Senior living capital markets are in the midst of a pricing reset, and well-positioned ownership groups could see major opportunities to acquire distressed properties ravaged by the Covid-19 pandemic.
Senior living capital and debt markets have been disrupted by a grab bag of forces in the last 18 months, including the runway shortening on distressed properties, a capital market that is tilting towards buyers, a ‘mixed bag’ of issues causing operators’ distress, and a downturn in senior living property valuations.
t But thanks to these forces, the stars are “starting to align” for new real estate opportunities in and out of the senior living industry, according to AEW Capital Management Director Rick Brace.
“Whether it’s taking advantage of some of the price resets and missteps of others, I think that’s attractive for those with capital or access to the debt markets,” Brace said Tuesday during a National Investment Center for Seniors Housing & Care (NIC) webinar. “We’re quite bullish on senior housing right now, especially if we look forward in terms of the supply-demand dynamics.”
Brace added that he believed senior housing properties would be well-positioned in terms of pricing compared to industrial or multifamily real estate currently.
While senior living recovery could be lopsided across market types and regions, Brace said he views the market’s overall fundamentals with a positive lens, as that recovery is occurring at a “healthy pace” and new supply is slowing.
The rate of new supply has slowed because the high cost of accessing the debt markets has essentially placed a governor on the ability of operators to build new, let alone build new at the pace seen pre-pandemic.
“You add all of those things together, and we’re looking at a window of opportunity in this space more attractive than we’ve seen for quite some time,” Brace added.
With Tuesday’s consumer price index (CPI) showing a deceleration in the cost of goods, down to 4% from 4.9% last month, both Brace and Heitman Senior Managing Director and Head of Global Research Mary Ludgin said they felt the larger macroeconomic climate will continue to be volatile as investors run for certainty and quality assets.
Ludgin highlighted the interest rate climate during the webinar,noting that the U.S. The Federal Reserve had “gone too far and we won’t know it,” when it comes to fighting inflation.
“This is the Fed that went from complacency…they held rates basically at zero long past when many would have begun tightening,” Ludgin said. “Then they lurch to the other extreme, so it’s unclear as to what their next move will be.”
The Fed met on Tuesday and will do so again on Wednesday, with an expected announcement on whether to continue its rate hike or pause rate increases.
If the economy is headed towards a recession in the months ahead, Ludgin said she believes that this go-around real estate markets at a high level were “broadly in good shape” with pockets of over-building in multifamily but mostly stable outside of office real estate.
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