Seniors Housing Investors Are Ready to Switch to Acquisitions Mode, Say InterFace Panelists

by Jeff Shaw

LOS ANGELES — In 2023, particularly in the second half of the year, a combination of forces slowed property sales to a crawl in the seniors housing sector.

Amy Sitzman, executive managing director of seniors housing and care at Blueprint Healthcare Real Estate Advisors, laid out the laundry list of challenges.

“The bid-ask spread conversation really has everything to do with what’s gone on in the market the past year and a half,” she said. “It has been trying for everybody dealing with interest rate hikes, inflation, operations, staffing challenges, expenses going out of control, the minimal lack of stabilized assets out on the market. We’re just trying to get our head around the value of assets today.”

Sitzman made her comments as moderator of a panel titled “Investment Outlook: When Will the Bid-Ask Gap Narrow and Transactions Resume in Earnest?” at France Media’s InterFace Seniors Housing West conference, held Feb. 1 at the Omni Los Angeles. Speakers at the session included Michelle Kelly, senior vice president of investments, NHI; Darrin Smith, executive vice president of Investments, Sabra Health Care REIT; Bryan Schachter, chief investment officer, Watermark Retirement Communities; and Clint Malin, co-president and chief investment officer, LTC Properties.

While the panelists all agreed that the challenges in 2023 were real, they all expressed strong optimism that 2024 would be a new year for investment.

“Selling assets in the first half of 2023 was much easier than selling at the end of 2023,” said Malin. “We experienced banks backing out at the last minute, so that was a unique situation that we haven’t encountered in awhile. It was choppy.

“But also we had some opportunities with the banking challenges. We were able to convert some of our mezzanine and preferred equity investments into buying into the senior loan. You had non-dedicated banks in the space that wanted to exit, and we were able to step in and convert that, really partner with the operators to bring a solution to the table.”

Malin predicted that REITs in particular will have a strong 2024. As interest rates remain high, he said, those with liquid cash will be in the driver’s seat for acquisitions.

“For 2024, from my perspective, it depends who has dry powder and who doesn’t. The banking market isn’t going to get easier. Those who have dry powder are going to have opportunity in front of them.”

Kelly agreed that 2023 was “generally a pretty quiet year on the transaction side,” despite NHI looking at a comparable number of opportunities as previous years. “There were a lot less that made sense,” she said.

The REIT spent 2023 making strategic dispositions and operator transitions within its portfolio, all to set the table for much more buying in 2024.

“We’ve cleared the decks of some of the asset management we’ve been working on over the last couple of years. The dispositions are basically behind us,” she said. “We’re starting to see more deals come across our desk that make sense. We’re more optimistic that this year we’re going to get true acquisition activity as well as take advantage of some of the lending opportunities that might come our way.”

Smith said that 2023 was a similar year of asset management for Sabra. The company sold $250 million in properties while acquiring only $110 million in 2023, and more than three quarters of the acquisitions volume was via “direct, off-market opportunities that were brought to us.”

“Between the bid-ask spread, you saw a lot of sellers in the market who were needing to sell or really wanting to sell, but they were not comfortable coming to grips with the change in pricing,” said Smith. “That’s changed in the past couple months. You used to see a low 6 to a sub-6 percent capitalization rate, but it is probably 7-plus right now. The market’s definitely moving toward the buyers.”

Schachter, serving “as the lone operator” on the panel, said Watermark has been in development mode since 2015, and the projects should all be delivered by mid-2024. Now that cap rates are on the rise and the new buildings are being delivered, he said it’s also time for Watermark to switch its resources over to acquisitions.

“I would expect us to get a bit more active on the acquisitions side and continue to navigate some management transitions,” said Schachter. “Though we are keeping some irons in the fire on development, primarily on the West Coast in areas where we can hit the ground running when things improve.”

Sitzman summed up the investors’ attitudes on 2024 very succinctly: “Everybody’s ready to jump back in.”

— Jeff Shaw

You may also like