There are a lot of ways to increase and unlock value in lower-quality seniors housing, according to the June 2016 Seniors Housing Market Trend Report from Greystone Real Estate Advisors.
According to Senior Care Investor’s annual report, Class A properties reaped $248,500 per unit for assisted living and $243,300 per unit for independent living communities in 2015. Class B properties, comparatively, earned only $138,300 per unit for assisted living and $72,900 per unit for independent living.
In 2015, approximately 60 percent of assisted living properties sold were Class B, while 40 percent were Class A. In independent living, approximately one-third of the properties sold were Class A, while two-thirds were Class B.
In Greystone’s report, the writers distinguish three different factors — physical location, asset quality and operational performance — that set Class A and Class B properties apart. The report outlines five ways to boost value if a property is lacking in one of those measures.
1. Add amenities — Location is extremely important when it comes to the value of an asset, the report suggests. Since this factor is out of the owner’s control when disposing of a property, owners should focus on increasing the quality of the asset, and adding amenities is one way to do so. “Newer properties typically have more common space, larger units and more amenities,” says the report. Adding these things helps a property stay competitive.
2. Offer more care options — Expanding care options is yet another way to keep a property competitive, suggests the report. By adding memory care, assisted living or independent living units to a property that does not have them can help an owner capture additional market share.
3. Provide room to expand — If an owner is still looking to add value to a property after expanding care options and renovating units and amenities, including extra land may help boost value, the report says. Additional land and the option to expand a facility may be attractive to some buyers.
4. Include the property in a portfolio — Another strategy listed by the report is to include a weaker asset in portfolio with other strong assets. “Buyers will often overlook the location challenges of one property in a portfolio if the remaining properties are situated in strong areas,” says the report.
5. Hire a strong operator — Maintaining a strong operator can elevate value for any underperforming asset. “An experienced, dedicated staff with low turnover, providing high-quality care, can help a property differentiate itself from others in its market area,” says the report.
Buyers of Class A properties, typically REITS and large institutional private equity firms, are interested in the specific asset class due to the level of certainty when it comes to executing the transaction.
Buyers attracted to Class B properties often aren’t able to stay competitive when it comes to buying Class A properties, the report suggests. There are a larger number of buyers falling into this category, so by recognizing a property’s strengths and weaknesses and acting accordingly, owners can maximize an asset’s value.
— Christina Cannon