Finance & Development

Senior Housing Market Past its Prime, But Not All is Lost

By Mary Kate Nelson |

Despite recent market data and analysis that indicates the independent living and assisted living sectors may be past their peaks, senior housing market participants may still keep a positive outlook for the coming year. 

The seniors housing market is generally healthy, and while 2016 won’t be a banner year like 2015, it should still be a good year, says New York-based independent commercial real estate valuation and consulting firm Integra Realty Resources (IRR) in its in-depth seniors housing outlook 2016 report.  

Since the publication of IRR’s Viewpoint 2016 report in January, which included an abbreviated seniors housing outlook for the year, there’s been a bit more clarity about the state of the investment market, Charles Bissell, IRR Seniors Housing & Health Care National Practice Leader and author of the report, told Senior Housing News.

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“We know that transaction volume has slowed, that the Big 3 REITs are not nearly as aggressive as they were last year, and we also have some clarity related to the new construction concerns,” Bissell said. “We have seen a little bit of softening of occupancy, and there are growing concerns that there’s going to be saturation in certain markets.”

Worries still exist industrywide, despite seniors housing remaining a very attractive investment sector that will continue to attract new capital from a variety of sources, Bissell said.

More than 80% of active market participants believe that the independent and assisted living markets are at or past their peak, according to a survey conducted by Bissell in January prior to a roundtable at the American Seniors Housing Association (ASHA) annual conference. Respondents expressed more optimism about the skilled nursing market, with 39% indicating that the market has not yet peaked, and just 19% saying the skilled market is past its peak.

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Meanwhile, the leading concern for active market participants in the assisted living and independent living markets was overbuilding, followed closely by interest rate increases, Bissell said, citing IRR’s January 2016 survey.
 
“Those are certainly valid concerns,” Bissell said. Interest rate increases in 2016 may have some impact on the market, but seniors housing usually has lower leverage than other property types, lessening the effects of interest rate fluctuations, the report says.
 
There also may be more distressed deals in 2016, due primarily to saturation in some assisted living and memory care markets, IRR finds. But the number of buyers chasing the distressed deals will likely keep pricing relatively high.

And when it comes to the Big 3 REITs, they may have peaked in terms of their aggressiveness, Bissell said.

“I think they were probably most aggressive last year, and I think that all the REITs now are being more selective and will continue to be selective in their acquisitions,” he said.

Written by Mary Kate Nelson

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Mary Kate Nelson