Seniors Housing Acquisition Market Recap and Outlook
By Mike Garbers and Cody Tremper, Greystone Real Estate Advisors
The seniors housing sector experienced a banner year in 2014 with a reported $17.4 billion in transaction volume, an increase of 17.5% from the $14.8 billion reported in 2013. With interest rates remaining low, acquisition activity remained bullish. The publicly-traded companies accounted for nearly 56% of the volume, with privately held REITs accounting for 31% and other institutional buyers at 10% in 2014.
Some of the notable transactions from 2014 included:
- Brookdale Senior Living’s purchase of Emeritus for $2.8 billion
- NorthStar Realty acquired all of the outstanding shares of Griffin-American HC REIT in a stock and cash transaction valued at $4 billion
- Brookdale Senior Living & Healthcare Property Investors (HCP)’s $1.2 billion joint-venture on a 14-asset CCRC portfolio
- Sabra Health Care REIT’s $555 million acquisition of 21 Holiday Retirement properties
Factors that Influence Cap Rates
Cap rates can be a very tricky number to understand and can vary greatly on the same property, depending on who you ask and what information they are basing it on. Here are some factors that affect cap rates:
- Location. Cap rates generally run 50 to 100 bps lower in high barrier-to-entry markets like California and the Northeast. Assets located in areas with larger under-supply and higher growth rates of seniors will sell for more than assets within inferior growth and expansion areas.
- Age. Newer properties sell for lower cap rates than older assets.
- Quality. Higher-quality assets that provide numerous amenities generally sell for more than lesser-quality assets.
- Quality Mix. For SNFs, quality mix is the sum of Private Pay plus Medicare census. The higher the quality mix percent, the better, and the lower the cap rate.
The market is expected to remain very active in 2015 and could exceed the volume seen in 2014. To put that in perspective, the Greystone Real Estate Advisors team transacted on 17 assets since June 1, 2014, with total dollar volume of approximately $365 million.
Through the first quarter of 2015, the team already has 24 assets in the market, and is underwriting another 46 assets that could potentially be brought to the market for sale. This volume isn’t exclusive to the Greystone team, as many property owners are looking to take advantage of the frothy selling environment.
New construction should also continue to increase, as developers look to further their footholds in growing markets; however, it could be of some concern in certain markets where deliveries could outpace demand (Atlanta, DFW, Houston, Denver, and Chicago). This issue is not consistent across the US, as many markets have unmet demand and new product is needed.
For more information about Greystone’s seniors housing brokerage services, contact Mike Garbers at (407) 960-3677 or Cody Tremper at (469) 221-2943.