Like most real estate, seniors housing is a buyer's market. Owners that want to exit the business, or need to sell a building, must price it right to make a deal. But price still isn't the only consideration.

Buyers seek quality operations too, according Ray Braun, president at Health Care REIT, an owner of assisted living, independent living, skilled nursing and medical office buildings. The company made $1 billion of net new investments in 2008. Health Care’s stock (NYSE:HCN) closed at $37.08 on Jan. 22, compared with $41.74 a year earlier.

The Toledo, Ohio-based REIT evaluates each building for purchase based on two quality measures: shelter and services. "Consumers are becoming more discriminating about the quality of the shelter and care," says Braun. "It's important for buildings to be focused on that, or they will lose occupancy."

On the shelter side, the REIT considers the age of the building, maintenance, common area appearance, and the overall floor plan. The exterior must have curb appeal, and a well-maintained and well-lit parking lot.

Braun's company prefers large, private resident rooms, each with its own bathroom. An assisted living building with double occupancy rooms raises a red flag, notes Braun.

But exceptions are made based on the property type. Nursing homes tend to have more double rooms. Even an assisted-living building with semi-private rooms may be a good investment, if run by a well-tested operator that focuses on that business model, says Braun.

Location matters, too. For example, a building in San Francisco where costs are high and supply is limited may have double rooms but still be a good buy. "A lot depends on the particular situation," says Braun.

On the service side, the operator determines quality. Braun considers a high-quality operator to be what he calls a "gating" issue. In other words, the REIT won't consider buying a building run by an operator that is not top notch. "Our philosophy is that we are doing business with an operator not just buying a building," says Braun. The company owns 500 seniors housing facilities but works with only 60 operators.

When considering a new purchase, the company inspects other buildings run by the operator. "We want to know that this is an operator that is providing quality care and quality shelter," says Braun.

To evaluate services, the company looks at the outcome data for residents as well as discharge patterns. Another important factor are resident and employee satisfaction surveys. "Happy employees produce happy residents," says Braun.

The REIT also considers employee turnover. Though a 70% annual staff turnover rate is not uncommon in nursing homes, Braun says good operators will show a turnover range of 30% to 45%. Some exceptional operators have a turnover rate in the teens, says Braun. "But that's rare."

Health Care REIT reviews state public health surveys when available. The company's Atria Marina Place in Quincy, Mass., for example, provides independent, assisted living and dementia care for about 100 residents. The community was found to be in 100% compliance with all state regulations during the most recent Massachusetts state survey. Prior to making a purchase, the REIT takes about 30 days in the review process.

Following a purchase, properties are inspected by a construction manager at least once every three years. Some buildings are inspected annually. The older the building and the bigger the investment, the more frequent the inspections, Braun says.

All surveys done of the property are submitted to the REIT on a regular basis, along with monthly financial reports, and capital expenditure budgets. "We want to know what is being done to improve the buildings," says Braun. "Things like carpet wear out and they need to attend to that before the building looks run down."

Operators that don't measure up are replaced. "We continue to pursue opportunities with quality operators," says Braun.