While the economy continues to show signs of improvement, albeit slower than most of us would prefer, the economy is getting better. So too is the Senior Housing market, that has been recession resistant, but definitely not recession-proof. The graying of America (thank you Boomers) will lead to strong growth in demand over the next two decades. These aging trends along with increasing inflows of debt and equity will provide positive impetus for the foreseeable future. In many communities the average age is already above 80, and many providers indicate that their average age has been climbing over the past several years. Occupancies and rent levels should continue to improve much as they have done in 2013 as the demand for senior housing units is increasing thanks to an improving housing market. Before we get too giddy, there are still many challenges on the horizon. While the Great Recession has ended, the US Census Bureau reported in September that median household income, adjusted for inflation, is still down 8.3% from 2007 (when the economy began to contract). The long and the short of it is that the improving economy has so far failed to improve the lot of many households. Still we are confident that 2014 will be a solid year.
Financing seems to be again readily available to experienced operators where HUD (mostly skilled nursing) as well as Fannie Mae and Freddie Mac in the assisted and independent living markets are quite active. As to higher interest rates, they are still low by historical standards and have yet to exert much upward pressure on Cap rates.
The Skilled Nursing Facility market has been remarkably solid over the 20+ years that I have been selling facilities in the Upper Midwest. There have been a few pauses during recessions, credit crunches and with reimbursement changes over the years. But these were only temporary and strong demand for Nursing Homes continues. Most sales in Wisconsin will average in the vicinity of a 13% Cap Rate and has done so over the past 20+ years. Special circumstances can vary this somewhat but generally not dramatically. Newer (or recently remodeled), larger facilities with great locations and with an impressive quality mix can push the Cap Rate lower however. We also expect to see more Mom & Pop sellers next year as it is becoming more challenging to compete and the business has become more and more complicated. Everything from regulations, documentation, you name it…has gotten more complex.
The Assisted Living market, including CBRF’s and RCAC’s in Wisconsin, has been strong as well. Portfolios of multiple high-quality properties in the same or contiguous well-located markets have been demanding near record pricing. Real Estate Investment Trusts, or REIT’s for short, are driving this pricing and consolidation due to their inherent low cost of capital. As long as interest rates remain low, REIT’s will have plenty of cash to spend on these sizeable acquisitions. At times making other investors feel like they’re getting crowded out of the market except in the cases of one-offs and smaller facilities. These institutional investors have been outspending everyone of late. With interest rates increasing, we expect more regional and private buyers to become more of a factor in the acquisition market in 2014 and beyond.
As to developing trends, nursing homes continue to look for additional sources of revenue and are branching into other lines of business. Many are expanding into home health care services. In addition, some are looking into other services including hospice care, counseling and pharmacy units. Expect to see more specialty care units as well.
Other trends in the Senior Housing markets for 2014 (and often beyond):
1. Increased acuity in all settings
2. Managed Care Organizations driving care/results
3. More older facilities in the marketplace needing significant upgrades
4. Shorter hallways in new developments
5. Financing underwritten as much by evaluation of the management team as by the P & L
6. More consolidation, even in smaller markets
Financing seems to be again readily available to experienced operators where HUD (mostly skilled nursing) as well as Fannie Mae and Freddie Mac in the assisted and independent living markets are quite active. As to higher interest rates, they are still low by historical standards and have yet to exert much upward pressure on Cap rates.
The Skilled Nursing Facility market has been remarkably solid over the 20+ years that I have been selling facilities in the Upper Midwest. There have been a few pauses during recessions, credit crunches and with reimbursement changes over the years. But these were only temporary and strong demand for Nursing Homes continues. Most sales in Wisconsin will average in the vicinity of a 13% Cap Rate and has done so over the past 20+ years. Special circumstances can vary this somewhat but generally not dramatically. Newer (or recently remodeled), larger facilities with great locations and with an impressive quality mix can push the Cap Rate lower however. We also expect to see more Mom & Pop sellers next year as it is becoming more challenging to compete and the business has become more and more complicated. Everything from regulations, documentation, you name it…has gotten more complex.
The Assisted Living market, including CBRF’s and RCAC’s in Wisconsin, has been strong as well. Portfolios of multiple high-quality properties in the same or contiguous well-located markets have been demanding near record pricing. Real Estate Investment Trusts, or REIT’s for short, are driving this pricing and consolidation due to their inherent low cost of capital. As long as interest rates remain low, REIT’s will have plenty of cash to spend on these sizeable acquisitions. At times making other investors feel like they’re getting crowded out of the market except in the cases of one-offs and smaller facilities. These institutional investors have been outspending everyone of late. With interest rates increasing, we expect more regional and private buyers to become more of a factor in the acquisition market in 2014 and beyond.
As to developing trends, nursing homes continue to look for additional sources of revenue and are branching into other lines of business. Many are expanding into home health care services. In addition, some are looking into other services including hospice care, counseling and pharmacy units. Expect to see more specialty care units as well.
Other trends in the Senior Housing markets for 2014 (and often beyond):
1. Increased acuity in all settings
2. Managed Care Organizations driving care/results
3. More older facilities in the marketplace needing significant upgrades
4. Shorter hallways in new developments
5. Financing underwritten as much by evaluation of the management team as by the P & L
6. More consolidation, even in smaller markets
RSS Feed
