nursing home price – Ryan M Saul

Is the Market at its Peak in Seniors Housing?

For the first time in many years, we have started to hear buyers, lenders and operators start to question whether the market peaked. Commercial real estate in general, and Seniors Housing specifically, both have seen increases in value since the trough of the market in 2009-2010.

Cap rate trends are a good way to follow the market. Cap rates vary widely, but according to the latest report from Irving Levin & Associates, the average cap rate for the 12 months proceeding Oct 1, 2015 for Independent Living was 7.2%, Assisted Living was 7.8% and Skilled Nursing was 11.8%. Overall, the cap rates were steady, or had dropped slightly from the end of 2014.

Cap rates, and thus real estate values, tend to correlate closely to interest rates. This is not only because most buyers use some type of leverage on the properties, but even more so, interest rates are a base rate of return that all investors use to evaluate all types of investments. We have seen many new investors start to invest in the Seniors Housing market over the past several years because the cap rates were higher than in other types of income producing real estate. Many saw it as an opportunity to achieve better returns.

Couple this with short term interest rates near zero percent and the 10 year US Treasury around 2-2.3%, and there is little room for rates to go lower. Thus, there is little room for cap rates to go lower as far as being correlated with general interest rates. Currently, it does not appear that the Federal Reserve will be dramatically increasing interest rates anytime soon, there is certainly a lot more room for interest rates to go up than down.

However, cap rates remain higher in Seniors Housing than many other types of real estate and income producing assets. To the extent that investors continue to divert money from other investments into Seniors Housing. Cap rates could still go lower, pushing prices higher. Nonetheless, with the amount of new investors that have entered the industry in the past several years, it is doubtful that a significant amount more new investors will continue to enter this industry causing a further compression in cap rates.

If the net operating income of an asset goes up, or down, prices will likely also go up, or down, with cap rates staying the same. Given relatively low inflation and a surge in new construction, it is doubtful that net operating income will increase dramatically in Seniors Housing over the next several years.

Overall, we believe the main driver for increased values going forward will be an increase in net operating income, not a further compression in cap rates. While net operating income in Seniors Housing could continue to grow, it will probably be at a slower pace. Cap rates have more room to go up than down. Though given relatively low inflation and a slowdown in the global economy, it is doubtful that an increase in rates will happen at a fast pace anytime soon. The combination of these factors will mostly likely lead to Seniors Housing prices staying relatively stable, but with a risk of a decrease if interest rates increase faster than expected.

If you believe now might be a good time to sell your Seniors Housing Community, please contact Jason Punzel at [email protected] or 630-858-2501 for an in depth analysis of what your community might be worth.

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Matthew Alley Speaks at InterFace Seniors Housing Texas Conference

November 20, 2015/in Alzheimer's, assisted living community, assisted living price, assisted living sale, buy assisted living, buy nursing home, cap rate, Capitalization Rate, CCRC, development, due diligence, exclusive listing, financing, independent living facility, internal rate of return, long term care, market, Matthew Alley, memory care, new construction, nursing home price, prepare to sell assisted living, prepare to sell nursing home, private equity, proposal, REIT, risk, sell assisted living, sell CCRC, sell long term care, sell memory care, sell nursing home, sell portfolio, sell retirement community, sell seniors housing, sell skilled nursing, sell to REIT, senior housing brokerage, senior housing sales, Senior Living Investment Brokerage, seniors housing brokerage, SLIB, Texas, valuation, what is my assisting living worth, what is my nursing home worth/by ryanmsaul

On November 19th, I participated in a panel entitled “Investment Market Update: Who’s Buying, Who’s Selling & Will Velocity Keep Going Up and Cap Rates Keep Going Down”. We had a lively discussion on the current market, and I wanted to share a few takeaways.

1. Who are the active buyers and sellers in today’s market? There is more variety in buyers now than in the past decade. REITs, private equity, owner-operators and even some “mom and pops” have been interested in purchasing properties and growing their portfolio. The sellers have been more diverse than normal as well. “Mom and pops” are still very active sellers, but we have seen more regional and national owners look to take advantage of the strong market and either sell their entire portfolio or divest of a couple of properties that don’t match their strategic vision.

2. Are there different buyers for different seniors housing asset classes? Yes, absolutely. Institutional groups typically chase larger, higher quality assets with consistent cash flow. Their low cost of funds has driven owner-operators down the acquisition spectrum to the smaller assets that may be underperforming.

3. What are the most important metrics that buyers are using in today’s market? Cap rates are the most important metric when valuing a cash flowing property. The difficulty comes in valuing a property that is underperforming. In those cases, a potential new operator will put together a pro forma and land on a rate of return that they’re comfortable with. Those deals typically see a wide range in offer prices.

4. What is the optimal size for acquisitions? Typically, the larger the offering, the better. Institutional groups have a lot of equity to deploy and if they can deploy it in 10 $30 million transactions as opposed to 25 $10 million transactions, groups will typically prefer fewer transactions. One-off or small portfolio transactions have a different pool of buyers, which tends to be less institutional and requires a broker to have a greater knowledge of the individual market and its individual buyers.

5. With pricing so strong in today’s market, why are some owners making a decision to hold? The current market conditions have hastened the timeframe for owners that had a planned exit strategy in the next 12-24 months. That being said, some owners are trying to increase their portfolio’s profitability and increase value in that way. Even if cap rates see a modest increase, a major increase in profitability will still see the owner come out ahead by waiting to sell.

