REITs slowing down – Is the Seniors Housing Market?

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sell assisted living

We all read the reports that REITs slowing down their investment in Seniors Housing and nursing homes but Is the Seniors Housing market? Clearly they have been driving the market for the past few years with billion dollar and multi-million dollar transactions . However, is the overall Seniors Housing market slowing down? I don’t think so.

The dollar volume and mega portfolio transactions might be off from the record years, but the overall market is thriving.

The Real Estate Investment Trusts (REIT) heavy in nursing homes and assisted living have been met with record pricing.  In addition, their cost of capital has increased.  Both these factors have led to the REITs slowing down their activity.  Consequently, we have seen an adjustment in pricing.  Pricing might have adjusted slightly down, but it still remains near record levels. The average price-per-unit for Seniors Housing in the first quarter stood just under $170,000 per unit. That is a 5% quarterly decline and approximately 1% lower than the average price-per-unit of 2015.  This adjustment in pricing has created opportunity for buyers, not using REITs, to acquire communities.  If you have been trying to buy nursing home or buy assisted living, now is your time.  Interest rates are still at historic lows.  Lenders have capital and are aggressively looking to place it, especially in long-term care and Seniors Housing.  So, if you have thought about sell assisted living or selling nursing home, contact Senior Living Investment Brokerage to match you up with the thousands of active buyers we are in contact with on a regular basis.

I believe 2016 is going to be the year of the nursing home and individual sales of assisted living.  Nursing homes are still trading between 12%-13% capitalization rates and the cost of capital is in the 3%-5% range.  This offers significant opportunity.  Over $100 billion of nursing home assets across the United States are still privately owned, prime for acquisition.

If you have thought about buy or sell assisted living or buy or sell nursing home, contact Ryan Saul to discuss your options.

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Minimum Wage Increase to Hurt Seniors Housing Investment?

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Increasing the minimum wage will obviously have an impact on the overall economy. Senior Living Investment Brokerage, Inc. is concerned with how such an increase will change the nursing home and senior living market. It is competitive for quality staff. If minimum wage increases will workers making the same money choose a job in the restaurant or retail industry with very little stress or will they choose to care for the most frail people with extreme responsibility, stress and demands?

Owners will need to increase expenses to take care of residents while the rents and reimbursement have been slow to increase.  The increase in minimum wage is one thing, the shortage of quality workers is another.  Owners will need to find the right mix between paying a living wage and remaining affordable to residents.  Applying this strategy will help keep quality staff and a good reputation.  If you take care of employees and you take care of residents, the bottom line should take care of itself.

If you are fed up with the constant changes in the assisted living, memory care and nursing home business and want to sell, please contact Ryan Saul for a confidential discussion about how to sell nursing home or sell assisted living.

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How Do Rising Interest Rates Impact the Value of my Senior Living Community?

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Over the past several years, interest rates have remained extremely low.  The 10 year US Treasury rate (a common benchmark for financial instruments) reached an all-time low in July, 2012, at 1.53% and today is around 1.8%, the Federal Funds Rate has been close to 0% for years and the Fed made its first rate increase this past December.   The 10 Yr Treasury hit an all-time high in August, 1981, at 15.32% and has averaged 4.64% since 1870.   Thus, there is a high likelihood that interest rates will increase as they revert back to the historic mean.

Interest rates are a measure of an investor’s desired rate of return.   An interest rate, or a rate of return, is made up of three components, risk, inflation, and time value of money (allowing someone else to use your money).   The theoretical risk free investment is a US Treasury or FDIC insured savings account/CD.   Thus, all other investments can be benchmarked by these indexes.  The greater the perceived risk of an investment, the greater the spread, or “risk premium”, will be for that investment over the US Treasury.   Today, average capitalization rates (rates of return/risk premium) for assisted living facilities are around 7.5%, or about 500 basis points above the 10 US Treasury.   This is the risk premium investors place on assisted living versus the alternative of investing in a “risk free” US Treasury bond.   When the rates increase on US Treasury bonds, typically cap rates increase on senior living communities (or any investment), assuming the risk premium stays the same.

To determine the value of a senior living community, the Net Operating Income (NOI) is divided by the Cap Rate.

Net Operating Income (NOI) /Cap Rate = Value  – (the higher the cap rate, the lower the value).

Thus, as interest rates, and cap rates increase, values go down.  Below are several examples:

NOI = $600,000, Cap Rate = 7%, Value = $8,571,429

NOI = $600,000, Cap Rate = 8%, Value = $7,500,000

NOI = $600,000, Cap Rate = 9%, Value = $6,667,000

As you can see, for every 1% increase in the cap rate, the value drops by over 11%.   Thus, if interest rates continue to rise over the next several years, it could dramatically affect pricing.   If an owner has a desire to sell their community anytime in the next several years, now might be an opportune time.

For a complete analysis on how interest rates can affect your community’s value, both now and in the future, contact Jason Punzel, Senior Living Investment Brokerage, INC, at 630-858-2501 x 233 or [email protected]

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Broker nursing homes and assisted living

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Senior Living Investment Brokerage, Inc. is the preferred choice to broker nursing homes and assisted living.  Many in the industry are asking me what I expect to happen in 2016.  At one point, I thought pricing and number of communities sold would be flat or even down compared to years past.  However, January and February were record months for requests for proposals.  Senior Living has completed more proposals for clients in the first two months of 2016 than the first two months of any other year.  Those proposals will likely lead to listings and new inventory to sell.  What does this mean for you?

If you are buying nursing homes or assisted living, expect a wave of opportunities to come in the coming months.   If you are looking to sell a nursing home or assisted living, act now before the market changes.  There is still capital available and buyers looking to acquire communities.

Please contact Ryan Saul (630-858-2501) to learn more about what we have for sale or to discuss a confidential proposal to find out what your nursing home or assisted living community is worth.

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