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Transparency in Seniors Housing Still a Work in Progress.

CHICAGO — A lack of financial transparency could prevent the seniors housing market from reaching its full potential as a real estate asset class, warns economist Dr. Peter Linneman. The veteran professor at the Wharton School of Business also urges owners and operators to go back to the drawing board to develop a more compelling storyline to attract investors to the sector.

“Make it easy for new entrants,” remarked Linneman during a speech Thursday in Chicago before several hundred attendees of the 18th Annual National Investment Center for the Seniors Housing & Care Industry Conference. “Obviously, most of you have been in the business awhile. You have the problem that you understand the business. You forget that the money that’s coming in doesn’t necessarily understand it.”

While it remains a challenge to obtain cap rates, sale prices and other important transaction-based data on seniors housing properties, that information is readily available for all the other major property types.

“The whole point of transparency is that clear, consistent and necessarily simple information is available to everybody,” says Linneman, who embraces the KISS principle: Keep It Simple Stupid. “For example, buyers and equity providers and operators all have access to the same information. Everybody has to have access to the same information and be able to vet one another on it.”

The leadership team of NIC commissioned Linneman to conduct a transparency study. During the last year, he visited several seniors housing properties, reviewed company financial statements and interviewed a variety of investors. He also conducted extensive interviews with NIC officials.

The senior housing industry’s lack of sufficient information on returns earned it a “D” letter grade from Linneman. By comparison, the hotel and multifamily industries received letter grades of “B” and “B+” for their data on returns.

Why all the fuss over the quality and quantity of data? Increased transparency boosts the flow of capital into the industry and at the same time lowers the cost of capital because the premium risk is minimized, real estate experts say.

The seniors housing industry is about 10 to 15 years behind the other property sectors on some reporting levels, says Linneman, but progress is taking shape. NIC, for example, does provide research through the NIC Market Profiles, which track properties in the 100 largest metros.

One smart approach owners could take, Linneman believes, would be to figure out ways to boost the penetration rate in any given market or submarket and to promote the industry as a provider of good health and care. But the industry appears to be spending a lot of time on demographics. “The thing that struck me is that the seniors housing industry chose as its story the idea that people are getting old, there are a lot of them, and someday they’ll need senior housing. What a crappy story. That’s a horrible story,” remarked Linneman.

“Anybody who thinks about the story for 10 seconds says, ‘If I’m waiting for the baby boomers to retire and get old enough to use this product before this product works. If that’s your story, I don’t want anything to do with you.’”

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