In an environment marked by robust development and tenuously low interest rates, now is a time of action for owners of seniors housing properties, according to the 2016 Seniors Housing Market Outlook from Senior Living Investment Brokerage.
Bradley Clousing, a managing director with the Glen Ellyn, Ill.-based brokerage firm, says that short-term owners need to sell while the prices remain high, and long-term owners need to lock in interest rates on their debt before the inevitable rate increases arrive.
Owners looking to reposition properties need to proceed cautiously, he says, as interest rates will change bottom-line numbers in the near future.
“Build margin and room for an increasing interest rate environment,” said Clousing. “Interest rates cannot remain at this level indefinitely.”
For the seniors housing market, 2015 was a banner year for mergers and acquisitions. Several portfolio sales approached the $1 billion mark, with some even eclipsing that figure. A few acquisitions made major headlines during the year, including the purchase of skilled nursing operator Trilogy Health Services by a joint venture of Griffin-American Healthcare REIT III Inc. and NorthStar Healthcare Income Inc. for $1.1 billion and Capital One’s acquisition of GE Healthcare Financial Services for $9 billion.
But the report points out that the booming market won’t last forever, and that as 2015 came to a close there were signs of pricing leveling out “as some of the REITs (both traded and non-traded) were beginning to pause acquisitions or exit the market altogether.”
The recent high rate of development will lead to a strong influx of new supply in 2016 and into 2017 — more than a 10 percent inventory increase in some markets — that will stretch demand, according to Clousing.
“The absorption and affordability will be important to follow and understand for the new entrants into the market, as well as those strategizing with their existing or aging product within the market,” said Clousing.
As a result of all these factors, including the lower-than-expected 10-Year Treasury yield — 2.04 percent as of this writing — seniors housing owners need to execute plans before the market begins to change, concludes Clousing.
“This has been an incredible time for owners to realize strong pricing on their assets, or lock in attractive rates on existing debt,” he says. “Pricing is specifically strong for skilled nursing assets or purpose-built, well-located assisted living.”
— Jeff Shaw