Talk of consolidation in the skilled nursing industry has been circulating for quite some time, and initiatives have been launched to attract new buyers and investors to the market. All the while, there’s strong disagreement among senior housing brokers over what kinds of operators will come to dominate the skilled nursing industry—and exactly how much control they will have.
A ‘finite universe’
Skilled nursing is not a market that an assisted living or independent living player can easily enter into, according to Toby Siefert, senior vice president at Glen Ellyn, Illinois-based senior housing brokerage firm Senior Living Investment Brokerage (SLIB).
“It would be very difficult to wake up today and say ‘I want to get into skilled nursing,’” Siefert tells Senior Housing News. The competition for skilled assets is creating a barrier to entry, he explains.
“The buyers for that market are incredibly aggressive, and the ones who want a specific target geographic market are going to pay top dollar to keep other groups out,” Siefert said. In some markets, the product simply isn’t available; in others, the skilled nursing assets are receiving between five and 15 offers each, he said.
These aggressive tactics may ultimately lead to the skilled nursing sector experiencing “controlled monopolies” in each of its markets, SLIB President Grant Kief says.
A lot of the “mom and pop” skilled nursing operators have already sold their properties, and there are fewer and fewer qualified operators for the skilled nursing properties still available, Kief says. There will always be a need for skilled nursing, he says, but there very well could be a dearth of skilled nursing operators in the future.
“It’s a finite universe of folks who are owning and operating these properties,” Ryan Saul, managing director at SLIB, adds.
Plus, the already-strong skilled nursing providers are getting stronger. These current skilled nursing operators are purchasing ancillary businesses, like pharmacies and therapy providers, as a way to enhance their market position, SLIB Managing Director Bradley Clousing tells SHN.
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“They’re seeing that as a very important side business for them,” he says.
Skilled nursing was a popular asset class during the last couple months of 2015, according to quarterly data from the National Investment Center for Seniors Housing & Care (NIC). Specifically, nursing care volume totaled $1.3 billion during the fourth quarter of 2015, a 36% increase from the previous quarter and a 28% reduction from the fourth quarter of 2014. On a rolling four-quarter basis, nursing care volume totaled $6.6 billion, an increase 40% from the $4.7 billion in volume recorded for the fourth quarter of 2014.
Not so fast
Meanwhile, not all are in agreement about the so-called skilled nursing monopoly.
“I could not disagree more,” Mark Myers, an executive director of Institutional Property Advisors (IPA), a division of Marcus & Millichap specializing in serving institutional and major private real estate investors, tells SHN.
Myers, along with IPA’s Joshua Jandris, Peyton Stanforth and Charles Hilding, recently represented Regency Post-Acute Healthcare System in a sale of its seniors housing portfolio, which consisted of 33 skilled nursing facilities with about 4,200 licensed beds and some “shovel-ready” development opportunities in South Central Texas.
The transaction was one of the largest portfolio sales of skilled nursing facilities since the $6.1 billion sale of HCR ManorCare’s portfolio to HCP in 2011.
IPA also procured the buyer from a variety of unique buyers, including a publicly traded real estate investment trust (REIT), a privately traded REIT, a family office and a private equity fund. Ultimately, the buyer—Capital Senior Ventures—“was not someone who dominated the industry in the past,” Myers says.
“If someone has the tenacity and has an operating platform and a back office platform that are strong with excellent financial backing, they can easily jump into the skilled nursing industry,” Myers says. “It happens all the time.”