The seniors housing industry saw its transaction volume spike last year to levels not seen since the peak years of 2006-2007.
More than $25 billion worth of transactions closed in the space last year, with the bulk of those transactions—nearly $20 billion—coming from the seniors/health care REIT sector, according to market-research firm National Investment Center for the Seniors Housing and Care Industry.
While the big REITs such as Ventas and HCP got bigger last year—together accounting for nearly $15 billion in portfolio deals—the sector is likely to see a wave of private equity roll in this year. While overall transaction volume isn’t likely to match last year’s surge, interest from the private players is growing from both domestic and cross-border investors.
“There is substantial room in this industry for investors beyond the REITs—in fact, most owner/operators would prefer alternatives to the REITs,” says Mel Gamzon, president of Fort Lauderdale, Fla.-based Senior Housing Investment Advisors, and a 30-year veteran of the industry. “The equity is mostly coming from here in the U.S., but the last couple of years, the amount of foreign investors has been increasing.”
In 2011, Gamzon’s firm closed more than $250 million in four large portfolio deals, and three of those deals were with cross-border investors from Asia, Canada and the Middle East.
“Essentially, seniors housing is a need-based, defensive real estate strategy, and those are big, glaring words to foreign investors,” says Gamzon. “What else out there is really need-based?”
Demographics are clearly on the industry’s side: more than 10,000 Baby Boomers turn 65 every day, a trend that only began for the nation’s largest cohort in 2011. Currently, occupancy rates on seniors housing (not including skilled nursing facilities) average around 90 percent nationwide, a 200 basis point improvement from a year ago, according to the American Seniors Housing association.
Yet, it’s the need-based aspect of seniors housing is driving its success. The average age of those entering independent living today is around 82, whereas just five years ago that figure was in the high-70s. An increasing number of owner/operators such as Chicago-based Senior Lifestyle Corporation and Kirkland, Wash.-based Merrill Gardens have enhanced their operating capabilities to accommodate residents as they age in place.
“We’re finding that independent living is blending a bit more today with assisted living,” says Gamzon. “Seniors are entering independent living facilities at an older age, and there’s either a real or perceived need for services.”
The fortunes of the independent living sector have historically been tied to the for-sale market—seniors won’t move into a new community until they can sell their homes. But the integration of more health and wellness services has helped the independent living sector bounce back after a few tough years.
While access to capital—particularly construction financing—is still difficult, in many respects that’s another wind in the sector’s sails.
“In many markets, this industry remains undersupplied, so we’re looking at several years at least of limited new housing production,” says Gamzon. “It’s patient money that’s in the marketplace today, and that’s very good news for the business.”
