Memory Care Sector Slowly Heals

by Jeff Shaw

As developers dial back on new supply and absorption continues
at a healthy pace, the vacancies begin to recede.

By Bendix Anderson

The phone continues to ring at the leasing office at Woodside Place of Washington in Washington, Pa., even though businesses across the U.S. have closed their doors to slow the spread of the novel coronavirus. 

Half of the 36 units at Woodside Place were already occupied in March 2020, even though the new standalone memory care facility had only opened its doors a few weeks before in February. Even with most of the U.S. economy shut down in April and May, the number of people signed up to move in continues to grow. 

“The demand in Washington County is proving to be there for memory care seniors housing,” says Carrie Chiusano, executive director of the Presbyterian SeniorCare Network’s Dementia Care Center of Excellence, a seniors housing developer, operating a half-dozen memory care communities in Western Pennsylvania.

The memory care segment of the seniors housing business is finally healing, after years of overbuilding and high vacancy rates. In 2019, the number of people living at memory care communities of all types finally grew faster than the number of new units delivered by developers. The percentage of vacant units finally began to shrink. 

The crisis caused by the coronavirus has interrupted this positive trend, but probably not for long. Many projects to build new memory care communities have been delayed and the number of seniors who need memory care continues to grow, even as many potential residents shelter in place rather than look for new living arrangements. 

“Once we start to open, there likely will be pent-up demand for memory care,” says Beth Mace, chief economist for the National Investment Center for Seniors Housing and Care (NIC). “We will probably see some kind of recovery in seniors housing in the third quarter.”

Construction activity overheats

A growing number of seniors need memory care services to help them live with dementia. Barring a medical breakthrough, the number of Americans age 65 and older who suffer from Alzheimer’s disease is expected to increase from an estimated 5 million in 2013 to 13.8 million by 2050, according to the Alzheimer’s Association, a Chicago-based nonprofit health organization focused on Alzheimer’s care, support and research. 

That huge number doesn’t even capture the total need, since Alzheimer’s is just one cause of dementia, along with Parkinson’s and other diseases. As the life expectancy of seniors increases, more of them are likely to show advanced symptoms of these diseases. Life expectancy at birth was 78.7 years in 2018, up several years from two decades earlier. 

“The needs are huge,” says Mace.

This strong demand for memory care housing dependably absorbs thousands of units every year, peaking recently at 7,200 additional occupied units in 2016, based on NIC’s 99 primary and secondary markets. Since then, the number of occupied units in the U.S. has continued to grow by roughly 7,000 new units a year, according to NIC. This strong rate of absorption includes both standalone memory care properties and memory care “neighborhoods” that are part of larger seniors housing developments such as continuing care retirement communities (CCRCs) or assisted living facilities. (See chart, page 19)

Early in the last decade, developers only built a fraction of that number of units. The number of vacant units shrank as the percentage of occupied units neared 90 percent in 2012.

But developers rapidly expanded their plans, peaking in 2016 when they opened about 10,700 new memory care units. The percentage of occupied beds dropped all the way down to 82.9 percent by 2018, according to NIC. 

“When about 17 percent of the property is vacant, it’s hard to operate at that level,” says Mace. 

Memory care facilities of all types still struggle to compete for residents, compared with the glory days of 2012. However, after years of overbuilding, the new supply is finally less than the demand for memory care seniors housing. Developers delivered just 6,246 memory care units in 2019, according to NIC. For the first time in nearly a decade, that was less than the 6,858 additional units absorbed in 2019. The percentage of occupied units finally began to grow, rising to 84.1 percent in the first quarter of 2020.

The outlook for this segment of seniors housing is still improving as developers plan fewer new projects and become more targeted in their approach. The number of new units under construction totaled 11,000 in the fourth quarter of 2019, down from the peak of 16,000 in the same period of 2016 and the lowest it’s been since the fourth quarter of 2014, according to NIC. However, those thousands of new memory care units still represent a substantial investment in new construction. 

