Healthcare REITs Don’t All Have Appetite for New Construction

Not all healthcare real estate investment trusts (REITs) are putting their money into new developments in senior housing, several REIT executives told attendees of the Assisted Living Federation of America’s conference held in Charlotte, N.C. last week.

Some REITs are more willing to work with operators to fund new developments, but others are less interested. Ventas, (NYSE:VTR) a healthcare REIT with a $23 billion market capitalization, isn’t shy about its lack of interest in new construction.

“We haven’t focused much on it,” said John Cobb, chief investment officer of Ventas, during a panel discussion. “We’ve had better success with cash flow stable properties.”


Rather than build new assets, Ventas prefers to work with operator partners to do full renovations of communities.

“We spend a lot of money on communities that are in “A” locations but are “B” assets to make them “A” assets,” said Cobb.

Health Care REIT (NYSE:HCN) is making investments in new developments, but only with the right operators.


“It’s relationship focused,” said Chuck Herman, executive vice president and chief investment officer of HCN. “We underwrite the operator, determine the types of capital they need, and fulfill them in a way that makes sense.”

While Ventas and HCN may be seeking partnerships with larger operators, there are still sources of capital for the smaller entrepreneurial companies to put toward developing properties.

“We began looking for younger operators and putting money behind these entrepreneurs,” said Wendy Simpson, chief executive officer of LTC Properties. “We are not [going] to bet the farm on large development projects, but we see real opportunity.”

Data from the National Investment Center (NIC) for the Seniors Housing & Care Industry shows that senior housing occupancy remained at 89.1% in the first quarter, the same rate as the last quarter of 2012, but up 80 basis points from a year ago. Current construction as a share of existing inventory for senior housing was 2.5%, up 20 basis points from the previous quarter, indicating that new developments are starting to occur. 

“There is a lot of talk about people putting shovels in the ground,” said Justin Hutchens, chief executive officer of National Health Investors (NYSE:NHI), adding that the industry has learned a lot since the industry overbuilt in the late 90s. “This time around the capital providers are much more educated [about new development].”

Herman agrees the industry needs to be mindful of the amount of new developments that are needed. “The market can only absorb so many units at one time,” he said. “It’s going to be a challenge.” 

Written by John Yedinak

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