Real Estate or Health Care—How Do Financiers View Senior Housing?

Part real estate and part operations, senior housing has always counted on both components for success. And financing providers who invest in the space say it’s important to understand that both still play important roles when operators are approaching new projects.

The business overall is based on strong fundamentals that are not subsiding, panelists said during a National Investment Center for Seniors Housing and Care conference this week. But with an influx of new investors taking advantage of the growing demographic demand for senior housing options, financiers say it’s ever important to remember the operations side of the business.

“Every part of the capital stack is attractive for the space,” said James Scribner, managing director for RED Capital Markets. “You can access smart capital, and there’s no better time than the present.”

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Many new investors are making use of the opportunity, including pension funds, private equity players with big plans for new development, and multifamily investors who are entering the business for the first time after specializing in other property types. Banks, too, are active in the space after retreating somewhat during the recession.

“There’s lot of new institutional money,” said Chris Urban, managing director for Ambrose Capital Group. “A lot of commercial banks are coming back into the space. Competition has gotten so fierce in some commodities that senior housing is providing above average return [in comparison].”

Yet players considering entering senior housing for the first time, or looking to add to existing portfolios, need to understand that the business still revolves around health care. Location is important, market matters immensely, but the operations foundation is still paramount above all factors, the speakers agreed.

One developer, RJ Development Group, pointed to the distinction.

“From a development perspective, I can help someone put a building up in a decent place, but if that [partner] is a good operator, that is what is going to make me look really good,” said Ron Hastie, company president. “From that perspective it’s an operational deal.”

On the financing side, those facilitating capital for new projects and development agree.

“It’s a hybrid; there’s no question,” Scribner said. “Depending on what lender or bank you’re dealing with, a lot of times senior housing arm grew out of real estate, and sometimes it came out of the health care division. It’s much more of an operating business than a real estate play at the end of the day. … You can’t just sell the property for debt. It has to be operated.”

Written by Elizabeth Ecker

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