2015 – Ryan M Saul

Interest Rates are Going Up

December 15, 2015/in Ryan Saul, sell assisted living, sell nursing home, Senior Living Investment Brokerage/by ryanmsaul

Everyone knows that interest rates are going up. All signs point to the fact that it will be this week. What does that mean for you? If you are a Seller, a rise in interest rates could affect the price that buyers can pay. Now may be the time to maximize your pricing and capitalize on the low cost of capital. If you are a Buyer, increased cost of capital will impact what you can pay for a nursing home or assisted living community.

With the changes in regulation centered around non traded REITs and public REITs cost of capital increasing, this has created an environment for private equity and conventional lenders to compete for acquisitions. After a period of time being forced to the bench and unable to compete for deals, they are now able to put money to work. Private equity, private owners and balance sheet lenders are aggressively looking to acquire Seniors Housing communities.

If you have thought about selling your nursing home or assisted living community, now is the time. Please contact Ryan Saul at 630-858-2501 to discuss your options in the current market.

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Is the Market at its Peak in Seniors Housing?

December 10, 2015/in assisted living, assisted living community, buy assisted living, cap rate, Capitalization Rate, cash flow, independent living, interest rate, internal rate of return, Jason Punzel, nursing home price, private equity, sell assisted living, sell nursing home, senior housing brokerage, Senior Housing community, senior housing sales, Senior Living Investment Brokerage, Washington, what is my assisting living worth/by ryanmsaul

For the first time in many years, we have started to hear buyers, lenders and operators start to question whether the market peaked. Commercial real estate in general, and Seniors Housing specifically, both have seen increases in value since the trough of the market in 2009-2010.

Cap rate trends are a good way to follow the market. Cap rates vary widely, but according to the latest report from Irving Levin & Associates, the average cap rate for the 12 months proceeding Oct 1, 2015 for Independent Living was 7.2%, Assisted Living was 7.8% and Skilled Nursing was 11.8%. Overall, the cap rates were steady, or had dropped slightly from the end of 2014.

Cap rates, and thus real estate values, tend to correlate closely to interest rates. This is not only because most buyers use some type of leverage on the properties, but even more so, interest rates are a base rate of return that all investors use to evaluate all types of investments. We have seen many new investors start to invest in the Seniors Housing market over the past several years because the cap rates were higher than in other types of income producing real estate. Many saw it as an opportunity to achieve better returns.

Couple this with short term interest rates near zero percent and the 10 year US Treasury around 2-2.3%, and there is little room for rates to go lower. Thus, there is little room for cap rates to go lower as far as being correlated with general interest rates. Currently, it does not appear that the Federal Reserve will be dramatically increasing interest rates anytime soon, there is certainly a lot more room for interest rates to go up than down.

However, cap rates remain higher in Seniors Housing than many other types of real estate and income producing assets. To the extent that investors continue to divert money from other investments into Seniors Housing. Cap rates could still go lower, pushing prices higher. Nonetheless, with the amount of new investors that have entered the industry in the past several years, it is doubtful that a significant amount more new investors will continue to enter this industry causing a further compression in cap rates.

If the net operating income of an asset goes up, or down, prices will likely also go up, or down, with cap rates staying the same. Given relatively low inflation and a surge in new construction, it is doubtful that net operating income will increase dramatically in Seniors Housing over the next several years.

Overall, we believe the main driver for increased values going forward will be an increase in net operating income, not a further compression in cap rates. While net operating income in Seniors Housing could continue to grow, it will probably be at a slower pace. Cap rates have more room to go up than down. Though given relatively low inflation and a slowdown in the global economy, it is doubtful that an increase in rates will happen at a fast pace anytime soon. The combination of these factors will mostly likely lead to Seniors Housing prices staying relatively stable, but with a risk of a decrease if interest rates increase faster than expected.

If you believe now might be a good time to sell your Seniors Housing Community, please contact Jason Punzel at [email protected] or 630-858-2501 for an in depth analysis of what your community might be worth.

