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2015 Senior Housing Forecast

2/24/2015

 
The US Economy grew faster in the Third Quarter posting the strongest six months of growth in more than a decade.  Many economists now believe that 2015 will be the year that the recovery shifts into a higher gear.  This optimism is also being felt in the Seniors Housing market.  Positive aging trends along with increasing inflows of debt and equity will continue to provide positive impetus for some time.  And Seniors Housing isn’t the only sector experiencing robust investment as sales volume for most commercial real estate property types have bounced back to near pre-recession levels, with pricing following suit.  Seniors Housing is very healthy today.  And we expect and are confident that 2015 will be another solid year.

Financing continues to be readily available especially for capable and experienced operators.  They continue to require more skin in the game and there better be operational cash flow or a reasonable expectation and detailed plan to see cash flow in the near term.  Rising interest rates continue to be forecast and on the horizon but for now they are still low by virtually any standards and have yet to exert much upward pressure on Cap Rates.

The Assisted Living sub-market, including CBRF’s and RCAC’s here in Wisconsin, has also shown strength in 2014 and we expect that to continue into 2015 and beyond.  The Genworth 2014 Cost of Care Survey indicated Wisconsin median monthly rate was $3850 for a one bedroom with single occupancy.  Rates are projected to grow 4% annually over the next five years.  With age creep being experienced by operators of all types of Seniors Housing, Assisted Living Facilities are caring for an increasingly frail population.  The prevalence of dementia in assisted living facilities is also increasing.

With the average move-in age at an assisted living community now ranging into the mid 80’s, that presents more than just care giving challenges.  Keep in mind that if the people moving in are more frail than in the past, while your existing residents are aging in place, then rates may not be keeping up with your costs.  Keep your eye on acuity creep, rate discounts and old rates otherwise you will find that your expenses per occupied unit rising faster than your revenues.

The Skilled Nursing sub-market continues to defy the odds by continuing to generate significant interest when properties come on the market.  Many apparently feel that the sector has a bevy of opportunities as the post-acute market evolves.  Most sales in the Badger State will average in the 12-13% Cap Rate range.  This has been remarkably resilient and in the same range for the past 20+ years.  Obviously newer or significantly remodeled homes with more amenities, larger homes with great locations, along with those with an impressive quality mix can push the Cap Rates lower. We’ve seen buyers paying up for newer homes and for high Medicare and Sub-acute census SNF’s and this is becoming more and more common over time.  As we saw in 2014, we project even more Mom & Pop sellers in the coming year.  The business has gotten increasingly complex.  With the increased oversight, regulations and documentations etc., it has simply become more challenging than ever for those with just one or two communities.

The Nursing Home sector continues to be challenged by a number of factors that include continued competition from assisted living for the private pay market.  In addition they will continue to be challenged by increasing acceptance of Medicaid waiver programs that funnel funding to alternative forms of care.  And there will be increased competition from inpatient rehabilitation facilities and long term acute care Hospitals for patients requiring rehab.

With regards to developing trends, nursing homes will continue to look for additional sources of revenue and continue to explore expanding into other lines of business.  Expanding ancillaries such as Therapy and Home Health care services will be priorities for some operators.  With fewer regulations and less exposure to reimbursement cuts, expect Hospice care to be an option for some as well. 

Other trends in Seniors Housing for 2015 (and beyond):

  • Increased ages and acuity in all settings
  • MCO’s driving care
  • ALF’s built in the 1990’s needing significant upgrades
  • More amenities in today’s designs including larger resident rooms, Internet Cafes, Pubs, Therapy Pools, and Movie Theaters to mention a few
  • Continued consolidation including in some Secondary Markets
  • Shorter hallways in today’s designs
 

Bottom Line Tip: Do you know how your Assessor defines Fair Market Value?  If you don’t you are likely paying TOO MUCH on your property tax bill.  This can be handled on your own or we can refer you to the appropriate professionals – at no risk to you.


Please consider LeClaire Commercial LLC for your SH brokerage or consulting needs
  • We create demonstrative value for you
  • We can create a competitive environment for your community
  • We serve as a buffer for difficult discussions with the buyer before and during negotiations and through the RE Closing process
  • Our experience allows you to focus on operating your business while we focus on the many and varied Sale details
  • We simplify the Sale process and thus increase the probability of a successful Closing
  • We ensure the highest levels of Confidentiality between the buyer, you and the general public

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