Many of those projects have been delayed by the spread of the coronavirus. Some municipalities have closed construction sites, and even in places where new construction is allowed, materials are hard to find, as is labor. 

Leasing has also slowed, and many potential residents are sheltering in place rather than looking for new living arrangements. “COVID will exert downward pressure on occupancy rates,” says Mace.

However, seniors who need the services provided by memory care are likely to return to the market as soon as they can. 

“In many instances people cannot manage without help,” says Mace.

Memory care developers continue to invest to serve this demand. “In the future, we will pursue opportunities,” says Isaac Scott, principal with Anthem Memory Care, an active developer of memory care communities, based in Lake Oswego, Ore., with 834 units of memory care housing at 11 communities in California, Colorado, Illinois and Kansas.

Exacting studies needed

As memory care developers like Anthem and Presbyterian SeniorCare Network continue to undertake ground-up construction projects, they are careful to pick locations where a significant number of seniors who can afford to live at their communities are likely to need memory care services.

“You really have to discipline yourself,” says Scott. 

The average resident at one of Anthem’s memory care facilities stays just 15 months, according to Scott, but the decision-making process to move a loved one into a standalone facility is typically preceded by several months of careful consideration.

That means that at any given time, memory care operators like Anthem need to have almost as many prospective residents in the pipeline as they have current residents. 

“It is nearly impossible to keep a community 100 percent full,” he says. “We are turning rooms over every month.”

Anthem declined to reveal its current occupancy rate. 

“In terms of occupancy, we took a step backwards in April with the onset of COVID and our limitations on new move-ins,” says Scott. “I am happy to say that we had a net positive month in May.”

Because the demand for memory care is steady, and because empty units can take a long time to fill, Anthem has a strict process for market selection. 

“There are a number of tricks that people can play on themselves,” says Scott. 

For example, a developer might be tempted to believe that a property in a rural market can draw potential customers who can afford
private-pay memory care but who live more than five miles away from the property. 

If there are no other memory care facilities close to them, perhaps they may be willing to drive. 

However, if this gamble proves to be wrong, the community is likely to struggle, and the long process to fill empty units will take even longer.

“You can make any market look good if you cast a 50-mile net,” says Scott. “We have an algorithm to estimate the depth of a market. We don’t have any influence on it.” 

People with dementia have choices 

Memory care is just one of the options available for elderly people who have dementia — and it happens to be one of the most expensive options. The average monthly memory care rent is $6,709 in the U.S., according to NIC. 

That’s significantly higher than the cost of assisted living, which averages $4,977 per month in the U.S. It’s also much less than the cost of a nursing home, which averages $332 per day, or $9,960 a month. However, nursing home stays are largely paid for through Medicare and Medicaid, unlike many memory care facilities, which are typically private pay. 

If a family can no longer care for a senior suffering from dementia at home and does not have the financial resources for private-pay memory care, the family oftentimes feels that it has no choice but to move its loved one into a skilled nursing facility, paid for with help from Medicaid. About 14.9 percent of  nursing  homes offer a dementia care unit within a larger facility or community, according to the National Center for Health Statistics. 

“A lot of people know that they will never be able to afford living at our community or any private-pay memory care facility,” says Presbyterian SeniorCare’s Chiusano. 

Other seniors with dementia live for as long as they can in their own houses or apartments, but that can lead to isolation. “Home care is very expensive, and it doesn’t supply activity and the social piece,” says Scott. “That often leads to a diminishment of their health.”

Despite these problems, families may resist enrolling a loved one in a memory care community even if there is one nearby and they can afford the cost. “The need is huge, but the family can have a hard time letting go,” says Scott.

In addition, people in the early stages of dementia now have many more options today, including receiving care in their own homes or attending adult day centers. As a result, many seniors now move into assisted living or memory care communities later in life than in the past, with more severe symptoms. 

