Large real estate investment trusts (REITs) have made no secret of the fact that high prices and less favorable costs of capital are constraining their dealmaking activity in senior housing. This lack of REIT action may be largely behind a marked slowdown in senior housing transactions that occurred in the first quarter of 2016, preliminary figures suggest.
The dollar volume of senior housing transactions for the first quarter of this year reached $1.5 billion, which represented the weakest pace since early 2014, according to the data shared Friday by the National Investment Center for Seniors Housing & Care (NIC).
Sales volume totaled $12.3 billion on a rolling four-quarter basis, which was nearly 30% lower than the peak of $17.4 billion, reached in the second quarter of 2015, NIC stated. Deal volume also declined, dropping from 145 closed transactions in the fourth quarter of 2015 to 114 closed transactions—a drop-off of 21%. While the drive to close deals before year-end often means that fourth-quarter transactions outnumber those in the first quarter, the year-over-year comparison suggests that other factors might be at play in cooling the market. Quarterly deal volume declined 29% from the 160 transactions closed in the first quarter of 2015.
“Much of the drop in volume was caused by a slowdown in activity by public companies and, in particular, the public REITs,” NIC’s report stated.
Specifically, public companies accounted for $646 million in deals in the first quarter of this year. That’s down 67% from $2 billion in the preceding quarter, and down nearly 80% year-over-year.
With buyers putting the brakes on, pricing fell slightly but remained near recent peak levels. The average price-per-unit for senior housing in the first quarter stood at $169,800. That was a 5% quarterly decline and 0.7% lower than the average price-per-unit of a year earlier.
Breaking a years-long pattern, skilled nursing sales volumes exceeded senior housing volumes in the first quarter of 2016, the NIC data revealed. Skilled nursing sales volumes totaled nearly $2 billion for the first quarter of this year and hit $8.1 billion on a rolling four-quarter basis. That’s the highest level since early 2012.
While some skilled nursing operators have posted recent losses—giving rise to discussion about the risks inherent in skilled nursing—some still see tremendous opportunity in a market with $100 billion of assets in private hands. Shifting public policies may be advantageous to skilled nursing in the long-run, leading a variety of players to bid on these assets that come up for sale, turning up the heat in this segment of the senior housing and care market.
Data in the NIC report came from the organization’s MAP Service, which gathers information from more than 13,000 properties in 99 U.S. metro markets.
Written by Tim Mullaney