‘Perfect Storm Conditions’ Draw Investors to Senior Housing

The senior housing real estate sector is experiencing historically high investment rates, high valuations and low cap rates, according to a recent report released by Brown Gibbons Lang & Company, a middle market investment bank based in Cleveland.

The report, Healthcare Real Estate: Volume & Valuations Influenced by “Perfect Storm” Conditions, found that occupancy rates were steady in the second quarter of 2015, with assisted living at 88.4% and independent living at 91%.

With occupancy rates steady, median valuations for assisted living and independent living ranged from $200,000 to $250,000 per unit for high quality assets, according to the report. This valuation reflects an improving real estate market and recovering economy, the report stated.


REIT activity was reported to be very high, with increased competition in 2015.

“Much of this demand is being driven by public, non-traded REITs, which have played an increasing role in investing capital within the industry,” says Christopher Stai, CPA and managing director at Brown Gibbons Lang & Company. “It is estimated that approximately $30 billion in non-traded REIT funds could enter the seniors housing market this year.”

Non-traded REIT CNL Healthcare Properties has aggressively raised capital earlier this year, focusing on acquiring more senior housing properties. Griffin-American Healthcare REIT III has completed large acquisitions throughout 2015, while Griffin-American Healthcare REIT II completed a merger with NorthStar Realty late last year.


The report also found that cap rates in the second quarter of 2015 were up slightly from the previous quarter, at 3.9%. As public companies trade at higher levels, cap rates have become lower compared to 2014. New REITs have also had an effect on cap rates.

“The compression of cap rates has also been impacted by new entrants into the market, most noticeably, public, non-traded health care REITs, competing with experienced players in the industry,” says Stai. “Where there used to be a handful of groups looking at any particular deal, now there are 15-20.”

As more REITs enter the market, the increased competition for acquisitions has also helped drive cap rates down.

“By now, much of the operator owned portfolios have been acquired by the REITs, which has led to increased competition amongst both the publicly traded healthcare REITs and the public, non-traded healthcare REITs that are vying for a more limited supply of product, creating downward pressure on capitalization rates,” Stai tells SHN.

Written by Amy Baxter

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