Life Plan Communities Face Improving Conditions In 2025 As Inflation, Staffing Challenges Lessen

Conditions in 2025 favor life plan communities more than they did in 2024, according to Fitch Ratings.

The ratings agency in December 2024 raised its credit outlook for life plan communities to neutral from a previous outlook of “deteriorating” due to improvements in cost inflation of some goods and services and better staffing conditions.

Many life plan communities are downsizing skilled nursing units while adding more independent living units to their respective campuses through repositioning and renovation projects.

Repositionings and renovations in particular have been a steady area of growth for many senior living organizations in recent years, having been financed prior to the Covid-19 pandemic or immediately following the most extreme periods of distress after 2020.

“Interest rate declines and stabilization in construction costs have made expansion projects much more economical to execute and much more likely to yield benefits for the life plan community in the form of profitability and balance sheet growth,” said Fitch Ratings Senior Director Margaret Johnson during a webinar Monday.

Such expansion projects will continue to pay off as new assets stabilize and mature, Johnson added.

During Monday’s webinar, Johnson highlighted the strong demographic-driven demand facing the senior living industry, along with “stabilized real estate markets” as two factors that remain tailwinds for the sector moving into the future.

While rating actions, including downgrades, have outpaced upgrades in recent years, Johnson noted that the degree at which the sector saw credit rating downgrades has started to stabilize, with signs of increased positive ratings action expected after the first quarter of this year.

This comes as Johnson noted that many of the “core credit drivers” that impact the life plan community sector are now stable or improving.

This improvement of the real estate market is something watched closely by life plan community operators, as many prospective residents rely on home sale proceeds to fund their entrance fees and move into a community.

“Inflationary pressures, particularly in the areas of staffing, have started to subside, and this is true across the healthcare industry,” Johnson said during Monday’s webinar.

Johnson said Fitch would closely monitor the U.S. Federal Reserve’s ongoing actions regarding interest rate cuts, something that impacts the cost of capital and the ability to sell real estate assets as higher mortgages could soften housing market prices or increase the number of days a home is listed for sale.

“I think the demographics are going to continue to feed the business model,” Johnson said.

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