Slipping occupancies at seniors housing developments across the country have forced owners and operators to ramp up sales programs and boost advertising budgets in order to retain and attract residents, even if the added expenses cut into the bottom line. Until the residential housing market recovers and sales activity normalizes, experts say these aggressive measures to court seniors will continue because entrance fees and rents come largely from the sale of their homes.

Eighty-five-year-old Dorothy Fisher probably wouldn't have moved to a continuing care community if she hadn't received help from the developer. Fisher wanted to move to Fox Run, a project developed by Erickson Retirement Communities in Novi, Mich. But first Fisher had to sell her two-bedroom condominium.

Erickson assigned a move-in coordinator to help Fisher. The coordinator helped stage the home for sale and found Fisher a real estate agent who recommended lowering the condo's price by $5,000. “I wouldn't have come down in price without that encouragement,” says Fisher. The unit sold in two weeks. Erickson also gave Fisher time to pay the entrance fee (fees start at $117,000) that came from the sale proceeds of her condo. “It turned out great,” says Fisher.

Seniors housing owners and operators are providing new residents with all kinds of help. They're waiving move-in fees and reducing rents. The big entrance fees at continuing care communities are being discounted and new types of contracts are being offered to widen the pool of buyers.

Bridge loans are available to seniors to pay the rent until their homes sell. And in some distressed areas building owners even purchase homes outright to make a move possible.

“More money is being earmarked for marketing than I can ever remember,” says Michael Berne, managing director of the seniors housing group at real estate services provider Jones Lang LaSalle. Marketing budgets at buildings are up by 5% to 10% this year, says New York-based Berne, though some budgets have increased by as much as 15%. “Over the next year, I suspect that number will creep up even more.”

Marketing costs for a 300-unit continuing care project are now $10 million or more for a typical five-year program that includes sales staff salaries, office rents, promotional materials, advertising and special events. Marketing an apartment building through lease-up costs at least $2 million, say industry experts.

Longer lease-up times coupled with ballooning marketing budgets could reduce profits substantially, says Berne. Expected returns on seniors housing properties have been averaging 10% to 14%. Berne projects returns of about 7% in the next 12 months. The bottom line could take a further hit because of the rising cost of fuel and food.

Housing prices plunge

The incentives are in response to a slumping single-family home market where prices have fallen 18% to 20% in the last 24 months, according to the S&P/Case-Shiller Index. Deals also have slowed to a trickle. Until the end of last year, the seniors housing industry had been on a tear. Occupancies were rising, demand was strong, and properties were selling at premium prices. Building owners could count on annual rent increases of 7%.

Many seniors have been reluctant to sell their homes in the wake of a housing slump and credit crunch tied to the subprime mortgage crisis. Instead, they're waiting for prices to rise.

The average occupancy rate at independent living buildings nationally is 91.4%, down 240 basis points from the peak of 93.8% achieved in the first quarter of 2007 in the top 31 markets tracked by the National Investment Center for the Seniors Housing & Care Industry (NIC). Rents have held steady, though operating expenses have risen. And except for a few markets, new supply has been constrained and will remain so because of the financing crisis.