Overall Market Trends
The seniors housing merger and acquisition market finished 2013 in robust fashion, driven in part by investors searching to find attractive yields on their investment portfolios and the ability of institutional fund managers to blend these lower yield expectations of investors with non-recourse debt in this continued low interest rate environment. Many private owner / operators are feeling the additional burden of an increasingly intense regulatory environment and a more complex operating environment where economies of scale are proving to be increasingly more important.
Despite an unfavorable increasing tax environment for an owner considering a sale, timing is ideal as pricing has reached historic levels for existing facilities. Also, with the significant amount of transactions that occurred in 2013, buyers are now focusing on 2014 acquisitions opportunities with fewer options to pursue.
This market also provides a good opportunity for groups looking to expand as capital is affordable and readily available.
Bradley Clousing of Senior Living Investment Brokerage, Inc. contributed to Senior Housing News’ recently released 2014 Outlook. Click here to view the full article.
Skilled Nursing Summary
Overall, we anticipate the continuation of aggressive pricing for skilled nursing assets given the lack of acquisition opportunities available. However, a number of factors have the potential to curb pricing in the near future. The primary risks are reimbursement pressure and increased labor costs.
Positive Factors
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Pricing for existing facilities to remain aggressive given the lack of product available in the market. Most aggressive pricing in States that have a moratorium on CON’s. Some States, like Florida, are considering a partial lift of the CON, which could have significant pricing implications.
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Cost of debt remains historically low. Also, availability of debt for acquisitions is readily accessible, especially for well-located assets.
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More equity and capital looking to be deployed in the sector.
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Limited new construction. Click here to view NIC’s most recent report on new construction.
Negative Factors
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Likely increase in labor costs due to the Affordable Care Act. The delay in the employer mandate has provided temporary reprieve.
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2012 Report on Shortfalls in Medicaid Funding shows the largest deficit since inception of the report. Click here to read the full report. This is the most recent data available.
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Further pressure on Medicaid could come in the form of the reduction of federal subsidies over the long term after the Affordable Care Act expansion in many states. Click here to read the report on which States have participated.
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Increased regulatory burdens by state survey teams.
Assisted Living & Independent Living Summary
Overall we anticipate the continuation of aggressive pricing for assisted, as well as, independent living assets given the lack of quality assets available. Communities that were once dominant in the market could find new competition on the horizon. On the other hand, the availability of capital has driven capitalization rates to record low levels.
Positive Factors
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Pricing for existing communities to remain aggressive given the lack of assets available in the market.
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Cost of debt remains historically low. Also, availability of debt for acquisitions is readily accessible.
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More equity and capital ready to deploy in the sector driving capitalization rates to historic lows.
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Continued investment return compression in other sectors within commercial real estate has driven additional asset allocation from institutional funds to the seniors housing industry.
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Strategic alignment of operators and institutional capital has created a much more efficient acquisition process for many buyers.
Negative Factors
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Likely increasing labor costs due to the Affordable Care Act. The delay in the employer mandate has provided a temporary reprieve.
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Increased activity in the construction pipeline could affect the performance and pricing for once dominant facilities in specific markets. This is more of a concern in the major metro markets, not in the secondary markets. Click here to read NIC’s most recent report on new construction.
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Increased regulatory burdens by state survey teams – assisted living only.
With these factors in mind, there may never be a better time to explore the strategy of a sale. For a no cost, no obligation pricing proposal on your facility contact:
Brad Clousing, Managing Director
Senior Living Investment Brokerage, Inc.
Phone: (630) 858- 2501 ext. 231
Email: clousing@slibinc.com
