Surprisingly, occupancy for seniors housing dipped down in the first quarter of 2015, despite positive industry fundamentals, strong competition for space and still-muted construction in most markets.
The National Investment Center for Seniors Housing & Care (NIC), the industry’s data-collection company, based in Annapolis, Md., said in a recent report that the average occupancy rate for seniors housing properties between January and March was 90.2 percent. The rate is a decrease of 0.2 percent from the previous quarter, with independent living occupancy coming in flat at 91.2 percent, and assisted living dropping 60 basis points to 88.7 percent from the fourth quarter.
However, rent growth is still strong, especially for independent living, accelerating to 2.7 percent in the first quarter, says NIC Chief Economist Beth Burnham Mace. She points to other strong fundamentals, such as the National Association of Realtors announcing on Tuesday that March existing home sales jumped 6.1 percent. A strong housing market should encourage more seniors to sell their homes during the spring and summer months and to look for community housing, she says.
Mace says supply was only moderate during the quarter, virtually unchanged from the end of 2014, so it’s likely soft demand arose from the weather or consumer confident factors. “Maybe it was a combination of the coldest winter on record, at least here in the Northeast, and a strong flu season, that may have caused move-ins to drop,” she says. “At some points the job activity slowed, and the stock market was skittish, but one quarter doesn’t make a trend. We’re not willing to say it is a longer-term slowdown.”
Marcus & Millichap, in a first-half 2015 report, claims that 2015 will be a banner year for seniors housing investors, with gains expected in both the independent and assisted-living sectors. Investors don’t seem to have noticed any vacancy troubles. Strong acquisition demand has buyers outnumbering sellers by a large margin, with non-traded REITs bringing in up to $30 million into the sector, mostly to chase private-pay assisted-living properties, according to the report.
Mark Myers, a senior director at Marcus & Millichap’s National Senior Housing Group, says deals are today being done one right after another. “Cap rates remain very strong for sellers, as well. It’s just a great market for everyone,” he says. “The REITs are flush with low-cost capital, and there’s more a lack of supply than demand. Even in the pockets that may be getting overbuilt, like Texas, builders still want to build there and owners still want to own there.”
The buyers include REITs such as Griffin American Healthcare REIT III, co-sponsored by American Healthcare Investors and Griffin Capital Corp, based in Irvine, Calif. The trust recently reported that it had acquired 18 healthcare properties in 11 states in the first quarter, including three seniors housing properties, a hospital and 14 medical office buildings. The seniors properties purchased include assisted living facilities in North Raleigh and Mooresville, N.C., and the Springdale Assisted Living Facility in Springdale, Ark.
Danny Prosky, president and COO of the trust, says his firm is now working on 30 more health care acquisitions totaling $509 million. He says he’s not too worried about new buyer competition. “I saw the NIC data, but I still believe the overall trends are still positive,” Prosky says. “Slow, steady growth is good, not too much overbuilding. All an investor has to do is focus locally, not nationally, that’s what is more relevant to each seniors housing deal.”