New Entrants Drive Senior Housing Investor Market to New Heights

With a demographic boom ahead driving undeniable demand, the senior housing sector is attracting a slew of investors, an investment banking firm said during a webinar Thursday.

There has been a shift among investors toward the real estate industry, specifically signaling a direct need of those trying to get into the senior housing space, said Jeremy Stroiman, president and founder of Evans Senior Investments, during the webinar.

“The current market is insane right now,” Stroiman said. “We coined the term ‘funny money’ because there are a lot of folks coming into the space and that is truly just driving values through the roof.”

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A lot of this interest comes from new institutional equity, particularly from firms that haven’t traditionally invested in senior housing but are entering the space now, Stroiman added.

“The cost of capital is extremely low, interest rates have began to creep up and people want to deploy capital as quickly as possible,” he said.

Senior housing properties in recent months have become something of a mainstream asset class for private equity investors, some of which have formed joint venture partnerships with senior living providers.

In September 2013, private equity firm Kayne Anderson Real Estate Advisors acquired a six property portfolio of independent and assisted living communities in Florida for $413 million, in turn forming a joint venture partnership with Discovery Senior Living after buying out former JV partner, GE Capital Healthcare Financial Services.

A private equity firm also partnered earlier this year with Irving, Texas-based assisted living and memory care developer The LaSalle Group to acquire six properties through a $17 million equity placement.

Even Capital One Bank has noted more requests from those looking to get into the assisted living and skilled nursing businesses, particularly from the multi-family development side.

From its offices in Chicago and Boulder, Colorado, Evans Senior Investments offers valuations for skilled nursing, assisted and independent living operators.

To date, the company has worked with more than 450 senior living businesses in all 50 states and has sold more than $500 million worth of senior housing assets.

About 50% of the assets Evans Senior Investments sells are to private buyers, Stroiman said, who credits interest rates as the biggest driving force behind current market conditions.

“We’re at an all-time low based on where interest rates have been over the past 25 years,” he said. “The cost of capital is inexpensive, resulting in increased acquisition activity.”

When it comes to interest rates and determining when to buy or sell, timing is of the essence for a property’s value and can translate into a difference of couple millions of dollars in a matter of months, depending on rate fluctuation.

For a business with revenues of approximately $21 million in January 2014, when the interest rate is 3.41%, according to an example given during the presentation, Evans Senior Investments estimated a value of $22.1 million for the enterprise. By August, if rates jumped to 4.37%, the value for that same business drops to $20.7 million.

As analysts forecast sustained interest rate increases, especially as the Federal Reserve continues to trim down its bond purchasing activity, higher rates will directly affect the senior housing M&A market, Stroiman said.

“As rates go up, the value of your business is going to go down,” Stroiman said. “We’re at an interesting time right now because we’re seeing volatility in interest rates. Higher rates means lower acquisition activity as the sale of a property decreases to account for rates. There’s a timing issue here.”

Written by Jason Oliva

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