By Gayl Mileszko
Market Commentary
No More Shady Pines
When some of us think about retirement communities, we picture residents in their mid-80s, retired for 20 or more years, forced to go there by their adult children after a fall or a clear inability to maintain their three-bedroom house in the suburbs. Given the strong real estate market, they are presumably pressed to sell the place they have called home for four decades, where they raised their families, celebrated every holiday, hosted untold numbers of guests, and planned to spend their remaining days. We imagine they all go kicking and screaming, not unlike Sophia Petrillo when her Golden Girl Dorothy places her at “Shady Pines”. Or when Livia Soprano was brought to “Green Cove Retirement Community” by Tony after she accidently ran over a woman while driving. Filmed at an actual CCRC in West Orange, New Jersey, Green Cove was framed as the spot for capos to place their mothers, usually under a Do Not Resuscitate Order, so they would not have to worry about their day-to-day whining and care.
Aspirational Living
The senior living industry has worked very hard to change the notion of those kind of senior living and care facilities, and the women and men residing there, into something much more welcoming, lively, homey, safe, and family friendly. It is hard to imagine what kids in school today will want and have available to them sixty years from now. But when they enter the workforce, they will be supporting some 24 million adults over the age of 80. Right now, services including dining, cleaning, laundry, maintenance, and support for activities of daily living including social engagement have come to matter a great deal to seniors after the extreme isolation experienced by many during the pandemic. Thus, more and more senior living campuses offering different levels of care now dub themselves life plan communities, or LPCs, placing the focus on smart planning for a longer and healthier life. Millions of consultant and advertising dollars are being spent on coming up with even better terms for use in marketing to, and attracting, new residents, including “continuum of engagement”, “next stage living”, and “aspirational living” in boutique “blue ocean” micro-communities offering “wellspan” programs that “add life to your years”.
Behind the Eight Ball
To a great extent, the strategy is working: senior living occupancy in the top 31 primary markets tracked by the National Investment Center for Seniors Housing & Care increased for the 17th straight quarter to 88.7% in the last quarter. Independent living unit occupancy surpassed 90% for the first time since 2019. Active adult occupancy totaled 91%, assisted living 87%, and nursing care 86%. However, given that there is a projected increase of 47% in the 80+ population over the next decade, nearly 2.5 million seniors will need housing by 2040. We are way behind the eight ball right now: we need to get busy and deliver more than 42,000 new units annually.
Communities Try Targeting a Younger Crowd
Reports show that those who choose to move into a LPC in independent living do so between the ages of 75 and 84. But those now being targeted are in their 60’s, active, tech-savvy empty nesters attracted by hotel-like concierge services, on-site medical and pharmacy services, security, fine dining, wellness plans, all within walking distance to restaurants, grocery stores and shops in cities, near water or other attractive destinations. Some have experience with elders in their family whose moves were not deliberate but rather came in response to a crisis; they prefer to be proactive. They may like some aspects of 55+ communities, but worry about moving to and paying for different facilities if and when higher levels of care are needed. Many thinking about downsizing and “future-proofing” are taking the time to research different communities in search of places and people with shared values and interests: non-profits, university-,religious- or military-affiliated. They may still be working or very actively volunteering, and all have skills and stories to share. The presence of men and women two decades younger than the average resident certainly adds energy and a new intergenerational dynamic to the community. And it provides more financial stability for managers accustomed to resident turnover every 6 or so years.
Growing Need For Memory Care
The average age of a resident in assisted living is about 84, and the average length of stay is about 22 months, but these averages can certainly vary with interests, financial condition, and medical need. Long term care resident stays typically run 485 days, depending on the severity and progression of medical conditions. Occupying the space in between is memory care. There are an estimated 7.2 million Americans with Alzheimer’s and other dementias; many are being cared for by family and other unpaid caregivers. Some receive increasingly higher levels of care in assisted living facilities, while others require skilled nursing care around the clock. Researchers estimate that 42% of Americans over the age of 55 will eventually develop dementia, so the aging of our population is expected to cause the number of new dementia patients to just about double by 2050. That seems like a long way away. But, between site selection, zoning, permitting, architectural drawings, licensing and regulatory approvals, construction, inspections, staff hiring, marketing and onboarding, the process involved in building just one memory care facility can easily take two or three years.
HJ Sims in the Market with $136 Million Entrance Fee Financing for Rolling Green
HJ Sims is in the market with a $136 million expansion financing for Rolling Green Village in Greenville, South Carolina. The community is located on 175 acres and includes 205 independent living units, 28 assisted living units, 22 memory care units and 74 skilled nursing beds, and they have a 132 person waitlist. They plan to use bond proceeds to add 68 new apartments, 24 cottages, 24 carriage homes, and 32 assisted living units to replace the existing assisted living facility. Please reach out to your HJ Sims representative for more information.
