The United States population aged 75 and older is expected to double by 2050, and with a severe lack of senior living inventory, owners and operators are under increasing pressure to meet the growing demand for affordable, high-quality care. Addressing this challenge head-on requires a strategic financial approach, strong partnerships and operational improvements.

The senior living sector has faced significant financial headwinds as it has recovered from the pandemic, with communities already managing high labor costs and narrow margins. With $19 billion in debt maturities due in the next two years and rising long-term interest rates — up 70 to 80 basis points in recent months — these pressures will continue to be top of mind for providers.

There is good news, as occupancy rates have steadily improved for 14 consecutive quarters across the sector, but converting those gains into stronger operating margins remains challenging. Labor expenses, driven by the need for skilled caregivers, are among the largest budgetary strains. Nearly half of the senior living inventory is more than 25 years old, underscoring the need for capital improvements to stay competitive.

At the same time, senior living professionals are struggling to finance new developments, deepening the already pervasive inventory issue. Those conditions may leave owners and operators wondering, “What can I do today to ensure long-term success for my business?”

To overcome those challenges, senior living professionals should explore creative financing solutions based on individual objectives. A key benefit of the sector is that, because of its valued place in society as an essential component of all communities, a myriad of both public and private financing options are available to support owners.

Considering the pros and cons of all available structures, then multi-tracking the options that are the best fit as long as possible, becomes even more important during challenging financing markets. For example:

Regardless of the financing path or paths chosen, improving the financial performance of the subject community will aid those efforts. Value-based care models are emerging as one practical way to accomplish this. Adopting value-based care requires aligning with broader healthcare systems and making operational changes to support collective goals. Strategies such as regular care coordination meetings, onsite medical teams and tailored Medicare Advantage plans already are showing promise in reducing healthcare costs and differentiating operators in the marketplace while allowing the senior living provider to share in the resulting expense savings.

Despite the challenges, the future of senior living remains promising. Demographic trends indicate sustained demand, but new inventory growth has slowed significantly. Only 29% of construction projects began within the last year, the lowest rate in a decade.

High demand and low inventory conditions create a favorable environment for owners and operators who can secure funding to build new communities or modernize aging properties, establish healthcare partnerships and embrace innovative care models. Those senior living sponsors will be well-positioned to meet demand and set new standards for quality and efficiency. Interest rates moving lower would certainly help as well!

Kevin Laidlaw is managing director at NewPoint Real Estate Capital.

The opinions expressed in each McKnight’s Senior Living guest column are those of the author and are not necessarily those of McKnight’s Senior Living.

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