Seniors Housing Business

AUG-SEP 2018

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

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www.seniorshousingbusiness.com 61 August-September 2018 n Seniors Housing Business I D E A S I N T O A C T I O N Investment Brokerage and Banking | Capital Market Debt/Equity Sourcing Mergers and Acquisitions | Valuation and Financial Analysis Market Consultation and Research | Specialized Consulting Assignments WE NAVIGATE THE COMPLEXITIES OF SENIOR HOUSING. Now it is more important than ever to partner with experts who can close complex real estate transactions. Cushman & Wakefield's national Senior Housing Capital Markets teams offer a platform of integrated services providing owners and operators, developers, REITs, lenders, and advisors with seasoned experts. What can our Senior Housing team do for you? cushmanwakefield.com/senior-housing C A P I T A L M A R K E T S FOCUSED ON YOUR NEEDS margins. Cobb: While not tradition- ally considered seniors housing, I am most bullish on market-rate, 55-plus senior apartments (lifestyle communities). I am also very bull- ish on affordable independent liv- ing with a la carte services. I am pretty bearish on low- barrier-to-entry tertiary and sec- ondary markets for assisted living and independent living. Jandris: There's an allure in brand-new, well-located infill prop- erties — typically large assets with 100 to 120 units that offer a mix of independent living, assisted liv- ing and memory care. Active-adult communities are becoming more popular now given the demand from a demographic of people who are a bit younger. On the bearish side, older facili- ties that are smaller, typically with 25 to 40 units and located in tertiary or rural locations, are harder to sell in the current market. Mooney: We are bullish on stabi- lized assisted living/memory care and skilled nursing properties in high-barrier-to-entry markets such as Seattle and coastal California. This has been a bulletproof seg- ment of the seniors housing mar- ket, and we think this will continue. We are bearish on senior living communities, particularly stand- alone memory care communities, in oversaturated markets with low barriers to entry such as Phoenix and Dallas areas. Ripples of overbuilding SHB: The high rate of new con- struction is finally slowing down, but not before driving occupancy rates to record lows. How has this trend affected the acquisitions side of the sector? Why do we still have so many pockets of overbuilding? Mooney: A large part of the acquisitions market has been focused on acquiring value-add opportunities, including acquisition of underperforming assets in over- built markets. Overbuilding results from overly optimistic developers and aggressive lending practices coupled with insufficient knowl- edge of seniors housing. However, in markets with high population growth rates, demand will eventually catch up to sup- ply assuming future development is limited. We continue to see new development in even the most satu- rated markets because developers are fundamentally optimistic, and frequently their interests are not in alignment with providers of capital and operator entities. Lowes: For better or worse, this real estate asset class suffers from a long development cycle. Decisions are often made 18 to 24 months ahead of actual development, before perfect market data is avail- able. Development activity is often more heavily correlated with con- struction financing conditions than with market data. I think all buyers in today's market have been more cautious in evaluating the barriers to entry in a market and evaluating replacement costs in their pricing. McMurtry: Investors are more cautious today on occupancy fill- up projections. Understanding the strength of the market, and poten- tial new competition, is a big fac- tor in determining stabilized occu- pancy and fill projections. Not all developers have access to good market data and demograph- ics. Many developers have a piece of property they are trying to find a use for, rather than determining where there is a need. Fortunately, there are fewer developers like this today than there were in the past. Firestone: The aggregate belief is that baby boomers equal demand over time. As investment structures become more aligned and flexible

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