Seniors Housing Business

MAY-JUN 2018

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

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Page 29 of 40 29 May-June 2018 n Seniors Housing Business visit us @ Eastern Region Lawrence Brin (301) 841-6484 Central Region David Sharp (312) 488-4524 Western Region Jason McMeen (312) 288-8603 FHA Group Head Brett Patrick (303) 757-2148 Hey Ginger, I heard Midcap is closing short term bridge to HUD loans at sub 400 spreads. They don't broker the bridge, they use their own capital and make all the decisions! I can't wait to hear what they come up with next. Psssst… A nod to combo projects Properties that offer both assisted living and memory care are finding favor with investors. They understand that the average age of an assisted living resident is 87, and who by that age prob- ably already has some memory problems. "Investors owning independent- and assisted living-only properties don't want to lose residents to a stand-alone memory care build- ing," says Chad Elliott, manag- ing director of the mergers and acquisitions group at financial ser- vices firm Lancaster Pollard. He is based in the company's Philadel- phia office. "Investors like proper- ties with a continuum of care so that residents can step into higher acuity care as needed within their network." National Health Investors, a healthcare REIT (NYSE: NHI), owns about 220 properties, most of which are seniors housing proj- ects, along with skilled nursing and medical office buildings and specialty hospitals. "We favor buildings with a combination of assisted living and memory care," says Kevin Pascoe, chief invest- ment officer at NHI, which is based in Murfreesboro, Tennessee. NHI and Bickford Senior Liv- ing have developed a handful of ground-up projects that offer both assisted living and memory care units. The projects include a total of about 60 units — 44 assisted living units and 16 memory care units. Assisted living buildings with memory care offer residents and their families more options, says Pascoe. If an assisted living resi- dent develops memory problems, the elder can move to the memory section of the building, thereby avoiding a disruptive relocation for the elder and the family. Other considerations come into play for investors. For example, stand-alone memory care build- ings are typically smaller than properties that also include assisted living units. The projects require less land and are less costly to develop. "It's a double-edged sword," says Pascoe. NHI's typical stand-alone mem- ory care buildings include about 30 to 40 units, which makes them efficient. However, a small build- ing of 40 units that loses just four residents has a 10 percent decline in occupancy. "That's a head- wind," says Pascoe. He adds that NHI owns several stand-alone memory care proper- ties, noting that those properties still play an important role in the sector. But stand-alone commu- nities require an operator highly experienced in the field of memory care. Eye-opening survey A recent survey of investors con- ducted by commercial real estate services firm JLL showed that seniors housing overall ranked third among 24 commercial and multifamily subsectors in 2018 for best investment and development prospects. But 56 percent of investors said stand-alone memory care facilities were not desirable, while 81 per- cent said assisted living buildings with or without a memory care unit were desirable. Also, 97 percent of respondents said the most desirable property was an independent and assisted living building with or with- out a memory care unit. Stand- alone skilled nursing facilities were viewed as the least desir- able property by 70 percent of the respondents. Generally, investment returns are lower for stand-alone memory care buildings than for those that also include assisted living, say sources. The average investment return for seniors housing prop- erties is about 14 percent. Higher levels of care require more staffing, which cuts into profit margins. Cap rates for well located, high- quality, memory-care-only proper- ties are currently about 8 percent compared with about 6.75 to 7.5 percent for combination assisted living and memory care buildings, say sources. Lancaster Pollard recently mar- keted a portfolio of properties in Northern California that included two stand-alone memory care buildings. The memory care build- ings were also marketed sepa- rately, but were much less desir- able on a stand-alone basis, says Elliott. "A meaningful number of investors are not interested in stand-alone memory care." The case for memory care Stand-alone memory care still has a place in the sector, according to sources. Done right, memory- care-only properties are the facili- ties that can best manage and treat residents with memory loss. Memory care provider Silverado operates 36 stand-alone memory care properties. The Irvine, Cal- ifornia-based company has four new projects under development.

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