The coronavirus is taking a toll on net operating incomes for seniors housing investors. The vast majority of respondents (90 percent) said there has been at least some increase in expenses due to the virus from March 1 until August 1 with an estimated mean increase of 9.2 percent. In particular, operators have seen costs rise for “hero pay” or bonuses paid to staff, testing for staff and residents, increases related to personal protective equipment and additional cleaning.
More than half of respondents (57 percent) expect a permanent increase in expenses due to the COVID-19 virus, while 22 percent think expenses will remain the same, 18 percent were unsure, and a minority (3 percent) believe expenses will decline.
Across its portfolio, National Health Investors (NHI) saw coronavirus-related expenses that ranged between $10,000 to $20,000 per building at the beginning of the pandemic.
“We have started to see that number drift down over the last few months as operators have started to figure out how they can create the most efficiency and better operate buildings,” says Kevin Pascoe, NHI’s chief investment officer. COVID-19 also has given seniors housing operators somewhat of a break in their battle with labor costs. “With the current unemployment levels, our operators have been on a hiring spree where they have been able to get people and keep some of that turnover and wage pressure at bay,” says Pascoe.
As the employment market improves, it could once again create a pain point for seniors housing operators, but with the national unemployment rate still north of 8 percent, there remain a lot of Americans looking for jobs.
Operators also could see greater cost pressures in the form of higher property taxes and higher insurance costs that could impact future net operating income (NOI). “These are all subsets to operating expenses that could be meaningful going forward, and I do think they could have long-term impacts on our space,” says Steve Blazejewski, managing director and senior portfolio manager for PGIM Real Estate’s seniors housing strategies.