What's the best strategy: To own and operate, or to lease and operate? It's a question being revisited by seniors housing investors amid the current credit woes.

A number of operators in the last year have opted to purchase the buildings they run, figuring that's the best way to maximize long-term returns. Other investors, especially the REITs, still prefer the ownership-only model. Some of them, however, are branching into building operations in order to tap the growing business of health services for seniors.

"The best strategy today really depends on the type of owner, and the quality of the real estate location," says Mark L. Myers, senior director of seniors housing in the Chicago office of property broker Marcus & Millichap.

Generally, REITs and big private owners, such as equity funds, won't run a service-intensive seniors building unless they have an operating company, Myers explains. Small private operators still want to own the underlying real estate. But larger operators may not want to own a building with strong cash flow and little upside appreciation.

"Just look at who is selling buildings lately," observes Myers. "Owners are taking advantage of a hot market." He quickly adds that a transition to a cooler market may be under way as tight credit leads to lower building prices. In today's tight credit environment, owners and operators with cash should benefit, observers say.

Owners that want to expand should be able to purchase properties at prices somewhat lower than those of the last 18 months. The same holds true for operators that want to expand further into building ownership.

Health Care REIT is tweaking its strategy. The Toledo-based company owns buildings and leases them to strong local operators. "We believe that all seniors housing is best provided by regionally focused operators that have referral networks and who understand local markets," says company President Ray Braun.

The REIT provides the operator with a line of credit for new development or acquisition opportunities. Properties that meet the REIT's criteria are purchased with the operator taking a lease of 10 to 15 years. At the end of the lease, the operator can renew the lease, or buy the building. "Each year, we sell about $100 million to $200 million worth of buildings," says Braun.

About a year ago, Health Care REIT shifted its strategy in order to cash in on the growth of medical services. The company purchased Windrose Medical Properties Trust, a medical office owner and operator, in an $877 million deal. The combined entity has real estate assets of about $4 billion.

"Right now we have $1.2 billion in our medical office portfolio," says Braun. The portfolio includes 109 medical office buildings with 4.3 million sq. ft. Braun views the medical office business, along with seniors housing, as part of the expanding health care real estate niche.

Emeritus Corp. is taking a different approach. Since last December, the Seattle-based company has purchased 114 properties. About 75% of them were already being leased and operated by publicly traded Emeritus (AMEX:ESC).

"Companies that own the underlying real estate are valued (by Wall Street) at a higher multiple than ones that just lease," says Eric Mendelsohn, director of real estate at Emeritus. Emeritus stock closed Aug. 22 at $25.60, a 39% increase over a year ago.

Another reason to own and operate, Mendelsohn says, is that properties can be used to finance other acquisitions. Also, buildings can be sold for cash in a crunch. "You can't do that with a lease," he notes.

Mendelsohn also likes owning because bank partners are "low maintenance." He explains that the bank usually has only a five-year commitment on a loan for a building purchase.

In contrast, a landlord/owner can make life difficult for an operator with a triple-net, 20-year lease. "The level of scrutiny from a landlord is unbelievable," Mendelsohn says. Annual building inspections often result in $25,000 to $100,000 of repairs. "We pay for everything.”