Life Plan Communities Could Struggle With Debt In 2026 As Senior Living Demand Rises

Operating conditions are continuing to improve for U.S. life plan communities, but the amount of debt they hold and must repay is a potential roadblock clouding the future.

Last December, those conditions prompted Fitch Ratings to assign the U.S. non-profit life plan community sector a neutral rating. While senior living communities have largely rebounded from the operational challenges of the Covid era, some life plan communities are seeking to utilize debt funded expansion and repositioning projects.

Because of the lower costs of capital, it can lead to accelerating large scale CapEx, resulting in short term rating pressure until the projects are up and running, Johnson said.

There are also some concerns about the cost of capital and its impact on real estate assets, particularly if it increases the length of time homes are on the market or creating lower home prices, which can in turn lead to more negatives for LPCs that are reliant on turnover for cash flow and debt service payments, Johnson added.

Demand is up across the board for senior living, and Johnson notes the life plan model is attractive due to its communal living component, as evidenced by the product type’s recent momentum in occupancy. This also factors into what could lead to more mergers and acquisitions acquisition activity within the LPC sector of the industry.

“I think this wanting to expand is going to take different forms,” Johnson said. “It could take debt funded construction, or it could be M&A … It’s a growing trend, and it’s something that we’re keeping an eye on.”

LPCs that have skilled nursing operations see the most risk and face the most pressure, but Fitch Ratings notes there is a continued trend of these communities flipping their skilled nursing beds to independent living units to relieve pressure. While skilled nursing beds bring in Medicaid dollars, it often doesn’t keep up with the cost of care, leading to additional impacts. However, Fitch notes the repeal of staffing mandates from the Centers for Medicare and Medicaid Services could bring relief in operating expenses.

Looking ahead, Fitch Ratings anticipates two more rate cuts from the Federal Reserve as well, and the level of partnerships and acquisitions will continue to play a big factor for the sector in 2026.

“I think we will continue to see more and more examples of smaller providers seeking the economic and cost saving benefits of partnering with a larger organization and larger organizations acquiring smaller, possibly struggling communities and successfully implementing their business strategies to turn these organizations around and strengthen the overall systems credit quality,” Johnson said.

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