Are REITs Experiencing a Senior Housing Hangover, or Calm Before the Storm?

The senior housing industry considers 2011 as the Year of the REIT, but despite this year’s sharp decline in acquisition activity, it could just be a digestion period functioning as a calm before the next storm, said executives from several healthcare real estate investment trusts during NIC’s National Conference.

It’s possible many big players are essentially “hungover” from last year’s frenetic merger and acquisition activity, reminiscent of the scene from 2009 blockbuster The Hangover where bachelor party members wake up dazed and disoriented after a wild Las Vegas-based spree, joked panel moderator Steve Blazejewski, a principal on Prudential Real Estate Investors’ senior housing team.

A chart compiling NIC data on acquisition activity from 2009 through the second quarter of 2012 shows the senior housing industry experiencing a major tidal wave of deals that closed in the middle of 2011, but that activity has precipitously dropped off this year—at least so far.


The acquisition of Sunrise Senior Living (NYSE:SRZ) by Health Care REIT (NYSE:HCN), announced in August, should give numbers a boost in early 2013, said Chuck Herman Jr., executive vice president and chief investment officer at HCN. 

“We expect to see other REITs continue to be active,” he says, mentioning National Health Investors, Inc.’s (NYSE:NHI) recent activity: a 10-property RIDEA-structured deal with Bickford Senior Living that was announced last week. Another recent deal includes senior housing and care investor Formation Capital’s partnership with global investment house Safanad to acquire a $750 million portfolio of skilled nursing facilities.

The industry can expect to see some additional skilled nursing portfolio deals due to how they were capitalized in the early 2000s, says Herman, although the sector is “a little hairy” right now because of the uncertainties bred by healthcare reform and government reimbursement levels.


Last year’s deal activity put a spotlight on the senior housing sector, said panelist Steven Insoft, COO of Chicago-based Aviv REIT, and it’s continuing to get a lot of attention. But on the skilled nursing side, he said, interest “tends to ebb and flow.”

“We’re starting to see a lot of consolidation as a by product of capital coming back,” he said. “We’re not so much seeing development, but there’s renewed interest in recapitalizing assets we already own.”

But whether or not activity does ramp up again, 2012 ultimately won’t look like last year. “There won’t be a peak again, but [rather] a new beginning with robust growth, at maybe a tier below [2011 levels],” said Insoft.

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Ultimately, it’s more than just a digestion period, said Sharon Yester, chief asset management officer of CNL Financial Group. Operators of all sizes are rethinking how they look at their portfolios and focusing on the best way to grow. For the smaller ones, the best option may be to sell their assets.

“[Right now] is the calm before the storm,” she said.

Written by Alyssa Gerace

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