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In Seniors Housing, Investment Decisions Should Be Based on Trusted Partners, Say InterFace Panelists

seniors housing

From left to right: Kevin Pascoe, chief investment officer of National Health Investors; Isaac Dole, founder and managing partner of Birchwood Healthcare Partners; Kelly Sheehy, principal and managing director of Healthcare Business, Artemis Real Estate Partners; Eric Johnson, director of Ziegler; Luke Gabay, vice president of PGIM Real Estate; and moderator, Marcus Van Ameringen, vice president of business development at 12 Oaks Senior Living.

ATLANTA — The beginning of the COVID-19 pandemic made everyone question the future, and for investors and owners in the seniors housing business sector, things were rocky. The National Investment Center for Seniors Housing and Care reported the occupancy rate in seniors housing facilities decreased 680 basis points in 2020 to record lows.

In 2021, there has been a renewed confidence in the economy as people return to working in an office and many Americans have been fully vaccinated against COVID-19. Additionally, occupancy rates in seniors housing properties have continued to rise. Now that things seem to be getting marginally better, the question many investors may be asking themselves is if they should buy, sell or hold assets in the current market?

At the InterFace Seniors Housing Southeast conference in Atlanta, Ga. on Wednesday, Aug. 18, a group of industry-related leaders discussed the tips and tricks to survive in today’s market, as well as their predictions for the seniors housing sector in the future, during the “Investment Panel.” In a discussion lead by Marcus Van Ameringen, vice president of business development at 12 Oaks Senior Living, many of the investors in the panel mentioned the importance of making deals with people you trust.

Isaac Dole, founder and managing partner of Birchwood Healthcare Partners, said that there was a resurgence toward having several quality leaders in the market. Instead of just having one person do multiple roles, Dole thinks several experienced people are needed now to completely fit the needs of the seniors housing market.

“Even more so now that this industry is so sophisticated and so complex, you need a proven leader over each discipline of the business,” said Dole. “You need to be working with the best in class.”

Despite the current improvement in the economy, some are not so sure we are out of the woods yet. Kevin Pascoe, chief investment officer of National Health Investors, said that there is still a lag in the market right now from where we currently are and where we could be. Pascoe believes that now, more than ever, investors need to turn to those they can rely on to be resilient during bad times.

“A lot of things that we talk about is who can trust? Who has the right character? Who’s going to do the right thing when there are problems that pop up?” said Pascoe.

Eric Johnson, director of Ziegler, said that not only does one need to have people they can trust, but they need to be knowledgeable on the seniors housing sector.

“Make sure the operators involved are up front on the design. We’ve had multiple projects where they’ve gotten designed by architects and developers that have not had a lot of experience in this realm and that is way too expensive. It doesn’t make sense in the market and ends up getting redesigned with a different operator to scale it back,” said Johnson.

To Buy or to Sell?
In today’s market, the panel speakers also agreed it’s vital to let go of assets that aren’t working out and hold tight to properties that are doing well. Pascoe noted that his firm is selling some of its older properties that are not doing as well as they would have hoped for and manage all the other high-performing assets they have currently.

Sometimes, regarding real estate assets, it pays to be analytical with one’s properties. Kelly Sheehy, principal and managing director of healthcare business for Artemis Real Estate Partners, said it was necessary to be thoughtful and intuitive when looking at unsuccessful assets.

“The only thing that investors like more than putting money out fast is not losing money. It’s okay to be a little slower, be selective,” said Sheehy.

Each investor has a different approach to how to survive in today’s economy. Luke Gabay, vice president of PGIM Real Estate, said his firm has been focused on development for the past 12 to 18 months, but it has been difficult financially for his company because lenders have started asking for more recourse and lower leverage.

“It pays to be disciplined and thoughtful. And, to that point, go with who you trust. I think in today’s environment and certainly in the past 12 months or so, we found it nearly impossible to underwrite new opportunities. We started with the groups in the market that we respect,” said Gabay.

Some seniors housing investors may keep certain properties so that they can continue to have income come in. Pascoe noted that his firm plans on holding on to certain well-performing properties, but he does not suggest every firm to do this.

“We’re trying to create income streams to be able to pay our shareholders,” said Pascoe. “If the property is doing well, especially now, I think there’s a good opportunity to sell if you are an investor, because the ability to sell a good building, people are paying up for that right now. For us, we would not be sellers just because what am I going to reinvest in? We would have to replace an opportunity to replace a yield.”

The seniors housing market has changed a lot since the COVID-19 pandemic started, and so investors have had to change their thinking when it comes to acquiring new properties. For Dole, he thinks that one must look at the local level to decide on what assets to buy, keep or sell. He said you can’t apply national pricing metrics to one specific place because you must look at the market assessment and demand positioning against other facilities.

“Market analysis is really important, especially in Atlanta, where a bunch of non-industry people came in and built buildings all over the place. So, you drive around, and you start talking about opportunities, it is very different submarket to submarket,” said Dole. “There are sales comps in the greater Atlanta area that are up to the 500,000 per unit level and they go all the way down to 30, 40, 50 thousand a unit, depending on what you’re talking about. So that’s where the subjectivity of pricing really comes into play.”

Fourth Quarter 2021 Predictions
Gabay said that during the fourth quarter of 2021, we are not going to see much change. He believes that those who are well established with good assets and good relationships, they will continue to have success, but for those new to the playing field, they may have some issues.

“I do think that for the newcomers coming to this space and the less well financed and capitalized firms are probably going to have a hard time getting deals,” said Gabay.

Johnson noted that he and other people in the seniors housing sector are trying to be hopeful. However, if the delta variant cases continue to rise, this could cause banks to pull back on lending.

“There’s a lot of hope by lenders and everybody that this summer and early fall is going to see big gains in occupancy across portfolios,” said Johnson.

Dole believes that the seniors housing sector will continue a status quo relative to where it currently is, but he is hopeful that the delta variant won’t cause too much ruckus in the sector because the economy survived through it last year.

“Everybody’s got the COVID-19 playbook from last year with these variants increasing. And so that gives the industry some confidence. You’ve been there, done that,” said Dole.

Pascoe said the stability of the seniors housing sector for the end of 2021 relies on consumer confidence. He has seen occupancy in seniors housing properties increase, and more and more families have come into seniors housing properties to visit their loved ones.

“Assuming that continues, things will continue to just progress and you’ll see a little more optimism continue to come in. But if you start to see local authorities come in and tell everybody that you can’t visit your families anymore, things are going to tighten up really quick,” said Pascoe.

— Julia Sanders

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