Recent Senior Living Financings
There are many ways for savvy investors to boost their portfolios while meeting a growing social need. One is to invest in federally tax-exempt municipal bonds such as Rolling Green issued through conduits for non-profit senior living and care communities. There are a variety of credits, ratings, maturities, state tax-exemptions, coupons and yields, interest payment dates, security features and denominations to select from. This sector may not be a fit for all profiles and strategies, but there is certainly plenty of choice in the primary and secondary markets. So far this year we have seen 62 non-profit transactions with combined par value of $4.96 billion. Last week, the South Carolina Jobs-Economic Development Authority sold $113.9 million of non-rated bonds for the acquisition and renovation of three Connexion Communities in Simpsonville, Greenville, and Travelers Rest; the transaction featured 2060 term bonds priced at a discount with a coupon of 6.75% to yield 6.85%. In addition, Pennsylvania’s Chester County Health and Education Facilities Authority issued $53.4 million of BBB rated new money and refunding bonds for renovations at Tel Hai Retirement Community in Honey Brook, structured with a 10-year maturity priced at a premium with a 5.00% coupon to yield 3.95%. The Colorado Health Facilities Authority had a $41.4 million BBB-minus rated refunding for Frasier Meadows Manor in Boulder that included a serial bond due in 5 years priced at a premium with a 5.00% coupon to yield 3.41%. And the Tempe Industrial Development Authority in Arizona brought a $107.5 million non-rated construction and refinancing deal for Friendship Village of Tempe that had a 2060 term bond priced at a discount with a 5.625% coupon to yield 5.65%. Please contact your HJ Sims representative for more information on muni bond offerings that may suit your risk profile, income needs, and investment guidelines. For senior living operators, we also welcome the opportunity to discuss your borrowing needs, rates, structures and refinancing options.
Charter School Financings
Last week, HJ Sims closed on a $9.4 million non-rated Capital Trust Authority private placement for Harbour Point Charter Academy, a new charter school to open in Jacksonville, Florida. The bonds due in 2032 priced with an 8% coupon. Zeta Charter Schools in New York City sold $121.6 million of BB+ rated bonds structured with a 2061 maturity priced with a 5.35% coupon to yield 5.50%. Also in New York City, the American Academy of Dramatic Arts brought a $32.5 million non-rated offering that priced with a 7.50% coupon in 2060 to yield 8.013%. And Global Preparatory Academy in Indianapolis had a $14.9 million non-rated financing featuring 2060 term bonds priced at 6.375% to yield 6.41%. This week, Global Impact STEM Academy in Springfield, Ohio plans a $33.2 million Baa3 rated sale. Feel free to reach out to your HJ Sims representative to discuss how to invest in charter school bonds, and how to finance start-up, expansion, renovation and acquisition projects.
Rubbernecking the Economic and Political World Landscape
The financial markets appear to have grown accustomed to the domestic and international upheaval being delivered on a regular basis by the Trump Administration since the 47th president’s inauguration in January. The President is working in a whirlwind to deliver on his campaign promises, and there is much to applaud with respect to de-regulation, expanding charter school support, and expediting the processing of HUD-insured financing applications, for example. Investors welcome the end of the Israel-Hamas war and freeing of the hostages, but feel uncertain about the impact of tariffs on grocery prices and construction projects. Foreign and domestic policies are rapidly being rewritten and just about everything is being litigated and appealed. We wonder if we really plan to give Tomahawks to Ukraine, and about what comes next in the trade war with China, the bailout of Argentina, the wars against crime and narcoterrorism. At this writing the federal government has been shut down for 15 days and layoffs have begun, while efforts are underway to shift funds around so as to pay the military, and use tariff revenue to cover the WIC nutrition program serving 6 million. Some furloughed IRS staff have been recalled to prepare for tax season, and some BLS staff have been recalled to calculate the annual COLA for Social Security. Shutdowns always have an impact on GDP as well as the publication of much economic data upon which the Federal Reserve and other policymakers and thousands of businesses rely. But you would hardly know it by looking at the most of the stock, bond and commodity markets.
Some Markets Appear to Defy Gravity
The fast pace of developments coupled with lack of progress on some major fronts here and abroad, and the albatross of sticky inflation should be keeping everyone off balance. But with few exceptions – like Friday’s surprise tariff and export control announcements — there is relatively little volatility in most markets and some indeed seem to be defying gravity. One that has not quite made the headlines is the huge losses recently taken in Bitcoin – MarketWatch just pointed out that on Sunday the crypto fell 15.4% from its all time high set just a few days before – dropping more than stocks did in the 1929 crash. To top that off, the Justice Department just seized more than $14 billion in bitcoin as part of a massively shady scam based in Cambodia involving wire fraud and money laundering. Third quarter earnings reports are not flashing any red lights, although Jamie Dimon, among other market gurus, point to heightened uncertainty, cracks in credit, some form of bubble territory in AI, the need for more massive investment in our national security, and economic trouble ahead. At this writing, the S&P 500 index is up 13%, gold prices at $4,140 an ounce are 58% higher, and oil prices at $58.70 have dropped 18%. The 2 year Treasury yield at 3.48% is down 76 basis points on the year, the 10-year yield has fallen 53 basis points, and the 30-year yield has dropped 15 basis points. The 2-year AAA municipal general obligation bond benchmark yield at 2.33% is 49 basis points lower since the start of 2025 and the 10-year yield at 2.82% is down 24 basis points, but the 30-year yield is 26 basis points higher.
A Remarkable Investment Climate
The Columbus Day holiday-shortened week is not yet over and may yet hold more surprises. The new Supreme Court session just began on October 7. The Senate failed to pass a stopgap funding bill for the 8th time. There are a total of 6 Treasury auctions and 13 Fed speakers on the circuit while Washington, D.C. hosts the annual IMF World Bank meeting, Fintech Week, and the National Association for Business Economics. Economic data from the Fed – still open for business – this week includes Empire State manufacturing and the Beige Book. Bank earnings dominate the corporate space and nervous investor continue to add to the $7.38 trillion stash in money market funds. Futures trading still projects expectations for quarter point rate cuts this month, in December, and next March, June, and December. Municipal bond funds saw $966 million of net inflows last week despite reports that only 8% of active municipal fund managers have outperformed their respective benchmarks this year. To discuss opportunities for investment in individual municipal bonds, the record-setting level of issuance this year, and how to take advantage of this remarkable investment climate, please reach out to your HJ Sims representative.