Impact of Economic Downturn on Absorption and Financial Viability
According to the National Investment Center for Seniors Housing & Care Industry, “there have been several positive economic indicators that show improvements in the overall economy and possible indication of the economy entering the recovery state.”
Economists are starting to see signals that the economy may have “hit bottom” and the worst is behind us. However, this does not mean that we can rest easy and not worry about such issues as extended fill periods driven by uneasy seniors unable to sell their homes or recovering from a loss in the stock market. These concerns are likely to continue until we see evidence for a continued period that the economy is on the rebound and seniors feel more comfortable about the economy, which may take some time.
The need to have realistic expectations about fill periods, rents/entry fees, and working capital will continue. Most importantly, the need for adequate working capital to carry your development through to stabilization is as crucial as ever. This is for the benefit of the project and the sponsor and will be required in order to produce financial projections that support the viability of your project.
Further, lending institutions and investors are very focused on the sufficiency of working capital in this economy and likely will be for some time to come. Therefore, financing will be contingent upon, among other things, the perceived adequacy of the funding of these items.
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