The economy is still struggling, but experts agree that there are long-term opportunities in long term care.
What some demographers are calling a “silver tsunami” is nearly upon the nation. Millions of aging baby boomers are going to need care.
“It’s going to swamp the industry,” says Michael Byrnes, vice president for senior housing at Beech Street Capital. “There are not enough beds, there are not enough apartments, there are not enough buildings to take care of everybody.”
“This is a great time to be in the industry and looking for opportunities to expand.”
A recent study by the Employee Benefit Research Institute, for instance, found that nursing home stays among people aged 65 or older increased from 6 percent in 2000 to 8.5 percent in 2010. The problem is that  those who stayed longest in nursing homes were also the poorest.
Those who lived in a nursing home for six months or more had a median household wealth of $5,518—and less than half had their expenses covered by Medicaid, the institute reported. Even more chillingly, the institute found that median housing wealth falls to zero within six years of an initial entry into a nursing home.
“The issue is,” Byrnes says, encapsulating the problem, “where’s the money going to come from?”
Household assets

Experience Counts

But the very economic squeeze that Byrnes and others highlight convinces them that the best opportunities are for the best operators. In the long term health care financial sector, Byrnes and others say, experience matters.

“I think HUD [the Department of Housing and Urban Development] and banks are cautious,” he says. “And what they don’t want to see is the guy that has been building strip malls and gas stations coming and saying, ‘I’ve got a piece of dirt and a lot of old people around it, so I’m going to do some assisted living.’
“For us as a lender,” Byrnes adds, “it’s a challenging time because there’s going to be such an influx of new business coming, and it’s a matter of how do you find the right deal and how do you find the right financing?”

Andy Stokes, LTC PropertiesAndy Stokes is the senior vice president for marketing and strategic planning for LTC Properties. He says that long term care can be a solid investment that offers good returns—if managed carefully.

“We look for a very seasoned company to do business with,” he says. “We need someone who’s an experienced developer and a reasonably experienced operator. We need it all backed up by someone who wants the building and knows how to run it.”

For most long term care professionals, HUD offers the best financing. But not the only one, LTC Properties Vice President and Controller Pam Shelley-Kessler says.

“HUD is good if you can get it,” she says. “But not every property fits the HUD model. Typically, each property has to have a historical record.”

New Investors Emerge

That’s where private companies like LTC Properties come in, Shelley-Kessler says. Those finance companies, in turn, are attracting new players to long term care investments. Shelley-Kessler just wrapped up a nearly $86 million deal with an insurance company, the first of its kind. There will be more, Shelley-Kessler says.

“Once you have that first deal done, you have a blueprint,” she says.

“Treasury yields are so low right now that [insurance companies] are yield-starved. They’re looking at a place where they can invest their money and get a good return and still have a more conservative
Pam Shelley-Kessler, LTC Properties
Companies like LTC Properties are attractive for financing because insurance companies speak the same language. “With an operator, they don’t want to be exposed to the risk,” Shelley-Kessler says. But companies like LTC can partner with operators and offer attractive packages to investors, she says.
Not that it is completely easy.

“I can tell you from experience,” Shelley-Kessler says, referring to the recent insurance company transaction, “it was a very long process educating insurance companies to understand our space.”

Alzheimer’s-Specific Construction

One place where experience is likely to count—and perhaps for big dollars—is in Alzheimer’s care, experts say.

“The numbers for dementia … are really just starting to hit,” LTC’s Stokes says. “We’ve all been talking about the aging of America for a long time. If one looks at the graph of numbers for people as they grow older—not the percentages, but just the raw numbers—the numbers of people who are going to need care are probably going to double. There’s very little supply.”

And baby boomers, America’s consumers par excellence, aren’t likely to settle for second best, Beech Street’s Byrnes says. That means that operators will have to think about their buildings right down to the brick, he says.

“One of the things that we see coming is people building purpose-built facilities for the treatment of Alzheimer’s,” Byrnes says. “So much of the treatment for the resident is in the design.”

That’s welcome news to Carol Steinberg, spokeswoman for the Alzheimer’s Foundation of America.

“The nation is currently facing really an epidemic of Alzheimer’s cases,” she says.

Designing a building to take care of those stricken patients means thinking differently, Steinberg says. For instance, nearly 60 percent of Alzheimer’s patients will wander during the course of their illness. That means buildings will have to emphasize security to keep patients from wandering off completely.

Interiors Must Be Supportive

Then there are questions of interior design, Steinberg says.

“There is growing evidence that people with Alzheimer’s disease need to be mentally and physically stimulated,” she says. “It’s really incumbent on facilities to meet those stimulation needs.”

Local, or regional, long term care companies are probably in the best position to capitalize on the opportunity, Byrnes says. “That’s the family store, and they want to make the store bigger,” he says.
Stokes says he’s expecting “a frenzy” around Alzheimer’s-specific building.

“We think that some people are going to go at it too hard,” he says. “There’s going to be too much building.

There’s going to be over-building. Underwriting will get slack.”

“It always does.”

The key for operators—and their financiers—will be to take a deep breath and proceed with caution. Experience, again, will make the difference, Stokes says.

“We still like skilled nursing facilities,” he says. “Much of the post-acute care is done at skilled nursing facilities. That is the new treatment model, and it’s a very successful treatment model.”
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