The growing activity of senior housing acquisitions may continue into 2020, being driven by low-interest rates and increased focuses on the creation of multi-brand portfolios and middle-market products.
It is this focus that is starting to drive more interest within the tertiary and secondary markets by big players, who are interested in these price points. Because of this, there may be an increase in competition and higher prices for any Class-B products.
This is based on the end of the year insights about the market, which was shared by 3 industry professionals, Mario Wilson from Helios Healthcare Advisors, Laca Wong Hammond from OREC Securities LLC and Ted Flagg from JLL Capital Markets.
Deals in Portfolios are Causing Inflating Cap Rates to Spread
According to Irving Levin Associates’ Elderly Home Purchase and Investment Report, the price of elderly homes reached a high of nearly $ 225,000 in 2017, with an average price per unit. Since then, prices have fallen, especially in the area of assisted living, which has fallen to $186,400 or 16% between 2017 and 2018, and even though some investors have stated concern about the rise in prices of certain assets.
Yet, in the 2017 fourth quarter, the cap rates rose steadily when it hit a nadir of 6.8%.
According to Irving Levin, this year, the percentage of housing capitalization rates for seniors in categories A (7.3%) and products in categories B and C (8.8%) differed by 150 basis points.
Differences include important transactions such as the sale of a $ 1.8 billion Welltower from its Benchmark Senior Living portfolio to private equity firm KKR in July, and a $ 1.8 billion Sales agreement had acquired an 85% stake of Canadian shares in June. Senior real estate developer and operator Le Groupe Maurice, Laca Wong-Hammond, general manager of M & A and acquisitions at OREC stated.
Except for the $ 1 billion agreement, it was also found that despite the influx of many wind direction markets, the prices and capitalization rates of Class A and B products have remained at a constant level in 2019. New supplies continue, labor costs and censuses have fallen and have continued these discounts.
The integration of factors is to maintain price stability, and the main factor is the historical environment of low-interest rates. On Wednesday, the Fed kept the 10-year US Treasury rate unchanged, making it fluctuate between 1.5% and 1.75%. Federal Reserve Chairman Jerome Powell predicted that there would not be any further cut interest rates for 2020. This makes investors more aggressive in quoting, which affects the capitalization rate.
Ted Flagg, JLL’s senior managing director of capital markets and co-director of a health care business, told Shanghai News Network that it is worth noting that the capitalization rate is no longer welcome because the capitalization rate is an assessment The main indicator of the negotiated price. In contrast, in most elderly housing transactions in 2019, the simplest unit price of elderly housing has replaced the capitalization rate as the main valuation indicator.
Class B Product Targeting for Middle Market Usage
In the future, two new macro-driving factors are expected to drive the revaluation of senior and non-essential housing hubs for the elderly. First, the demand for housing for the elderly in the middle market is compared with the demand for housing for the elderly. Flagg told Shanghai News Network that the latter would provide more opportunities for finding Class B capital.
The latest analysis by the National Center for Housing and Care for the Elderly indicates that by 2040, the elderly will need nearly one million new homes to meet the growing needs of the baby boomer generation.
Compared with the previous generation, this demographic will enter the living space for older people with fewer savings and more debt. Partner Mario Wilson, Marketing director and Founder of Helios, stated that the three major healthcare real estate investment trusts, such as Welltower, Ventas, and Healthpeak Properties, are seeking more acquisition and development opportunities in tertiary and secondary markets which had been based on trends in demographics.
An example of this market is where Foxconn, a Chinese electronics manufacturer, has built a larger plant in southeast Wisconsin, although this is considered controversial.
Wilson predicts that easy access to real estate investment trust funds (REITs) and a low-interest-rate environment will lead to the development of a secondary market.
But foreign capital, family office funds, core funds, and real estate investment trusts continue to show unlimited demand for Class A, opportunities for resistance to the recession, and high unit prices in high-rise city agreements will create pressure. As the market begins, the prices of traditional core products will rise. Flagg said that two products could be relatively ordered.
It is these investors that have been looking towards space for the middle market. A partnership was made between Welltower and Clover Management, which provided it with a platform for a growing middle market. Greystar and Carlyle Group then partnered within the middle market to create the Overture brand.
Another emerging trend and related trend in the value-added field is the influx of higher quality operators who have acquired second brands, which has entered them into the A and B fields.
Multi-brand play is largely built around different prices for different brands. However, some owners and operators have created separate brands based on other considerations, such as the level of attention.
The latest instance of this particular trend will be the acquisition of Blue Harbor Senior Living by Merrill Gardens, which operates in 13 states and has 21. Tana Gall, the incoming president, said Blue Harbor would become a mid-market brand for Merrill Lynch.
Merrill Lynch did not disclose the purchase price of the Blue Harbor portfolio previously owned by private equity firm Fortress. However, Flagg believes that the company’s leaders may have made a cunning calculation and noted that the company had previously sold a large number of high-quality B asset portfolios in 2013.
Other operators have pursued a multibrand strategy, which does include Eclipse Senior Living, who has launched a high-end brand Evoke, and this is in addition to their mid-market brands Embark and Elmcroft. The company Pathway to Living has succeeded with its Aspired Living brand, while the Azpira Place brand points to mid-market assisted living.
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