Senior Housing community

Have Senior Housing prices peaked?

Recently, I spoke at the Washington Healthcare Association’s (WHCA) annual conference. I have spoken there three times on the general state of the senior housing and skilled nursing sales market. For the first time, I had to say that the data shows that pricing has peaked. According to the National Investment Center (NIC), prices peaked in mid-2015. As a firm, Senior Living Investment Brokerage, Inc. sells 90+ facilities each year and we have a very good pulse on the market. Our data would support this conclusion. On a facility that we would have received six offers a year ago, we now might receive four. Prices seem to be down approximately 5%. However, when analyzing pricing over the past six to eight years, today’s prices are still very good.

The million-dollar question (quite literally!) is, where is pricing going in the future? Prices are still very good and there are still many buyers with plenty of access to capital. However, the Federal Reserve has come out recently talking about increasing rates again, which could push up the rate on the ten-year treasury, increasing borrowing costs. If interest rates continue to rise, we could see a further decline in pricing. However, we don’t see a dramatic decline in the next 6-12 months. There are too many good buyers with plenty of capital to invest. Occupancy is steady and new construction in most markets is not out of line. Beyond 12 months, it is very difficult to predict and prices could change much more. For any owner thinking about selling in the next several years, now might be a very good time.

For a market valuation on your senior living or skilled nursing facility, please contact Jason Punzel at [email protected] or Joy Goebbert at [email protected], 630-858-2501.

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Is the Market at its Peak in Seniors Housing?

December 10, 2015/in assisted living, assisted living community, buy assisted living, cap rate, Capitalization Rate, cash flow, independent living, interest rate, internal rate of return, Jason Punzel, nursing home price, private equity, sell assisted living, sell nursing home, senior housing brokerage, Senior Housing community, senior housing sales, Senior Living Investment Brokerage, Washington, what is my assisting living worth/by ryanmsaul

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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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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Ryan M Saul