Seniors Housing Business

AUG-SEP 2015

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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40 www.seniorshousingbusiness.com Seniors Housing Business n August-September 2015 This data shows the resilience of the seniors housing business in good times and bad. Total returns on seniors housing investments averaged 14 percent a year over the 10-year period that ended in the frst quarter, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). On a 10-year basis, total returns for seniors housing exceeded both the National Property Index and apartments by roughly 600 basis points, according to NCREIF. "The returns are quite strong," says Mace. "Best-in-class proper- ties have been producing good income returns as well as appre- ciation returns." Seniors housing fundamentals are also strong despite a large number of new seniors housing properties that opened in 2014. The sector also endured a tough fu season in the winter of 2014-15 that created some new vacancies at seniors housing communities as some seniors passed away. The occupancy rate at inde- pendent living communities fell 20 basis points to 91.2 percent in the second quarter of 2015 from the frst quarter, according to NIC data on the top 31 metro markets for seniors housing. At assisted living communities, the occupancy rate fell to 88.4 percent from 88.6 percent. "Over the next 12 months, we expect demand to largely match supply and occupancy rates to improve modestly," says Mace. "Demand, as measured by net absorption of units, picked up in the second quarter. In the third quarter, I expect demand to pick up further." High valuations pose dilemma Strong real estate fundamentals continue to attract investors. Fund managers now face the challenge of how to deploy the capital they have raised. Prices for fully leased seniors housing properties are now too high to achieve the yield that many private equity funds need to provide to their investors. "It's pretty frothy from a valu- ation perspective," says Aron Will, executive vice president of national senior housing for CBRE Capital Markets. In the fourth quarter of 2014, the average sales price of a seniors housing unit was $147,000 on a 12-month moving average, up 64 percent from its low point in 2010. Meanwhile, the average cap rate for seniors housing continues to hover between 7.5 percent and 7.9 percent, according to NIC. With prices so high, private equity funds are less interested in the bidding wars to buy new, fully leased seniors housing properties In February, Capitol Seniors Housing opened 56 new assisted living apartments and 16 memory care units at Wellbrook South Bay, a new, $34 million seniors community in Torrance, Calif. PARTNERED RIGHT STRUCTURED RIGHT EXECUTED RIGHT FINANCED RIGHT ® Senior bankers specializing in senior projects make all the difference. A Top provider of preferred equity & mezzanine debt A $19 billion + in taxable /tax-exempt fnancing A Bankers with average 24 years experience A The right fnancing solutions since 1935 Arizona, Connecticut, Florida, Maryland, Minnesota, Pennsylvania, New Jersey, Texas, and Puerto Rico. Member of FINRA / SIPC ® Aaron Rulnick, Managing Principal 301.424.9135 | arulnick@hjsims.com "Over the next 12 months, we expect demand to largely match supply and occupancy rates to improve modestly. Demand, as measured by net absorption of units, picked up in the second quarter. In the third quarter, I expect demand to pick up further." — Beth Mace Chief Economist, National Investment Center for Seniors Housing & Care.

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