Regional senior housing operators with real estate investment trust (REIT) ties may be the best match for owners looking to exit the market, according to national brokerage firm Evans Senior Investments.
Compared to other possible suitors such as a local operator, a national chain, a REIT, or a private equity firm, regional buyers often pay the most for a variety of reasons. Usually, they’re linked with a REIT or they have a really good relationship with a local lender they’ve been signing with for years, said Jeremy Stroiman, CEO of Evans Senior Investments during a Wednesday webinar on exit strategies for assisted living and skilled nursing facility operators.
“We think regional buyers are the best [because] they also appreciate your story and what you’ve created, and want to continue the legacy,” Stroiman added. “They may fly under the radar, but they have money and can get a deal done.”
Regional buyers partnered with REITs are paying “crazy” prices because the REIT cost of capital is so low, Stroiman continued. Many are trying to build their portfolios to 10-12 communities, and their objective may be governed more by a time budget than a financial one.
“The buyers in today’s market that pay top dollar are the regional groups that own 5-10 buildings and are looking to expand their economies of scale,” Eric Pickert, vice president of business development at Evans Senior Investments, told SHN.
Buyers with a skilled nursing concentration may have extra incentive to attain a certain size.
“There’s a lot of pressure for owners, especially to get size quickly,” Stroiman says. “They need to get to 15 facilities as quickly as possible, for so many reasons—including technology. They might ignore [factors] like crazy prices.”
Industry wide, the market is favoring sellers, said Jason Stroiman, president and founder of Evans Senior Investments. “The lack of quality properties out there drives prices,” he said.
Cap rates for skilled nursing assets have dropped in recent months from about 13% in 2011 to 12.5% in 2012. Assisted living cap rates have also decreased, from averaging 9% in 2011 to 8.7% in 2012.
Independent living assets, however, didn’t increase in value or see cap rates drop, partially because the sector is tied to the housing market.
“The economy has not completely recovered,” Jeremy Stroiman said. “Senior housing is becoming more needs based, that’s why memory care and other needs-based services really skyrocketed as investors want to get into the space.”
Independent living assets will sell at cap rates that are slightly lower than for assisted living or memory care, according to Jason Stroiman, but a lot depends on location and quality. “The range is between the high sixes all the way up to nine,” he said.
Trying to predict cap rate trends is nearly impossible, he said, but “all things point to them staying low” in the next year. With the continued implementation of healthcare reform along with expected changes to interest rates, the senior housing industry can expect high volumes of activity.
“That’s why you’re seeing consolidation—because of uncertainty,” Stroiman said. “[Cap rates] will stay very aggressive and keep prices high for the short term.”
Written by Alyssa Gerace