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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Page 63 of 80 63 August-September 2018 n Seniors Housing Business High-touch service from the highest-caliber professionals... Always. Consistency. Comfort. Confidence. At NorthMarq, the senior-level professionals who handle your loan from the outset remain focused and involved in your needs through closing and beyond. Direct access to a high-caliber team deeply familiar with your loan means faster, more efficient transactions, clearer communication and better support for the entire life of your loan. C O M M E R C I A L R E A L E S T A T E D E B T , E Q U I T Y & S E R V I C I N G To speak to your local expert, visit these funds invested at home. While there has been significant investment by foreign funds into our sector, we do not see this as a major risk factor. Out of our pipe- line of transactions, this has only affected one. The EB-5 program has been used in the past as well, but we have not seen that as a significant portion of the market. Investment from other areas of the world appear to con- tinue to be strong, while most of these groups are investing through a U.S.-based sponsor. Peeking into the future SHB: Looking into your crystal ball, what do the next 12 months hold for seniors housing? Clousing: We will likely con- tinue to see a strong market for well-located, well-designed assets. Non-performing or functionally obsolete assets will continue to be more difficult to sell. Additionally, the market for older, rural nursing homes will also continue to be dif- ficult. Pricing will likely start to be more affected by the increasing cost of capital and headwinds for rising labor costs. Lowes: We believe the acquisi- tions market will continue to main- tain an active pace over the next 12 months due to the availability of capital still present in our space. New buyers and operators con- tinue to emerge on a weekly basis looking to acquire seniors housing assets — the industry is still very much in balance for both buyers and sellers today and we expect that trend to continue. The industry appears very healthy over the near term. Firestone: We will see more turn- over of assets as investors opti- mize portfolios, and new entrants charging into space uphold pricing — but perhaps with a marginally growing bid/ask spread. Again, the attractive acquisition basis is shap- ing the build versus buy conversa- tion, especially as the cost of con- struction continues to escalate SHB: What issues in our industry keep you up at night? Lowes: Staffing, staffing, and staffing. With unemployment nationally so low and pay lagging behind other industries, seniors housing and skilled nursing face a disturbing staffing problem with no easy answer in sight. With the industry talk of overdevelopment focused on occupancy and absorp- tion, our main concern has been on the worker shortage. Who is going to work in all these new buildings? Where are they going to come from? Over time our expectation is that average profit margins will shrink due to higher staffing costs — a trend that may arrive sooner rather than later. We have already observed record usage of overtime pay and agency staffing at facilities in 2018. Cobb: The lack of progress on market penetration rates. All occu- pancy issues could be solved if we could pick up 1 or 2 percent market penetration in most markets. Clousing: High inflation and a collapse of the residential real estate market (given a jump in mortgage costs) would put addi- tional pressure on the occupancy in the industry, which would in turn not provide for rent growth needed to offset the rising capital and labor costs. I believe that is the worst case for our industry. If the inter- est rates can grow modestly and wage growth follow similarly, the additional costs should hopefully be able to be offset by healthy rate growth for the assets. McMurtry: Nothing. I sleep like a baby. Well, a baby that sleeps through the night, not one that gets up every few hours. n

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