Regional Providers: The Hot Target of 2014

While many of the largest senior housing deals have been done in line with the housing market rebound post-recession, investors anticipate there will still be considerable opportunities across the market landscape in 2014 and beyond.

While the Big Three REITs have dominated the market for portfolio acquisitions in recent months, smaller REITs as well as operators and private equity investors are seeing potential for more deals in the coming year, panelists said during a SHN webinar this week.

The recent announcement of Brookdale’s and Emeritus’ merging will, without a doubt, impact future of M&A, the panelists agreed.

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“We’ll continue to see M&A epitomized by the Brookdale-Emeritus merger,” said Rick Swartz, executive managing director at Cushman & Wakefield. “There are a lot of advantages for providers looking to create national brands and expand themselves in certain markets.”

Many of the largest portfolio transactions have come and gone, but there are still smaller scale opportunities both for REITs as well as operators and outside investors in the sector.

The nature of transactions in 2014 will likely include the acquisition of smaller portfolios in the range of $150 million to $250 million, said Rick Swartz, executive managing director for Cushman & Wakefield.

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Investors also see considerable opportunities in one-off deals with “mom and pop” owners taking advantage of low cap rates in the year ahead.

“We like small mom and pop operators where we can get mass in one region,” said Patrick Lee, vice president of acquisitions at Senior Lifestyle Corporation. “In addition, we’re also looking for opportunities to help relationship partners that are in some sort of distress or are underperforming.”

Smaller, regional operators will also be targeted for their regional expertise yet potential value added—contrary to the large, national brand play made through the Emeritus-Brookdale deal.

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“We tend to go with regional, small operators—more than a mom-and-pop but less than 25 communities,” said Scott Stewart, managing partner at Capitol Seniors Housing. “When you have that combination, you have someone who knows their back yard and what rates are for their competitors. We find that refreshing and effective. The larger a company gets, the more it gets away from knowing the nuances associated with every property.”

Despite the nature of acquisitions shifting in the coming year, investors continue to be attracted by the demographic and strong senior housing fundamental trends that promise only to grow stronger in 2014.

“The fact that you have the Silver Tsunami along with increased penetration rates creates the perfect story confluence of demand outstripping supply, and that’s what any real estate investor wants to see,” Stewart said.

Written by Jason Oliva

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