2017 Outlook for Seniors Housing? Growth, Unabated.
A confluence of demographic and economic trends is continuing to propel the seniors housing healthcare industry from a specialized cottage industry to a booming business. Despite some fears about the economy in general, nursing home operators and other industry insiders don’t see any signs of a slowdown in this specialized portion of the real estate world.
Twenty years ago, seniors housing, which includes independent living, assisted living, skilled nursing, and memory care facilities, was seen as a cottage industry, dominated by mom-and-pop developers. It was highly fragmented and lacked access to capital and institutional investment. Today, it’s an attractive sector for capital providers and developers alike. Despite how far it’s come, today, the healthcare real estate business still has room to grow, as the Baby Boomer generation has yet to reach the peak years when they will need to access healthcare facilities and other seniors housing.
The outlook for healthcare financing and leasing was the topic of a March 2017 panel at Bisnow’s Big South Healthcare Event. Monique Bimler, Senior Mortgage Banker and Vice President, KeyBank Real Estate Capital, joined colleagues who specialize in healthcare investment and leasing.
At KeyBank Real Estate Capital, the Healthcare Real Estate group focuses on the integrated financial needs of organizations in this sector. Last year, Key provided $3 billion dollars of capital, including $1.5 billion in permanent financing, in the seniors housing sector. These specialized seniors housing facilities are by nature viewed differently than traditional real estate. Financing them is different because the operating business is an integral component of the overall investment strategy. These properties are not simply a place to live; they provide care for residents’ physical and mental wellbeing and specialized amenities. From a financing and investment standpoint, banks must evaluate not only the developers and investors, but the prospective operators of these businesses to ensure that they are working to maximize value.
The panel’s consensus was that healthcare finance is in growth mode. If you’re building or acquiring healthcare real estate, you have access to a larger pool of lenders than ever before. On the acquisition side, lenders are providing a variety of debt options from short-term bridge loans to permanent financing to get deals done. Fannie Mae, Freddie Mac, the Federal Housing Authority (FHA), and the U.S. Department of Housing and Urban Development (HUD) offer financing options, as well as Commercial Mortgage-Backed Securities (CMBS) and life and pension funds.
The industry itself has helped draw institutional investment to the sector, through the National Investment Center for Seniors Housing & Care (NIC). NIC provides data and analytics that help bring together providers and investors. The sector’s strong investment performance has also drawn the attention of an increasing number of investors, including those from outside the United States.
For example, last year Key lead the financing of a $930 million transaction that included a Chinese life insurance company seeking a multifaceted investment portfolio. Panelists agree that successful investments like that one are expected to increase; the attractive returns and opportunity in the seniors housing marketplace will continue to draw domestic and foreign institutional investors alike.
Potential 2017 challenges
Rising interest rates are on everyone’s minds, but the panelists believed the healthcare real estate market would not be overly reactive to rising interest rates. They observed that because the rate increase has been on the horizon for several years, institutional investors and lenders have had time to prepare for it. The increase in rates on the debt side has not yet translated into changes in pricing on the acquisition side because of the amount of competition. However, another 25 or 50 basis points increase in yields may affect whether this volume continues or begins to slow down.
Opportunities await in healthcare finance
Growth in the seniors housing market presents opportunities for developers, investors, and institutions, and with consumer demand poised to increase as Baby Boomers age, this growth shows no signs of slowing down. An integrated approach can make the complex arena of seniors housing and care facilities grow clearer and result in attractive returns for all parties. KeyBank’s healthcare finance team works together to deliver the best possible debt, equity and advisory services in this specialized field, arranging permanent healthcare property financing, syndicated loans, and agency financing.
To learn more, contact:
Monique Bimler, Vice President, Senior Mortgage Banker, KeyBank Real Estate Capital
at 214-540-9110 or email@example.com
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