Investor Firms Are Squeezing Every Penny Out of Senior Housing

In a senior housing complex in Pennsylvania, a Wall Street–backed landlord is hiking rents on an absurd scale. It’s part of a larger trend of real estate investors targeting senior care facilities at the expense of their residents and workers.

A recently open senior housing facility in Long Beach, California, on May 6, 2021. (Brittany Murray / MediaNews Group / Long Beach Press-Telegram via Getty Images)

Two years ago, as Linda Bush’s mobility deteriorated and her husband began struggling with memory loss, the couple decided it was time to downsize from the single-family home in Meadville, Pennsylvania, where they’d lived for more than forty-six years.

They moved into a new, nearby apartment building advertising to residents aged fifty-five and over. “We thought we’d have less stress,” says Bush, seventy-one. “Now all I can do is laugh at that idea.”

Bush is now one of dozens of seniors in Meadville who could be forced out of their homes in the coming months, as their Wall Street–backed landlord hikes rents by as much as 39 percent. Their apartments were among the thousands of senior housing units purchased last year by Welltower, a real estate investment company that also profits from buying up health care facilities for seniors — relying, in part, on Americans’ retirement dollars to fund the acquisitions. As its nursing-home investments faltered during the pandemic, Welltower doubled down on acquiring lower-cost senior apartments and squeezing residents on fixed incomes, according to our review of the company’s regulatory filings and investor communications.

The “gray wave” of baby boomers reaching retirement has created a shortage of suitable housing and health care options — and a formidable profit-making opportunity for investors stepping in to fill the gap. Seniors with Medicare coverage and access to pensions and home equity are a big business for Wall Street, but pumping vulnerable people for short-term returns has led to some disastrous results. As investors gobbled up nursing homes during the past two decades, a 2021 study found that resident death rates at private-equity owned facilities rose by 10 percent amidst devastating cuts made to maximize investor returns.

Now, faced with rising labor costs and plummeting occupancy in long-term care facilities as a result of the COVID-19 pandemic — as well as an aging population that’s remaining healthier for longer — investors are betting big on senior living facilities where they can employ a tried-and-true strategy: jacking up rents on those who may have no place else to go. In addition to its nearly two thousand health care facilities, Welltower says it is now “the largest owner of moderately priced age-restricted and age-targeted rental housing in the U.S.”

While the company’s CEO has touted these properties as a desirable alternative to publicly subsidized nursing homes, the aggressive rent hikes — unusually steep even in a period of runaway housing inflation — have left seniors like Bush with few options.

“Yes, we have Social Security and 401(k)s — but we also [need] prescriptions, gas, and food,” said Bill Hohmann, seventy-five, another resident in the Meadville senior building who has led efforts to push back on the increases.

Ironically, Americans’ retirement savings are a major source of the capital that Welltower deploys to acquire and wring profits from senior housing and health care properties. As a publicly traded real estate investment trust (REIT), the company’s shareholders include major mutual funds and more than a dozen state pension funds.

“It’s robbing Peter to pay Paul,” said Tamar Katz, a former real estate investment banker and coauthor of a recent paper from the Institute for New Economic Thinking on the role of REITs in financializing health care.

The paper questions the federal tax-exempt status of REITs, which control more than five hundred thousand properties in the United States. “Is this the type of business that we, as an American public, want to be subsidizing with our tax code?” asks Katz. “Their original purpose was to channel capital into productive investments — not to price-gouge Grandma.”

While paying little in corporate taxes, Welltower has received more than $65 million in federal COVID-19 relief funds earmarked for health care providers, according to quarterly earnings reports, after spending at least $300,000 lobbying the federal government on issues including allocation of the funds.

“We’re Passing Them on to You”

“Come as strangers, live as friends,” reads a brochure for Meadville’s Pine Street Commons, which also advertises amenities including an on-site library, community room, fitness center, and chapel.

The promise of community and convenience is part of what drew Hohmann to the newly built facility in the wake of his wife’s death in the fall of 2020, following more than fifty years of marriage. After selling their home in New York’s Hudson Valley, he relocated to Meadville, where his son and two grandchildren live, and prepared to start a new chapter.

When he arrived in May 2021, construction was still ongoing, with just thirty-six of the planned 128 units complete. The building still lacked both the advertised amenities and basic safety features like evacuation maps posted on the walls, he said. So that fall, Hohmann, who retired from a career in the US Military Academy at West Point, organized residents to petition the building’s management, asking them to implement safety measures and provide a timeline for completing construction.

After the on-site management forwarded the petition on to the corporate office of Calamar, the New York–based developer and then-owner of the building, a company executive arrived to meet with residents.

“He gave us a six foot sub and took us out wine tasting — all these things to make us feel warm and fuzzy,” Hohmann said. “I thought to myself, ‘Well, he’s not going to do anything.’”

Six months later, a different corporate executive returned to tell residents that though construction was still ongoing, they’d all be receiving substantial rent increases when their leases renewed over the course of the next year.

“When I signed a lease, I asked what the annual increase would be,” Hohmann said. “They told me 2 to 5 percent.”

Instead, Hohmann, Bush, and other residents who spoke to us had all received rent hikes ranging from 20 to 39 percent, depending on their accommodations. Meadville is a small Rust Belt city with a median household income of $40,000, according to US Census data. Year-over-year rent increases in the two closest metro areas, Cleveland and Pittsburgh, were 8 percent and 6 percent respectively, according to the most recent data from the real estate site Zillow.

