NIC: Acquisition Prices Past Peak, Occupancy to Hold Steady

After a bumpy start to 2016 marked a drop in senior housing transactions, some cited high deal prices that sidelined major players. But the pendulum may now swing, as peak pricing may have already come and gone, according to Beth Mace, chief economist and director of capital markets research National Investment Center for Seniors Housing & Care (NIC).

“It would look like we are probably past peak pricing, on average,” Mace said during the Argentum Senior Living Executive Conference in Denver. “There will still be markets that do really well and markets that don’t do well.”

On the whole, however, the outlook for the immediate future of senior housing remains steady, particularly for absorption rates, according to the latest data and projections from NIC.

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Stock market repercussions

“Since January, the markets have been in extreme turmoil,” Mace said. “The stock market has come back since then, but there was concern of another recession.”

Late last year, the Federal Reserve changed its policy to increase its benchmark interest rate 25 basis points—a reversal of its a nearly decade-long zero-rate policy. Not only did the senior living industry feel the sting of higher cost of capital, but the stock market also took a hit.

After a blockbuster year of deals in 2015, REITs may have also been “digesting deals they had already done” during the first quarter of 2016, according to Mace.

These combined factors have impacted the public financing in senior living, with publicly-traded real estate investment trusts (REITs) taking a back seat on acquisitions. As a result, deals declined during the first quarter of 2016.

In the first quarter of 2016, senior housing transactions totaled $3.5 billion with 114 deals. That’s down from 160 deals a year prior, according to NIC data.

However, the private sector may not be feeling the same constraints as their public counterparts.

“[The] private sector continues to hold on in terms of its activity level,” Mace said.

Occupancy projections

There are some positive economic signs for the senior housing industry, including steady absorption rates amid oversupply concerns.

“We remain cautiously optimistic that growth will hold,” Chuck Harry said during the conference. “Absorption and inventory have grown on par during the last four quarters.”

That’s partially because other economic sectors have improved and left seniors in a better position to move into senior housing.

“As the velocity of housing sales improve, operators are seeing occupancy improve,” Mace said.

Despite some of the highest construction rates as a proportion of inventory, the outlook for independent living and assisted living remains steady for the immediate future.

Assisted living occupancy rates for the rest of the year will remain flat, keeping pace with demand, Harry and Mace predict. For the first quarter of 2017, assisted living occupancy will drop 10 basis points from its 2016 first quarter mark—88.3%, NIC forecasts.

For independent living, the expectation is occupancy will have a slight uptick of roughly 20 basis points in the first quarter of 2017, up from 91.3% in the first quarter of 2016.

Written by Amy Baxter

Photo Credit: “Money-Savings” by 401K 2012, CC BY-SA 2.0

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