Improvements in available equity capital, occupancy growth and dominance of transactions by REITs headlines the 22nd National Investment Center (NIC) National Conference held from Sept. 19-22 at the Sheraton Chicago Hotel and Towers.
Attendance was capped at 2,000 senior housing professionals, and that many packed the conference, according to NIC President Robert Kramer. “It’s the largest crowd we ever had, and we saw increases of attendance of new debt and equity participants,” Kramer says. “The mood was definitely more upbeat as people noticed that a lot of operators are now thinking about growing through acquisition or new construction. There’s a lot banks back in the market, though they would prefer to work with experienced operators.”
The big talk of the conference was last month’s announcement by Toledo, Ohio-based Health Care REIT Inc. that it will buy McLean, VA-based Sunrise Senior Living Inc. The move is just another example of trusts acquiring and standing up significant operating platforms, Kramer said. “It was a significant conversation topic at the conference, especially people trying to figure out the whole deal,” he said. “It’s been quite a story with Sunrise, which at one point looked like it would not be able to escape bankruptcy. There’s been a strong case, including by one of our CEO panels, of why the trusts want to own their own assets.”
"The mood at NIC was encouraging as the seniors housing industry is poised for accelerated transaction activity in the fourth quarter and into the first half of 2013", says Mel Gamzon, president of Ft. Lauderdale-based Senior Housing Investment Advisors, a national real estate advisory. "Investors at the NIC conference were enthusiastic about both value-add and core investment opportunities. The pace of new construction, which is still limited relative to the demand, will be dependent on the economic recovery and the availability of construction financing. Many people felt that repositioning older properties will become increasingly important as the new year unfolds."
At the conference, Kramer’s group also released its second installment of the NIC Investment Guide, showing that senior housing properties have outperformed all other commercial real estate investment returns for the past eight years. To gather data for the guide, the NIC partnered with National Council of Real Estate Investment Fiduciaries (NCREIF) and Real Capital Analytics.
According to the NCREIF Property Index (NPI), a measure of commercial property returns, senior housing have generated an annualized return of 14.7 percent since the fourth quarter of 2003, compared to an annualized return of 7.8 percent for the apartment index and 8.1 percent for the overall index. “The trusts with a large senior housing portfolio, such as Ventas and Health Care REIT, are attracting a lot of investor attention,” Kramer says.
Demand is also on the rise, especially in the memory care sector, Kramer said. New construction should start to pick up, he said, and will start to impact inventory levels in early 2014. Until then, existing inventory will push occupancy back to 2006-07 levels, he said. “We did have economist Robert Shiller put things in perspective at the conference, definitely coming down on the ‘be cautious’ side,” Kramer said. “Basically, he referenced that this is the fourth time that we’ve had a mini-recovery, and another dip is possible. We want to see a full year of strong recovery, something we haven’t seen yet.”
David Schless, president of the American Senior Housing Association, says while he was at the NIC conference, he agrees with projected increases in occupancy and potential new construction. However, he says that though demand should continue to increase every year getting closer to the baby boomer era, there’s still a number of reasons why seniors are not taking more advantage of elderly housing.
“The single family home market is still a drag on business,” Schless says, in that seniors have a hard time selling their home to gain access to needed capital for housing. Other investment problems have also caused issues, he said. “You have your typical 85-year-old who wants to generate return on investments such as certificates of deposit, but these low rates are having an impact on quality of life and planning, and is another definite source of concern.”