Bush and her husband live on approximately $3,800 a month. She draws Social Security as a retired part-time teacher, while he receives a modest pension from a career in the Social Security administration — during most of which he was ineligible for the benefit himself. Their current monthly rent of $1,377 already accounts for more than a third of their monthly income, the benchmark for what’s considered affordable.

In March, rent on the couples’ two-bedroom apartment is set to increase by more than $300, at which point it will eat up nearly half of their monthly budget.

Hohmann, Bush, and other residents have been asking Calamar to negotiate with them over the increases, recruiting support from local elected officials, and even staging “Support Our Seniors” rallies locally and outside Calamar’s corporate office.

At a July 2022 meeting with residents, covered by the Meadville Tribune, a Calamar executive refused to budge, saying that the company’s costs had risen with inflation — by 9 percent.

“To operate, we need to cover those expenses. Unfortunately we’re passing them on to you,” the Calamar executive said, according to the Tribune. “We have to show that revenue — we have no option.”

Soon after that meeting, the Meadville residents received notice that their building — along with twenty-four others throughout the Midwest owned by Calamar — had been purchased by Welltower. Calamar remains the manager of the properties for now.

Neither Welltower nor Calamar responded to a request for comment.

The Hostile Takeover of Senior Care

The world’s largest health care REIT, Welltower has invested in a string of financially distressed nursing homes during the past decade, acquiring their real estate after their operations had been stripped bare by private equity owners.

In 2018, Welltower partnered with a national health care group to buy more than three hundred nursing homes after their previous operator, HCR ManorCare, went bankrupt. ManorCare’s purchase by the Carlyle Group in 2007 had become a cautionary tale about what happens when private equity puts itself in charge of senior care.

A 2018 investigation by the Washington Post found that, by the time of ManorCare’s bankruptcy, state regulators had cited its facilities for thousands of serious health code violations including medication errors, failure to treat bed sores, and overuse of opioids, all of which appeared to result from chronic understaffing.

Already roiled by their stint under the Carlyle Group, the ManorCare facilities faced further financial turmoil when the COVID-19 pandemic decimated the nursing-home industry, resulting in more than two hundred thousand deaths nationwide among residents and staff and — to the chagrin of investors — falling occupancy rates and rising labor costs that ate away at returns.

In December, the activist short-seller group Hindenburg Research published a report alleging that Welltower is operating a “shell game” to conceal ongoing problems with ManorCare. Hindenburg Research aims to expose fraud in publicly traded companies while also placing bets on their stock prices — a 2020 Hindenburg report on the electric vehicle manufacturer Nikola helped spark a federal investigation, ultimately leading to the company’s founder being convicted for fraud.

Welltower’s stock rallied in November, when it transferred nearly 150 ManorCare facilities out from under their current, distressed operator and into a new venture. But the new health care operator “seems to barely exist,” according to the Hindenburg report, since it registered as a corporate entity just six months earlier with a twenty-nine-year-old CEO as its only listed employee.

Meanwhile, a series of high-profile horror stories about Wall Street–owned nursing homes has led to increased scrutiny from regulators, including an ongoing probe by the Government Accountability Office and a mention in President Joe Biden’s 2022 State of the Union address, where he said that nursing-home profiteering “ends on my watch.”

In that context, major players including Welltower and the Carlyle Group have been exiting nursing-home investments for senior housing that’s cheaper to provide and not affected by cuts in Medicaid and Medicare reimbursement rates, which dashed private equity’s plans for quick returns on their nursing-home investments.

Welltower acquired Bush and Hohmann’s Meadville building as part of the company’s growing focus on so-called wellness housing, apartments for healthy seniors who don’t require intensive medical care or on-site assistance.

Speaking at a New York investor forum in 2020, then–Welltower CEO Tom DeRosa described wellness housing as a middle ground between luxury retirement homes and long-term care facilities for low-income seniors.

After working all their lives, “many people dispose of their assets and wave the white flag of destitution and go live their days in a Medicaid nursing home,” DeRosa said. “We’re trying to offer an alternative.”

The company expects “significant future growth” in its wellness housing platform, Welltower wrote in a business update last June. The firm claimed that such housing “operates with low-to-no staffing” — in contrast to nursing homes, where labor is a major cost.

And unlike traditional multifamily apartments, where rent hikes are hemmed in by tenants’ lagging paychecks, “seniors housing is NOT INCOME DEPENDENT,” Welltower wrote, because many residents move in after selling off their homes and other assets. Shorter leases in senior housing also create the opportunity for more frequent rent increases, according to the business update.

While Hohmann sold his house in New York for a decent price, he has already decided that he’ll move out of the Meadville building rather than stomach the rent increases. “I don’t need to be flushing my grandchildren’s money away,” he said. “I think this is highway robbery.”

Bush and her husband are still unsure whether they’ll stay or go — another move would be difficult for both of them. To pay for their rent increase, they’re considering dipping into the mutual fund into which they put the proceeds from the sale of their house, even though Bush had been planning to rely on it in the event that she outlives her husband.

“We were counting on that,” she said. “So now we’ll just have to live with that added stress.”