, this is painful.
It seems that everyone, except senior housing operators, has become greedy in the process. I want to reduce development costs. Now, I don’t see much greed in the housing of the elderly.
What do you think about the impact of the pandemic until what happened during the Great Depression?
It is different now, but I have seen some similar trends. I think this is also a regional dialogue.
Think you are starting to see the curve flatten out, they will most likely see the right side of the bell curve earlier. I believe that no matter how long Covid-19 lasts, there will be caution until there is a vaccine that is fully approved by the FDA.
I think that despite the banks’ tsunami-style silver marketing, they remain very risky. After Covid, market research must have a degree of comfort. As for the investment committee within the bank, when you hear the nearly expected tens of thousands of death predictions, I think they understand what you mean when you start to u
nderstand these numbers, especially if it is mainly the elderly.
Does this make it more challenging to obtain funding for senior living projects?
We are not aware of this yet, and I don’t know if this will become a reality. In the past week, this is what happened in my world. We currently have four projects that are proceeding at a reasonably good rate. We have a [general partner] provider who called us last week and told us that we need to find out who [your limited partner] capital gets used for your capital stack, and then we commit. I have never heard of this profession. GP always bears the brunt, and then you fill it with LP capital?
I think someone has stepped back in this regard. Maybe this is a delay strategy. I think the rules for participation in the leading indicators will change. Here you can see some changes in someone’s loan-to-deposit cost figures, possibly because there are more recourse debts in the market. But I do think we will work in another world.
In the past few weeks, you have been talking to many other developers. What did you
hear from them? I think there is at least some fear and worry.
That is a polarized group. A group of people adopted the old philosophy that the only thing we have to worry about is fear itself. And they also call this opportunism. The other party is entirely conservative. You know, come down, let us understand, and look at the world three months later.
Do you think we might see any senior life company go bankrupt due to an epidemic?
Well, I think this is a concept that is common in all vertical markets. One company will remain anonymous. Last Friday, the company laid off 850 employees and will completely shut down its restaurant department. It is one of nine vertical markets, and senior housing is one of them. I will use an analogy like people ar
e now liquidating their 401k. Now some people are making hasty decisions and may withdraw prematurely.
You have said that despite the pandemic, you are still optimistic about the industry. Why?
First, there is still an intermediate market crisis. It has not changed. If anything, I think Covid-19 is an accelerator. Baby boomers, many of whom were struck by their 401 (k) accounts during the Great Depression, are now rebounding, and they may have to add three, four, or five years to their retirement plans. Many people had gotten beaten for the second time. You may not be in the middle market and are now entering the middle market.
What is your long-term impact on the upcoming high-end housing industry? Do you think this may change the fundamentals of the industry?
I would say yes, but it may not reach the level faced by some other asset classes.
We still have the primary obstacles and coping programs that make the industry thriving. I think the industry will be vigilant. I think banks will be very cautious. But we have to get out of the predicament and then develop.
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