When will the clouds clear? That sentiment of uncertainty in the capital markets as well as questions about the future of healthcare policy permeated the mood of the 20th Annual NIC conference last week in Chicago. The sold out event, with more than 1800 senior living professionals that included bankers, operators and developers, met and discussed the current state of the senior housing debt and equity markets. While attendees and organizers shared a sense of accomplishment from surviving the economic challenges of the last 24 months, many questions continued about when capital would return to the segment for future development opportunities. The collective optimism of the conference participants flowed that they’ve emerged stronger by reducing expenses and demonstrating quality and value to their customers.
NIC representatives stated that demand appeared to be starting to recover and supply being available in the near term but the lack of new construction of senior housing units represented a risk and an opportunity for the industry in the coming years based upon data from the NIC MAP. NIC President Bob Kramer stated that without a combination of strong balance sheets and extensive operating experience, the barriers to entry into the senior housing development market were rising quickly. Without experience and liquidity the cost of debt capital remained extremely high or not available for those seeking funding.
“REITs will be using their access to the capital markets for growth and acquisitions that are large enough to move the needle in the near future,” said Kramer. “Bank lenders are primarily working with existing relationships that are experienced operators.”
Private equity and government sponsored entity (GSE) financing seemed to be the predominant sources of financing available to developers at the conference as banks continued to be cautious in terms of lending for senior housing while publicly traded REITs have recently showed an ability to access capital versus traditional operators and developers. Developers and operators expressed continued frustration with mild optimism that access to capital for new construction and long term financing will flow more freely in the near term.
The event’s keynote speakers, Newt Gingrich and Mark Zandi, shared their thoughts on the broader economy, political landscape and the unclear future of healthcare policy if the Republicans take control in Washington after the November elections.. Mark Zandi’s presentation entitled “Struggling to Hit Escape Velocity”, pointed out that the next 6-12 months will continue to be “uncomfortable” as the country deals with limited credit availability, lack of meaningful job growth and a lack of confidence among consumers. Zandi stated that home prices may see another 5-10% drop in home prices that will represent an aggregate 35% drop from the peak of the housing market.
Between the uncertainty in the broad economy and the possibility of changes in Congress, the forecast of senior housing capital remains bright based upon demographics but the short term forecast remains partly cloudy.