Prices Climb for Top Seniors Projects

It could be a good time to sell high-quality seniors housing projects. Prices for the best properties are up. Bidding is competitive. And the pool of potential investors is expanding as seniors housing is increasingly viewed as a defensive real estate play.

Article Tools

Latest News

More Latest News

“Buyers in the last 10 months have gotten aggressive,” says Mel Gamzon, president at Senior Housing Investment Advisors, a Fort Lauderdale, Fla.-based brokerage and advisory firm. “This is an excellent time for owners to monetize their investment. Values of top projects today have increased compared to two years ago by no less than 20 percent.”

The price jump can be seen in data from a new transactions report compiled by the National Investment Center for the Seniors Housing & Care Industry (NIC) and Real Capital Analytics. In the first quarter of 2008, the upper quartile or top 25 percent of project prices was about $169,000 per unit. That number fell to about $101,000 a unit by the fourth quarter of 2009.

Prices for the properties in the top quartile have increased since then to $170,141 per unit. Further indicating a flight to quality, cap rates have declined with rates on the best properties now averaging about 7.7 percent.

“There’s always demand for top-tier product,” notes Chuck Harry, director of research and analysis at NIC. “Going forward, I expect there to be more competition for class-A type properties.”

Several factors are driving buyer interest in high-quality seniors housing projects. Flush with cash, the health care REITs have been active buyers of seniors housing properties. In fact, the health care REITs, through June of 2011, had purchased about $22 billion worth of seniors housing real estate.

At the same time, little new product is being built. Lenders remain cautious about making construction loans. Investors are skittish about sinking money into new properties.

Investor pool expands

The seniors housing industry is also attracting more attention from new investors including private equity funds, venture capital companies, pension funds and offshore investors. “There are numerous options for current building owners besides selling to a REIT,” notes Gamzon.

Prudential Real Estate Investors, an institutional investor, recently purchased Woodland Terrace, a rental retirement community in Cary, N.C., for $53 million. The seller was Walton Street Capital and Kisco Senior Living. Kisco was the property manager and had only a small ownership position, according to Allen McMurtry, director at CLW Health Care Services Group, the Tampa-based broker that handled the deal. Kisco will continue to manage the property.

Prudential Real Estate Investors purchased Woodland Terrace in Cary, N.C., for $53 million.

Interestingly, Prudential previously owned the property and sold it to Walton in 2004 for $29 million. Walton added 14 cottage homes to the property and made other improvements.

The 21.6-acre campus is located in the Raleigh-Durham Research Triangle area, an attractive spot for retirees. Woodland Terrace has 176 units, including 24 independent living cottage homes, 80 independent living apartments, 36 assisted living units, and 36 memory care units. The average monthly rent is about $4,400.

The property’s purchase price was about $300,000 per unit, an amount similar to several other recent deals for top tier seniors housing properties.

McMurtry says there were 10 written offers and two rounds of bidding for Woodland Terrace. McMurty’s firm selected a handful of bidders for the final round of offers. Prudential was the highest bidder.

Selective buyers

Good Neighbor Care, a facility in Eugene, Ore., for those with memory problems, sold for $240,000 a unit. It was built in 2000 and had a good operating history. “Newer, urban performing properties like this get multiple offers,” notes Grant Kief, president at Senior Living Investment Brokerage, the Glen Ellyn, Ill.-based firm that brokered the sale. Cap rates on high quality assisted living and independent living properties in large metro areas are currently in the low 7 percent range, he adds.

On the flip side, distressed properties aren’t generating a lot of interest from buyers, brokers say. Fewer distressed properties than had originally been expected are coming to market. Banks are slow to force a sale. Potential buyers of distressed buildings know they have their work cut out for them to improve occupancies and upgrade the facilities. “Distressed deals are a whole other world,” McMurtry says.

Though today’s buyers prefer high-quality projects, they aren’t necessarily looking for glitzy ones. A solid performance is the main requirement, Gamzon says. He’s currently marketing a portfolio that’s 96 percent occupied and has an operating margin of 44%. The property itself is targeted at middle income seniors. “It’s a very efficient operating model,” Gamzon says. “Investors want the building with the highest caliber operator at the best possible price point.”


Acceptable Use Policy
blog comments powered by Disqus

Photo Galleries

New York's Star Deals

http://nreionline.com/images/nyc_big_deals_homepage_thumb.jpgThe city that never sleeps is also the city that never stops growing, not even in the midst of recession. And deals, both bold and unprecedented, continue to be done. Check out image of New York's big deals.

Hudson Yards Development

http://nreionline.com/photo_gallery/hudson_yardsCheck out images for Coach's new global headquarters, which will anchor the initial tower of the Eastern Rail Yards site within the 26-acre mixed-

Videos

JLL at ICSC 2012

http://nreionline.com/video/bjorson_thumbnail.jpgCheck out these videos from JLL at ICSC 2012 in Las Vegas...

 

Click here to view more videos.


This Week's Most Popular

Current Issue

http://nreionline.com/april2012_cover.jpg

NREI Newsletters



Retail Traffic Newsletters

View NREI Newsletters

NREI Newsline
NREI Seniors Housing Finance and Development
NREI The Green Sheet
NREI Institutional Outlook
NREI Distressed Real Estate Strategies
NREI Daily/Central
NREI Daily/New York
NREI Daily/New Jersey
NREI Weekender
NREI Global Real Estate Monitor
REIT Insider
Retail Traffic Online
The Site Optimizer

Blogs


http://nreionline.com/blog/schein_blog_headshot.jpg

Real Vox

Traffic Court

The Full Nelson

Events

Strategic Real Estate Investment Conference

Date: Thursday, June 7, 2012
Time: 7:45AM-6:00PM
Place: 1290 Avenue of the America, 5th Floor
What: A full-day event exploring portfolio diversification through opportunistic and alternative investments....

Click here to view more events...

http://nreionline.com/nrei-300x125-house-091211-resourcebook-jpg.jpg

Join the Conversation