In Senior Housing Development, Cash Is Still King

Senior housing is an industry built on strong relationships — relationships with operators, investors, developers, residents.

So it’s no secret that in order to enter the sector, a company must have a foot in the door either through its own reputation or the reputation of its partners.

But experts at this year’s NIC conference dispelled this long-held belief, saying that developers can buy their way into the market — as long as they have the cash on hand.

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“What we learned in the downturn is that folks will [walk away from] a gap of guarantee but they won’t walk away from cash,” said Chris Cain, senior vice president of financial holding company BBVA Compass. “[If you don’t have that strong reputation], the cash equity component becomes uber-important.”

The senior housing annual inventory growth rate continues to climb steadily, increasing in the third quarter by 0.2 percentage points to 1.7%, compared to the prior quarter. This means that more properties, and more developers, are pushing their way into the senior housing industry.

Particularly in Texas.

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The state’s demographics, with highly populated metros including Dallas, Houston and San Antonio, have led market players, including new entrants, to seek opportunities in the Lone Star State.

“We are seeing in the Texas area an influx of different developers and a ton of different products,” Cain said. “From our standpoint, we are just monitoring it and being very picky. We’re trying to make the right decisions and monitor the different product types/mixes and the locations where we think may be getting a little too hot.”

Other developers have made their way into the Texas market — without a strong reputation as their foundation. One developer is targeting underdeveloped pockets of land, while another narrows its focus on the right mix of market demographics.

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The strong local economy, coupled with low barriers to entry, make Texas a good market for development, Cain said. But even in a hot market, cash is king.

“The component that is the X factor is 100% the cash equity,” Cain said. “That can get my credit committee comfortable looking at someone that we maybe wouldn’t have looked at before.”

Written by Emily Study