From Distress to Stabilization: The Evolving Landscape of Assisted Living Real Estate Assets

Assisted living facilities faced a multifaceted crisis during the pandemic. Property owners experienced operational challenges ranging from staffing shortages and supply chain disruptions in obtaining PPE, affecting care dynamics. From the first quarter of 2020 to the second quarter of 2021, occupancy rates decreased by 10 points. In Florida, nursing centers had losses of around $651 million in a one year period due to a 15% resident occupancy decline, illustrating the extreme financial impact of the pandemic on assisted living facilities.

On the operator’s side, post-COVID interest rate increases have led to higher debt costs. Wage inflation has been significant, particularly among healthcare workers. These financial challenges have put property owners in a difficult position as they struggle to overcome market difficulties. This complex web of headwinds not only influences financial viability. It also impacts the care quality and living experience of facility residents.

Dan Botwinik, founder of real estate development company Cougar Capital, mentions another phenomenon affecting the efficiency of assisted living facilities. Operators who are paid a percentage of revenue for managing a property sometimes have differing objectives compared to property owners. Regardless of an asset’s profitability, an operator still collects management fees. This created some tension between property owners and operators during the pandemic. Operators need to adapt quickly to changing market conditions, and creating alignment between owners and operators is key.

A major concern for property owners in the assisted living space is centered on the quality of care. Even in the midst of low occupancy, living facilities can’t cut costs by reducing staff. Legally, they must maintain minimum staffing ratios to protect care availability. Grappling with the new circumstances of the pandemic, many were forced to rapidly adapt to unexpected obstacles.

The growing need for senior living facilities offsets the multitude of factors that have damaged this market. In the next four years, 60% of 7,000 baby boomers surveyed are considering moving to a senior housing facility. With this demographic exceeding over 70 million, baby boomers are poised to increase property valuations and demand higher-quality facilities. It’s very cost-intensive to build these properties, so many investors and property developers are partnering with the management of existing structures to improve operations and returns.

The lucrative potential of senior housing assets has attracted negative attention due to imbalanced priorities shown by investors and other stakeholders. In some profit-driven facilities, neglect and understaffing have affected resident well-being and care quality. Dan Botwinik, who has decades of experience in property management and development, can speak on this sensitive issue. He has optimized care quality and availability in many senior living facilities across the United States due to his business acumen and relationships with industry professionals.

“Senior housing is becoming a very profitable asset class for real estate investors, but these properties have many complexities an operator shouldn’t underestimate,” Dan says. “Residents rely on their senior living community to provide them with critical resources around the clock. No matter who is overseeing the property, it’s their responsibility to ensure high care quality.”

Speaking from experience, Dan has seen distressed senior living facilities escape bankruptcy by optimizing administrative procedures and bolstering occupancy rates. In February 2024, Cougar Capital oversaw this transformation in a property they purchased. When acquired, the assisted living facility had a dreary occupancy rate of 47% and frequent changes in management. This instability caused staff to be concerned about the facility’s future and also influenced residents to relocate. Cougar Capital recognized these issues and took an active approach to invest in care quality and focused on attracting and retaining new residents. The firm stabilized the property in six months through these efforts, raising occupancy to over 80% and demonstrating its commitment to supporting residents, their families, and staff’s well-being.

Cougar Capital repeated this process in June after purchasing a property that was losing over a quarter million annually. In just one month of full ownership, the firm’s cost containment adjustments helped them bring the property back to profitability. Dan credits this success to a ‘doing more with less’ philosophy steeped in procedural efficiencies spanning accounting, sales, and maintenance. These gains create cost savings for an operator and a resident, reducing the year-over-year occupancy price and funneling more profit into care investments.

Senior housing facilities are not easy to manage if an investor and operator lack practical industry experience. To truly reap the benefits of property ownership, listening to all stakeholders–residents, families, and investors–is key. Dan recommends frequently conducting customer satisfaction surveys and holding property managers accountable for the daily resident experience. If a resident’s happiness is an investor’s guiding principle, they can realize major financial gains presented by this evolving asset class as a byproduct of having the right mindset.