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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62 www.seniorshousingbusiness.com Seniors Housing Business n August-September 2018 Colliers National Seniors Housing Group Our team understands how to successfully manage a seniors housing asset from contract to closing . Accelerating success. Damien Carriero +1 727 298 5304 Southeast Region Doug Brawn +1 310 321 1880 Pacific Region Tim Dulany +1 602 222 5186 Southwest Region Elena Bakina +1 713 830 4008 Southwest Region Ken Carriero +1 727 450 6876 National Region Call: +1 800 858 5904 Email: NSHG@colliers.com Bob Gaines +1 215 928 7538 Mid-Atlantic Region Shane Harmon +1 858 677 5337 Southwest Region Marcus Van Ameringen +1 404 877 1099 Georgia Michael Liguori +1 407 843 6564 Central Florida Oliver Maron +1 208 472 2839 Northwest Region Christopher LoBello +1 702 836 3714 Rocky Mt. Region Jake Tucker +1 208 472 2846 Northwest Region Chris Kirwin +1 519 438 4300 Canada Jeff Hyman +1 847 384 2827 Midwest Region with respect to fixed payments, we are witnessing continued invest- ment activity in light of occupancy challenges in the short run. Clousing: Most feedback has been that the demographics will really begin to take hold and favor our industry between 2023 and 2025. Market-by-market occupancy could stall for a time until then. More conservative occupancy tar- gets and rate growth have been a focus in the acquisition and lending market. It is going to continue to be a challenge in certain markets. Lastly, many new groups have entered the market that did not have previous experience, but had the capital and lender relation- ships to build an asset. Most over- built markets that we observe have at least one project that was built by a new entrant into the market, typically from a developer coming from another asset class outside seniors housing (often multifamily or hospitality). The finance puzzle SHB: After years near record lows, interest rates have started to creep up. One theory holds that as interest rates rise, eventually so too do cap rates. Is that currently the case industry-wide? Mooney: Theoretically, capital- ization rates increase with interest rates. However, the availability of capital from private equity groups has resulted in a compression of expected returns on equity, result- ing in relatively flat capitalization rates. Capitalization rates have remained low in spite of mod- est increases in interest rates. Cap rate compression has resulted lower yields. Ultimately the higher prices do not fully reflect the addi- tional risk of a business-intensive real estate investment relative to other real estate asset classes. McMurtry: The rise in inter- est rates has not had much of an impact on cap rates — yet. Most of the interest rate rise has been absorbed by the competitive mar- ket for acquisitions. In the past, I have always felt that cap rate increases lagged interest rate increases, and the timing of this lag depended on other macro- economic factors. Cobb: As interest rates rise, so will the cap rates on other asset classes such as multifamily. As yield becomes stronger for what are perceived to be less risky invest- ments, we will see less money com- ing into seniors housing. Interest rates will have an impact on seniors housing cap rates, but not directly. SHB: Has foreign investment in the U.S. seniors housing market increased, decreased or held the same over the past few years? Jandris: There has been a decline in foreign investor activity. Accord- ing to NIC, over the last four quar- ters foreign investors accounted for only 1 percent of the buyer pool c o m p o s i t i o n ; whereas over the previous two years they rep- resented 6 per- cent of buyers. Foreign inves- tors closed $236 million worth of transactions over the last four quarters com- pared to the pre- vious four quar- ters that totaled $1.4 billion, a marked decline. Some of the key drivers behind foreign investors pulling back on investment in the space are the current political climate and over- building concerns. Carriero: As a broker in an inter- national company, we have seen an increased interest in the U.S. seniors housing market. Basing my opinion on comments made by some foreign investors, the oppor- tunity for a higher return on invest- ment exists in the U.S. McMurtry: Foreign capital demand ebbs and flows with mac- roeconomic factors. Foreign inves- tors like seniors housing in the U.S. for multiple reasons — to gain knowledge to take back to their home markets, portfolio diversi- fication and demographics. Many countries have an even more aggressive aging of their popula- tions than we do. Firestone: It has remained flat. Overall it's been more talk than action, especially with growing challenges of investment crossing borders. Clousing: Chinese investment has been grabbing the headlines lately, with a reduction of 55 per- cent in real estate investment over 2017 and likely a larger reduction in 2018. This is mainly being driven by the government looking to sta- bilize its own currency by having Tim Cobb Berkadia Bradley Clousing SLIB Greystone has arranged the $17 million sale of two memory care communities in New York totaling 46 units. The portfolio includes Peregrine Senior Living at Clifton Park, pictured, located on 5.3 acres in the Albany suburb of Clifton Park.

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