Nine Months into the Pandemic: - PowerPoint Presentation

1. Nine Months into the Pandemic: State of the Debt Markets…and MoreNIC Community Connector (NCC) MeetupThursday, December 3, 2020Exclusive to C-Suite NCC MembersFacilitated by Beth Mace, Chief Economist

2. Current Macroeconomic ConditionsK-shaped bifurcated national economic recovery underway as labor market remains under duress (20.5 million individuals continuing to collect unemployment insurance in week ended Nov 7; BLS), while stock market surgesResidential housing market holding up remarkably well (supported by 30-year fixed mortgage rate of 2.83%), encouraging future demand for seniors housing (Freddie Mac, October 2020)K-shaped recovery also occurring among commercial real estate property types (industrial and apartment recovering on the upper right part of the K, retail and hotels suffering on the lower right part of the K); distressed sales and workouts rising for hotels, retail and some apartments (RCA, October 2020)

3. Seniors Housing ConditionsSince the pandemic in March, third quarter occupancy had fallen by: 11 percentage points to 76.0% in nursing care, 6.1 percentage points to 79.1% in assisted living , 4.9 percentage points to 84.9% in independent living (NIC MAP® Data Service, 3Q 2020)66% of surveyed senior living providers had up to a 30% increase in overall expenses related to COVID-19 (Argentum, October 27 – 29, 2020)62% of survey respondents report underwriting that incorporates elevated COVID-19 related operating expenses for the next 6 to 18 months (CBRE, H2 2020).75% of senior living providers have experienced up to 30% lost revenue as a result of COVID-19 (Argentum, October 27 – 29, 2020)Nearly half of senior living providers operate in states that require COVID-19 testing for residents and/or staff yet offer no financial resources

4. Seniors Housing Capital Market ConditionsGap remains in buyer and seller price expectationsLimited deal volume—year-to-date through October 2020: $7.3 billion of transactions (down 50% from year earlier; total CRE: $26.2 billion, down 52%; RCA, October 2020)Investor flight to quality, with bi-furcated market and widening cap rate spreads between Class A and Class B/C (CBRE, H2 2020 )Expansion of cap rates (approx. 25 bp since pre-pandemic; CBRE, H2 2020)

5. Seniors Housing Debt and Equity ConditionsLenders taking a proactive approach to servicing existing clients. Some are working with developers and operators to adjust lease-up proformas, understanding that current conditions may result in withdrawn deposits and rent discounts to support move-ins Placing debt remains a challenge and lenders are often asking for more equity from developersDebt and equity providers are returning to the markets cautiously, underwriting deals with pre-existing relationships and sponsors with proven track recordsTight construction financing markets; construction projects with financing in place prior to Covid-19 are moving forward, while those announced during the outbreak struggle to secure financing. Many banks refuse to review new projects and offer term sheets. But what about other sources of capital?

6. Break-out Group Discussion QuestionsWhat’s the conversation between borrowers and lenders nine months into the pandemic? What are the stress points? Is access to equity and debt improving for some? What happens as we enter a “second wave”? How does a forthcoming vaccine change the picture?How is risk being shared between operators and their capital providers?

7. Save the Dates!Fifteen Florida seniors housing markets are tracked by the NIC MAP® Data Service. Jacksonville had the highest 3Q 2020 majority independent living occupancy, while The Villages ranked second. How high was high, and how did other markets fare? What explains these patterns? Is it all the pandemic or did supply play a role?Senior housing operators have responded to the COVID-19 pandemic with urgency and innovation, mindful of the importance of safeguarding and protecting their residents and staff. How has one leading operator addressed COVID-19 challenges? What strategies were developed to address staffing challenges, socialization at a time of physical distancing, and heightened concerns about contagion control? What lessons have been learned as we enter a second wave?