In spite of a sluggish national economy and skittish capital markets, the outlook is extremely bright for the senior housing industry. While other asset sectors continue to suffer from a lack of liquidity, recent data suggest that high demand and a return of capital to the senior housing market will make for a rich deal making environment in the months ahead.
According to several recent reports issued by NIC, senior housing has weathered the economic downturn better than other asset types and offers a higher rate of return to investors. As of Q4 2009, the senior housing sector generated a cumulative return of 2.7 times its mid 2003 value, compared to the entire CRE sector, which posted a cumulative gain of just 1.5 times its mid-2003 value, according to the National Council of Real Estate Investment Fiduciaries (NCREIF).
Occupancy rates have stabilized while rents continue to grow, albeit slowly. Demand for senior housing will continue to rise substantially over the next few years, as the first wave of the 79 million members of the baby boomer generation have already passed the age of 60. The fact that Americans are living longer has created longer-term tenants and an increased need for facilities that accommodate the expanding needs of seniors. While demand flattened during the downturn, it has rebounded quickly and is growing at a faster rate than it was prior to the recession.
Meanwhile, construction starts for senior housing properties have dwindled over the past 12 months, which means leasing at existing properties will increase as demand from consumers continues to rise. In fact, the NIC reports that new construction for senior housing is down 32% from the same time period last year, while demand is outpacing pre-recession growth rates. Above average returns and the potential for significant growth are attracting a wide base of potential investors, including TICs, private equity groups, national banks and foreign investors.
Of course, not every senior housing project can succeed in today’s economy. Successful senior housing projects require a combination of strong balance sheets and extensive operating experience to be attractive to lenders. Debt capital is readily available for projects that can prove long term value with experienced owner/operators that have a track record of success.
Savvy brokers are taking advantage of these market opportunities and are reaping the benefits. For example, NAI Bluestone recently secured $14.3M in debt and equity financing for the development of the Arbors at Buck Run, an 85-unit assisted living and memory care facility located in Feasterville, PA. The financing was secured on behalf of Capital Health Group, LLC, one of the nation’s premiere senior housing and healthcare private investment companies, and Orens Brothers, an experienced developer and construction management firm with a long track record of successful projects throughout Greater Philadelphia. Despite the fact that the project required re-development capital in today’s challenging construction financing market, NAI Bluestone was able to identify the right debt and equity capital providers who shared its conviction that the sponsorship, project and its market represented a terrific risk/reward opportunity. Our ability to secure debt and equity re-development capital in today’s market proves that capital is available for strong projects, but it requires strong relationships with lenders, experience and a track record of success.
Looking ahead at 2011, we are going to see more and more activity in the senior housing sector. Brokers with strong lending relationships and experienced development partners will be poised to take advantage of this growing market, which will continue to outperform other asset types in the upcoming year.
Matthew McManus is Chairman of Philadelphia-based NAI Bluestone Real Estate Capital, LLC.
There is power in existing relationships. The power results from the interaction and trust that builds as two parties work together to accomplish a common goal such as selling or leasing property. During the various phases of the interaction, the parties can view performance, attitude, work ethic, general ethics, critical thinking skills, organizational skills, commercial skills, drive, achievement of results, oral and written skills and a host of other components of performance. Successful results coupled with common attributes of performance lead to repeat business.
The statistics bear this out. Government research shows that long term incumbent suppliers are successful 80% of the time in retaining the business. Organizations with strong existing working relationships are successful 40% of the time. Organizations without a meaningful existing working relationship are successful only 10 to 20% of the time.
There are two critical lessons from these statistics and thought process:
- Build meaningful relationships to secure long term business
- Cautiously bid for new business where existing relationships have not yet been formulated
NAI Global has a strong track record on long term performance with our clients who have worked with us over multiple decades. Our results mirror the analytical results shown above. Wouldn’t you rather work with someone who is interested in your long term success rather than short term gratification?
Ted Parcel is Executive Vice President of Corporate Services for NAI Global.
“Today is the day that Britain steps back from the brink” so said Britain’s Chancellor George Osborne yesterday as he presented the Coalition Governments plans to eliminate the £109 billion structural deficit during the lifetime of this Parliament.
Osborne inherited the biggest budget deficit of any leading economy. But the question is: will his plans involving £81 billion of public spending cuts and the loss of almost 500,000 public sector jobs save the country, or push it over the edge into a double dip recession?
The city, primed over recent weeks to expect the worst, received the Chancellor’s news relatively calmly. Certainly we did not see rioting on the streets at the announcement of the rise in the state pension age to 66 for men and women by 2020, saving £5 billion a year.
In total, around £18 billion of savings will come from cutting welfare costs. Local Government took the deepest of the cuts overall, The Department of Communities and Local Government faces a 51% reduction in its budget to £3.2 billion. The cut of 26% in the Local Government Grant to £24.2 billion will have shocked Local Authorities, but no doubt it’s we the public who will suffer with harsh cutbacks predicted in the level of serving provided to none essential services such as parks, leisure centres etc.
Despite the cuts, it’s not been all bad news; the Chancellor has sought to achieve a delicate balance between austerity v stimulus. As promised, Health and Schools spending were protected and the Chancellor found more cash for areas that could boost Britain’s future growth, including investment in science and confirmation that Crossrail, the £16 billion east-west new rail line in London, will proceed.
Certainly for property the effective removal of demand from the Government as a major new property occupier will be doing little to cheer the markets. However with an effective freeze on Government lease renewals for some weeks this has been anticipated and perhaps already built into market sentiment.
The issue remains: how will the rest of the world react to the austerity plans announced by the UK Government? Will the plans announced yesterday in the UK spur other Governments on to grasp the nettle? Only time will tell and in the meantime we must all take our medicine and hope that this is the end of the beginning and there will be brighter times ahead.
Based in London, Paul Danks is NAI Global’s Senior Vice President of Corporate Services working with clients across Europe, the Middle East and Africa.