New Year Brings No Respite to Muni Senior Living Sector Turmoil

The coronavirus pushed three dozen municipal-debt issues for senior living communities into default last year and another five have already missed payments in 2021, sowing distress in one of the nation’s safest bond markets.

The securities deals that defaulted for the first time in January included one for a retirement community in the Chicago suburbs that needed to preserve cash as regulations imposed to combat the pandemic curbed move-ins and left about one quarter of it unoccupied.

“The surge in Covid-19 cases following Thanksgiving and Christmas suggests further disruption lies ahead,” said Beth Burnham Mace, chief economist at the National Investment Center for Seniors Housing & Care. “That said, the recent distribution of the vaccines should soon provide some relief.”

The coronavirus, especially lethal to the elderly, has made the senior-living industry the riskiest segment of the $3.9 trillion municipal-bond market, where defaults are extremely rare because states and cities have broad power to raise taxes to cover their debts. But it’s also open to non-profits, including those that run retirement communities, that can sell debt through local government agencies. These facilities are facing increased costs for staff and protective equipment as well as move-in restrictions from state health agencies. As a result, many are unable to repay what they’ve borrowed.

Falling Occupancy

Residency at assisted and independent living facilities fell to 80.7% in the fourth quarter, a record low and an almost seven percentage point decline since the first quarter, according to data from the National Investment Center. Moreover, the data shows wide disparities geographically. The San Jose market had the highest occupancy rate of 31 metro areas at 88.5% and Houston, the lowest, at 73.5%.

The resulting financial pressure drove five senior living communities in Georgia, New York, New Hampshire and Illinois into default this year.

Hillside Village, a 221-unit continuing care retirement community in Keene, New Hampshire, failed to make a Jan. 1 interest payment on $73 million bonds and has hired a chief restructuring officer. Through November, the facility collected $2.3 million less revenue than projected. Glen Arden, Inc., in Goshen, New York defaulted because of financial difficulties that preceded the pandemic.