Payroll Moves With Census and Acuity, Not Square Footage
In multifamily underwriting, most operating expenses track the building, and per unit and per square foot benchmarks do a reasonable job of predicting costs. Assisted living works differently, because the largest expense follows the residents rather than the real estate. Ziegler's 2026 survey of senior living providers found that employee compensation averaged 56.2% of operating budgets. Two communities with identical square footage can therefore carry very different payroll, depending on how many residents they serve and how much help each one needs.
Census sets the baseline number of caregivers in a building, and acuity sets how intensive the work is. Ziegler's respondents reported roughly one caregiver for every 10 to 15 residents in assisted living, but one for every 5 to 8 in memory care, and they cautioned that these are general benchmarks that vary with resident acuity, operator practices, and state rules.
Several states do not set a fixed numeric ratio for assisted living, and Washington and California, for example, require sufficient or adequate staff rather than a fixed ratio, while Oregon staffs to acuity assessments. Two licensed communities with the same census can therefore staff very differently and both remain in compliance. An underwriter who relies on the regulatory minimum will often understate the real cost of running the building.
Because staffing is set by census and licensing floors rather than by a spreadsheet, payroll also does not fall in step with a decline in occupancy, which creates operating leverage a per square foot model cannot see. Consider a hypothetical 100 unit community at 88% occupancy and $6,000 a month, with labor at 45% of revenue and all other costs at 30%, which produces net operating income of about $1.58 million, a 25% margin. If occupancy slips five points, labor stays fixed, and other costs fall with revenue, revenue drops about 6% but net operating income drops about 16%.
Occupancy across seniors housing has been rising for years, with NIC MAP putting it at 90.4% in the third quarter of 2026, the 21st consecutive quarterly gain. Even so, an underwriter who assumes labor will flex down with census is modeling the wrong business.
Acuity cuts both ways as well, because a fixed caregiver to resident ratio rises and falls with census but ignores changes in how much help each resident needs, so a community can overspend on labor when residents are lighter than the ratio assumes, or fall behind when needs grow. The most useful diligence questions therefore concern the acuity mix, how often residents are reassessed, how many care hours the operator delivers per resident each day, and whether care fees rise as needs rise, since needs that grow faster than fees quietly squeeze margin.
Wage and turnover pressure adds to the problem, and in the same Ziegler survey, 90.0% of providers reported higher total staffing costs over the past 12 months, while average workforce turnover was 35.4%, with CNAs at 39.0%. The share of providers using temporary agency staff often rose from 16.8% to 24.8%. A sound payroll forecast starts with cost per occupied bed or per resident day rather than per square foot. It then layers in overtime, turnover, and agency premiums, and stress tests what happens to margin if occupancy slips or acuity rises.
Stress testing payroll that way usually shows how much margin a facility really has, and how quickly it disappears when occupancy or acuity moves against you. I help assisted living buyers rebuild payroll from census, acuity and staffing data and model how the margin responds when occupancy slips or care needs rise. If you are evaluating a facility and want to know how sensitive its margin is to labor, send the financials and staffing schedule to amer@awadcapitaladvisors.com, and I can help you see the numbers before you make an offer.