The National Investment Center for Seniors Housing and Care held its 25th national conference in National Harbor, Md. last week, spotlighting a sector that has been gaining in prominence among lenders, investors and developers over the past few years. Here are some takeaways from the event’s panels.
- In spite of favorable demographics and a strong success record, seniors housing development is not a risk-free bet. During a panel on “Development: Feasibility to Failure to Future Success,” panelist Kathryn A. Sweeney, co-founder and managing partner of Blue Moon Capital Partners, warned that occupancy in the seniors housing sector went down in the first quarter of 2015. “It looks like there was pent-up demand until this year. We are starting to see plateauing or declining occupancy, so you’ve got to be mindful.”
- Developers shouldn’t assume that just because they are building in a primary market that their project is guaranteed to hit its occupancy goals. Some markets can have attractive demographics, but low barriers to entry with an over-abundance of new supply. “There are nuances in every market,” the panelists stressed.
- Above all, keep leverage low on new development. “You have to make your [project] models dynamic so they can handle [rent] discounts and all of those costs that creep up on you,” said Kurt Read, principal of RSF Partners, a real estate private equity firm. “I am a huge proponent of lower leverage on development and then, if you are successful, you can lever up. If you lever up from the beginning, you are not going to be flexible.”
- Looking to the future, keep in mind that Baby Boomers will want a very different model of seniors housing than their parents, according to Lindsey Mosby, executive director of innovation strategy group and healthcare practice lead at frog, a global design and strategy firm. The emphasis will be on flexible and at-home care, rather than on the existing institutional care model. “Assisted living/skilled nursing will go the way of the newspaper industry,” Mosby said—meaning, people will still need those services, but will receive them in a new way.
- On the financing side, lenders are giving preference to seniors housing developers who are also operators, noted Aron Will, senior vice president with CBRE. “Track record in operating is incredibly important.” “It’s critically important,” seconded Kevin Maddron, COO and CFO of CNL, a private investment management firm. “Healthcare real estate is an operating business.”
- Seniors housing assets are also no different than most commercial real estate assets in that core assets in primary markets are so pricey many investors find it difficult to go after them. Instead, many buyers are looking for off-market transactions. For example, Och Ziff Real Estate, an alternative asset manager, tries to find properties owned by “small mom-and-pop operator/owners, where we have an opportunity to do a turnaround and sell it to an institutional buyer,” according to Nicole Sermier, managing director. In fact, that’s the kind of opportunity that can be found much more frequently in the seniors housing sector than in other commercial property sectors, Sermier notes.