“In 1991, it would be difficult to know which of our residents had dementia — they were that high functioning,” explains Chiusano. “By the time the seniors come to us now, the disease has progressed much more.”

To attract more residents who have other choices at their disposal, memory care facilities need to build a web of relationships. “Once you have opened, you need to become a community resource for Alzheimer’s and dementia,” says Scott. 

For example, Anthem hosts family education nights at each of its buildings, both for the families of residents living in their buildings and the broader community. 

It’s far easier for families to entrust their loved ones to a community with which they have already established a relationship. “If you build those bonds, you are going to be successful in the long term,” says Scott.

Adult day programs can also help seniors suffering from memory loss and their caregivers become familiar with a particular program and its services. “When it does become time, they are already used to it,” says Chiusano of Presbyterian SeniorCare.

Presbyterian SeniorCare also builds goodwill with the communities surrounding its properties by welcoming all to its free memory care programs, even if these families are unlikely to be able to afford to live at the company’s private-pay memory care facilities. “We continue to invite them,” says Chiusano. “Our mission is helping people living with dementia.”

Even properties that appear to be standalone memory care facilities, in which all of the residents live with dementia, often benefit by being near other seniors housing communities, says Chiusano. For example, Presbyterian SeniorCare’s new Woodside Place community is just a short walk away from independent living and skilled nursing facilities also operated by Presbyterian SeniorCare. 

Memory care mixes

A growing number of developers, including Presbyterian SeniorCare, are creating memory care “neighborhoods” as part of larger assisted living or CCRC communities. Some 14.3 percent of “residential care” communities for seniors feature a dementia care unit, according to the National Center for Health Statistics, which includes assisted living and CCRCs in its tally.

“We have seen a slowdown in the construction of standalone communities, with more developers building CCRCs containing memory care,” says Mace. 

A growing number of senior care advocates are calling for the elderly suffering with dementia to live alongside seniors who are not. “There is a movement happening — we should stop segregating people living with dementia,” says Jill Vitale-Aussem, president and CEO of The Eden Alternative based in Rochester, N.Y. The nonprofit focuses on improving the quality of life for older adults and their care partners.

If a memory care neighborhood is separated from the remaining portion of an assisted living or CCRC community, it should be centrally located and easily accessible to all the residents, their family and friends. 

“They should feel like they live under one roof, which is a very big deal,” says Dee Pekruhn, director of life plan communities services and policy for LeadingAge. “If you build a memory care neighborhood and the spouse can’t easily visit because it’s off in a corner someplace, that’s a problem.”

Some memory care experts go even further by questioning whether people with dementia should be separated from other seniors. 

“We don’t believe in freestanding memory care,” says Pat Sprigg, CEO of Carol Woods, a CCRC in Chapel Hill, N.C., where people with dementia live side-by-side with other seniors. “We believe in keeping them included in the community that they are in, whether assisted living or skilled nursing.”

Not every senior is eager to live close to people in the later stages of dementia. 

However, mixing is already more common than one might think. “Fifty percent of people age 85 and older have some kind of dementia,” says Sprigg. Because dementia is already so prevalent, separating some people is likely to be inconsistent, she says. “When you are talking about those kinds of numbers, having segregated units is not the answer.”

The challenge of housing people living with dementia — and the variety of solutions — is likely to grow as people continue to live longer on average and seniors housing communities become more able to care for frailer residents.

Assisted living communities and memory care communities are now more likely than in the past to be home to the oldest adults, who a decade or two ago might have been forced to move into skilled nursing facilities. 

“We have gotten better at caring for people at the end of life,” says Scott. For example, residents in Anthem’s memory care neighborhoods typically range between 85 and 95 years old, compared with 75 to 85 years old just a decade ago. “We are caring for people that 10 or 20 years ago might not have been with us, who would have been sent more quickly to skilled nursing.” n

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