JLL recently closed the sale of a 16-property senior living portfolio and is on track to log more than $600 million in sales this quarter.
The 16 properties were previously owned by a publicly traded real estate investment trust (REIT) and were acquired by a non-traded REIT, Mike Garbers, managing director, capital markets, told Senior Housing News.
Garbers declined to disclose the acquisition price or the identity of the seller, buyer and operators involved. The communities previously were operated by three different entities, and going forward they will all be operated by one provider.
The portfolio consists of about 1,800 units, primarily independent and assisted living with some memory care and skilled nursing. The communities are 23-years-old on average and span three states, with the majority in Texas.
At the outset of the sales process, occupancy stood in the mid-80% range and now sits in the mid-70% range.
It was a strategic decision on the part of the seller to dispose of these assets, with Covid-19 playing a role in the decision, Garbers said.
The sale of non-core REIT assets is one trend driving transaction activity at the moment, according to Ted Flagg, Senior Managing Director, M&A and Corporate Advisory, Healthcare Group Leader at JLL.
Deals are also being driven by private owners exiting the business due to its operational intensity, he said. This is the dynamic behind another large portfolio transaction that JLL has in the works, slated to close in February.
And, the loosening of the debt markets is supporting deal flow. At the height of the pandemic last year, “no one knew how to price the debt,” which was contributing to buyer-seller disconnects, Garbers observed.
Agency lending is still “not in full swing,” but conventional banks and alternative lenders are filling the void, Flagg added. He anticipates that the agencies will be significantly more active in four to five months.
Accelerating deal flow
In 2020, JLL closed over $445 million in sellside senior housing transactions and originated over $790 million in loans, across 48 transactions. Currently, JLL has over $1 billion in signed listings in-market or preparing for market, and the senior housing team is receiving a lot of requests for broker opinion of value (BOV).
Some owners hit pause on potential sales in 2020, recognizing that investors and lenders would grant leeway due to the pandemic. Flagg sees these files coming back out.
“All the delayed transactions are now being reassessed … whether that leads to something transactable, we’ll do our best to help clients, but it’s not totally visible,” he said.
One possible emerging trend is growing activity from institutional owners who have a choice in when to transact.
“They are looking at the playing field — when the vaccine’s going to roll out, where debt markets are, all those pieces — and some of them are starting to say, you know what, this is the right time,” Flagg said.
Some of the institutional players are motivated to get ahead of a frenzy of market activity that could occur later in 2021, and others are choosing to act now because they believe that their position might only be marginally different in another year.
There is not perfect efficiency in the market today with regard to valuations, but the increasing volume of trades should help, particularly as pricing is established for non-stabilized properties with a mix of care levels.
“As there are some pretty big data points announced this quarter, not just from us but from around the market, that’ll give everyone bookends as to where pricing should be,” Flagg said.
One large deal already announced this quarter was Healthpeak’s (NYSE: PEAK) sale of a 10-property, $350 million portfolio to a joint venture of Aegis Living and Blue Moon Capital. Further dealmaking activity could be disclosed in the next few weeks, as publicly traded REITs and operators hold their earnings calls. Irvine, California-based Healthpeak in particular could be driving activity, as the REIT is seeking to offload the majority of its senior housing portfolio.