Senior housing merger and acquisition activity is starting to pick up heading into the fourth and final quarter of the year, and while the size of deals being done are smaller than in 2011, some brokers say transaction volume may outpace that of the previous two years.
“Activity has really picked up in the last 30 days, and we don’t see it slowing down,” says Ryan Saul, managing director of Glen Ellyn, Ill.-based Senior Living Investment Brokerage. “There’s always that lull in the summer for deals and proposals; principals are taking vacations; [but] now they’re starting to come back. Our requests for proposals have skyrocketed.”
Lenders are trying to place their capital, he says, while private and regional owners are competitively searching for growth opportunities.
Evans Senior Investments is noticing an uptick in activity levels and expects to have a “huge,” record fourth quarter leading into an active 2014.
“We think 2014 will be the best year we’ll ever have,” says Jeremy Stroiman, co-owner and CEO of Evans Senior Investments, which has offices in Chicago and Boulder, Colo. “It’s going to be a really dynamic year, not only for mom and pop [sellers] but for the entire industry.”
Integra Realty Resources, a commercial real estate valuation, counseling, and advisory services firm headquartered in New York, is seeing similar trends, says Brian Chandler, MAI, MRICS, a director and partner out of the firm’s Dallas-Forth Worth office.
While the end of the year is typically very busy, he says, all of 2013 has been “extremely” busy for Integra, and he expects an increase in activity heading into the fourth quarter. The firm is valuing a large number of one-off deals, according to Chandler, along with a variety of other types of transactions.
“It has been a pretty good increase from 2012, from refinancing to new construction of senior housing assets,” Chandler says, noting a large volume of REIT activity the firm is working on. “For acquisitions, the REIT market is very active. We’re seeing some deals where REITs are coming in, buying assets, and repositioning them.”
But as the cost of capital increases as interest rates rise, larger REITs are slowing down, says Saul, shifting the spotlight to smaller players.
“Regional or private owners aligned with private REITs are going to continue to be at the forefront of acquisitions,” he says.
Portfolio deals are “few and far in between” on the market as most activity has been involving single assets or small portfolios.
“A lot of portfolio evaluation is going on, with a focus on becoming leaner and meaner and looking at which properties are a drag on the overall portfolio. The national groups are now looking at their portfolios and targeting lower-quality or underperforming assets to divest,” he says, although the “pruning” action is not necessarily triggered by the end of the year.
Interest rates are a contributing factor to accelerated activity.
“We’re getting a few proposals a week from owners reaching out interested in potentially selling,” says Saul. “[It’s being predicted that] interest rates are going to be increasing, and they want to take advantage of the current strong market while there’s strong demand.”
As rates increase, it will put extreme pressure on those who have been thinking about selling for the past 24 months but haven’t yet made the plunge, says Stroiman. But higher rates will translate to more caution on the part of buyers, whose cost of capital is going up.
“It’s going to separate the folks who can do deals, and the folks who can’t,” he says. “It will take more sophistication to get deals financed, and more equity.”
Written by Alyssa Gerace