Sponsored by KeyBank Commercial Real Estate
By Monique Bimler
A confluence of demographic and economic trends continues to propel the seniors housing healthcare industry from a specialized cottage industry to a booming business. Despite some fears about the economy in general, industry insiders don’t see any signs of a slowdown in this specialized portion of the real estate world.
Twenty years ago, seniors housing, which includes independent living, assisted living, skilled nursing and memory care facilities, was seen as a cottage industry, dominated by mom-and-pop developers. It was highly fragmented and lacked access to capital and institutional investment. Today, it’s an attractive sector for capital providers and developers alike. Despite progress, this business still has room to grow, as the baby boomers have yet to reach the peak years when they will need to access healthcare facilities and other seniors housing. These specialized seniors housing facilities are by nature viewed differently than traditional real estate. Financing them is different because the operating business is an integral component of the overall investment strategy. These properties are not simply a place to live; they provide specialized amenities and care for residents’ physical and mental wellbeing. From a financing and investment standpoint, banks must evaluate developers and investors, and the prospective operators of these businesses to ensure they are working to maximize value.
Growth mode: Experts agree that healthcare finance is in growth mode. If you’re building or acquiring, you have access to a larger pool of lenders than ever before. On the acquisition side, lenders are providing a variety of debt options from short-term bridge loans to permanent financing to get deals done. Fannie Mae, Freddie Mac and FHA/HUD offer financing options, as well as CMBS and life and pension funds. The industry itself has helped draw institutional investment, including foreign investors, to the sector, through the National Investment Center for Seniors Housing & Care (NIC).
Potential 2017 challenges: Rising interest rates are on everyone’s minds, but because the rate increase has been on the horizon for several years, institutional investors and lenders have had time to prepare. The increase in rates on the debt side has not yet translated into changes in pricing on the acquisition side because of the amount of competition. However, another 25 or 50 basis points increase in yields may affect whether this volume continues or begins to slow.
Opportunities await: Growth in the seniors housing market presents opportunities for developers, investors, and institutions, and with consumer demand poised to increase as baby boomers age, this growth shows no signs of slowing down. An integrated approach, including debt, equity, advisory services, arranging permanent healthcare property financing, syndicated loans and agency financing can make the complex arena of healthcare finance grow clearer and result in attractive returns for all parties.
This document provides general information only and is not comprehensive nor is it legal advice. Banking products and services are offered by KeyBank National Association. All credit products subject to credit approval. Key.com is a federally registered service mark of KeyCorp. ©2017 KeyCorp. KeyBank is Member FDIC.
Read more about this topic at www.key.com/corporate/knowledge-center/industry-exclusive-insights/2017-outlook-for-seniors-housing.jsp.
Monique Bimler is vice president, senior mortgage banker at KeyBank Commercial Real Estate.
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