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Matthew Alley Speaks at InterFace Seniors Housing Texas Conference

November 20, 2015/in Alzheimer's, assisted living community, assisted living price, assisted living sale, buy assisted living, buy nursing home, cap rate, Capitalization Rate, CCRC, development, due diligence, exclusive listing, financing, independent living facility, internal rate of return, long term care, market, Matthew Alley, memory care, new construction, nursing home price, prepare to sell assisted living, prepare to sell nursing home, private equity, proposal, REIT, risk, sell assisted living, sell CCRC, sell long term care, sell memory care, sell nursing home, sell portfolio, sell retirement community, sell seniors housing, sell skilled nursing, sell to REIT, senior housing brokerage, senior housing sales, Senior Living Investment Brokerage, seniors housing brokerage, SLIB, Texas, valuation, what is my assisting living worth, what is my nursing home worth/by ryanmsaul

On November 19th, I participated in a panel entitled “Investment Market Update: Who’s Buying, Who’s Selling & Will Velocity Keep Going Up and Cap Rates Keep Going Down”. We had a lively discussion on the current market, and I wanted to share a few takeaways.

1. Who are the active buyers and sellers in today’s market? There is more variety in buyers now than in the past decade. REITs, private equity, owner-operators and even some “mom and pops” have been interested in purchasing properties and growing their portfolio. The sellers have been more diverse than normal as well. “Mom and pops” are still very active sellers, but we have seen more regional and national owners look to take advantage of the strong market and either sell their entire portfolio or divest of a couple of properties that don’t match their strategic vision.

2. Are there different buyers for different seniors housing asset classes? Yes, absolutely. Institutional groups typically chase larger, higher quality assets with consistent cash flow. Their low cost of funds has driven owner-operators down the acquisition spectrum to the smaller assets that may be underperforming.

3. What are the most important metrics that buyers are using in today’s market? Cap rates are the most important metric when valuing a cash flowing property. The difficulty comes in valuing a property that is underperforming. In those cases, a potential new operator will put together a pro forma and land on a rate of return that they’re comfortable with. Those deals typically see a wide range in offer prices.

4. What is the optimal size for acquisitions? Typically, the larger the offering, the better. Institutional groups have a lot of equity to deploy and if they can deploy it in 10 $30 million transactions as opposed to 25 $10 million transactions, groups will typically prefer fewer transactions. One-off or small portfolio transactions have a different pool of buyers, which tends to be less institutional and requires a broker to have a greater knowledge of the individual market and its individual buyers.

5. With pricing so strong in today’s market, why are some owners making a decision to hold? The current market conditions have hastened the timeframe for owners that had a planned exit strategy in the next 12-24 months. That being said, some owners are trying to increase their portfolio’s profitability and increase value in that way. Even if cap rates see a modest increase, a major increase in profitability will still see the owner come out ahead by waiting to sell.

6. Should we be concerned about overdevelopment in the seniors housing space? I think it is the biggest risk to the acquisition market moving forward. This is obviously a market-to-market (and sometimes, submarket-to-submarket) risk. If the area that an owner has a seniors housing facility becomes overdeveloped in the future, census levels will obviously suffer and valuations will go down.

7. What does the increase in development do to cap rates moving forward? It adds a level of risk moving forward. Anything that adds risk – whether it be development, reimbursement or labor risk among others – will naturally push cap rates up.

8. Where do you see the market headed over the next 12-24 months? In the near-term, it should be strong – cap rates are still higher than most other asset classes, interest rates are low and institutional equity needs to be placed. Further into the future, overdevelopment, government reimbursement changes, interest rate increases, increased regulation, increased tax rates and the housing market could cause a bit of a pullback in pricing. That being said, I still think the seniors housing space is better equipped to handle this uncertainty than other asset classes.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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Toby Siefert Handles Pennsylvania Sale

October 27, 2015/in /by ryanmsaul

Senior Living recently sold a 10 unit memory care, 11 unit personal care and 4 unit independent facility in a rural area of Pennsylvania. The 1975 building is licensed for 44 beds. The census is 82% and consisted mostly of private pay residents but did have a few that are SSI and VA residents. The Seller is a non-profit entity with additional communities located throughout the state. This was their smallest community and it was currently operating in the red. A local, for profit owner/operator purchased the facility. The building is on 16 acres offering potential for expansion. For additional information, please contact Toby Siefert at 630/858-2501 or [email protected]

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