6. Should we be concerned about overdevelopment in the seniors housing space? I think it is the biggest risk to the acquisition market moving forward. This is obviously a market-to-market (and sometimes, submarket-to-submarket) risk. If the area that an owner has a seniors housing facility becomes overdeveloped in the future, census levels will obviously suffer and valuations will go down.

7. What does the increase in development do to cap rates moving forward? It adds a level of risk moving forward. Anything that adds risk – whether it be development, reimbursement or labor risk among others – will naturally push cap rates up.

8. Where do you see the market headed over the next 12-24 months? In the near-term, it should be strong – cap rates are still higher than most other asset classes, interest rates are low and institutional equity needs to be placed. Further into the future, overdevelopment, government reimbursement changes, interest rate increases, increased regulation, increased tax rates and the housing market could cause a bit of a pullback in pricing. That being said, I still think the seniors housing space is better equipped to handle this uncertainty than other asset classes.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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When is the best time to list a seniors housing or nursing home community?

September 17, 2015/in Alzheimer, Alzheimer's, assisted living, assisted living community, assisted living price, assisted living sale, buy assisted living, buy nursing home, cap rate, Capitalization Rate, CCRC, closing costs, confidentiality, development, due diligence, exclusive listing, independent living, independent living facility, Lesley Arlasky, long term care, market, Matthew Alley, new construction, not-for-profit seniors housing, nursing home, nursing home price, operating margin, prepare to sell assisted living, prepare to sell nursing home, private equity, proposal, residential care facility, sales process, sell assisted living, sell CCRC, sell long term care, sell memory care, sell nursing home, sell portfolio, sell retirement community, sell seniors housing, sell skilled nursing, sell to REIT, senior housing, senior housing brokerage, Senior Housing community, senior housing sales, senior living, Senior Living Investment Brokerage, seniors housing, seniors housing brokerage, Skilled Nursing Facility, SLIB, Texas, valuation, what is my assisting living worth, what is my nursing home worth/by ryanmsaul

I’m often asked when is the best time of year to list a seniors housing or nursing home asset? We are all used to residential real estate agents telling us to list in the Spring while the weather is starting to change (at least for us Northerners).

Does it matter for seniors housing communities?

Yes and no. While there is not the seasonality in the seniors housing market as there is in the residential market, there are good and less optimal times for getting buyers’ (even institutional buyers’) attention.

I would argue that we are entering into one of those sweet spots as we get into the middle of September. Typically, Senior Living Investment Brokerage, Inc. has its highest volume of listings in September and early October.

Why is that?

During the Labor Day / beginning of October time frame, Buyers have made it through the Summer and are looking to deploy capital before the end of the year. They are hoping to make one last push to meet their aggressive beginning of the year expansion goals.

With a typical 3-4 month closing period, now is as good of a time as any to consider listing your property with Senior Living Investment Brokerage, Inc. We can help you procure the right Buyer, who can close the transaction prior to year-end. Many Buyers are looking to “get money out the door” by December 31st and this may give you an advantage in coercing those groups into making a more aggressive bid than they would in the middle of the year.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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How additional sources of funds are impacting the seniors housing market

June 12, 2015/in Alzheimer, Alzheimer's, assisted living, assisted living community, assisted living price, assisted living sale, buy, buy assisted living, buy nursing home, cap rate, Capitalization Rate, cash flow, CCRC, Dementia, financing, hud, independent living, independent living facility, interest rate, Lesley Arlasky, long term care, market, Matthew Alley, memory care, nursing home, nursing home price, prepare to sell assisted living, prepare to sell nursing home, private equity, proposal, sell, sell assisted living, sell CCRC, sell long term care, sell memory care, sell nursing home, sell portfolio, sell retirement community, sell seniors housing, sell skilled nursing, sell to REIT, senior housing, senior housing brokerage, Senior Housing community, senior housing sales, senior living, Senior Living Investment Brokerage, seniors housing, seniors housing brokerage, Skilled Nursing Facility, SLIB, Texas, valuation, what is my assisting living worth, what is my nursing home worth/by ryanmsaul

Over the past couple of years, we have seen capitalization rates (defined as Net Operating Income divided by Purchase Price) drop steadily to historically low levels, which in turn has led to purchase prices being driven upwards.

Now is the time to take advantage of this market and either exit the business through a sale entirely or divest of a few properties from your portfolio that do not fit with your current strategy.

Why is the market so strong right now? More so than any other factor, the market has been impacted by the increased availability of capital (both debt and equity) and the low cost nature of said capital. Interest rates are still at historically low levels, and while rates may creep up a bit, most analysts expect a measured increase.

During the Great Recession, transactions were mainly financed by three different methods: (1) all cash; (2) HUD financing; or (3) mostly public REIT financing. Community banks were only lending to their best clients on the most conservative of terms, and there were not a great deal of smaller, private REITs or private equity firms willing to support the acquisition of seniors housing facilities.

Over the past couple of years, community banks have become more aggressive as they are sitting on a large reserve of cash that they need to deploy and there has been a growth in the private REIT space. According to investment banking firm , Robert A. Stanger & Co., and reported by Seniors Housing Business, a handful of non-traded REITs devoted to seniors housing have amassed $6.4 billion in equity over the past few years. The availability of these capital sources has had a huge impact on the seniors housing acquisition market in the form of increased pricing.

The most recent example of this was a $30M nursing home portfolio that Senior Living completed in Texas. It was purchased by an independent, regional owner-operator and financed by a community bank out of Louisiana. Until recently, that size of transaction would have been almost certainly REIT financed or purchased by a large, national owner-operator.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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