Senior housing isn’t usually the first thing on investors’ radar when considering a stake in commercial real estate, but a recent mega deal might have them thinking differently.
Sabra Health Care REIT and Care Capital Partners merged in a $7.4-billion deal last month. The combined entity, once the deal closes later this year, will operate just under 560 senior-housing and healthcare facilities across North America. For its part, Sabra announced a $1-billion development pipeline two years ago.
This is not the only significant recent merger in the senior-housing sector. Colony NorthStar was formed last year in a $17-billion marriage between NorthStar Asset Management Group and Colony Capital.
Besides these mega deals, senior-housing transactions in general are on the upswing, according to the National Investment Center. Total purchases of these assets totaled $4.4 billion during the first quarter. Institutions and private buyers are currently leading the way in these deals. Private-equity firm Blackstone alone made two buys totaling about $1.9 billion.
Part of this activity is no doubt due to an increasingly aging population, and the influx of Baby Boomers into retirement, but there are other factors at work as well.
An improved housing market is prompting many over 65 to enter the senior housing sector after they cash out on their homes, according to Marcus & Millichap(M&M). On the investment end, the firm points out that REITs are mainly interested in assisted and independent living. Private buyers are big purchasers of memory-care assets and private investors steer more toward skill-nursing properties.
Seniors housing construction is on the upswing. California, Florida, Illinois, Missouri, Ohio and Texas all have more than 2,000 units in development this year. An additional 11 states are home to 1,000 to 1,999 new units, says M&M.
The best occupancy rates to be found now are independent-living assets, which boasted a 91.7-percent occupancy rate during 2016, its best performance since 92 percent, in 2008. Assisted-living facilities were at 89.7 percent, a bit down from prior years when they stood at 90 percent or more. Skilled nursing came in at 86.8 percent, a 60-basis-point-drop from the prior year. Continuing care (CCRCs), which represents facilities with independent and assisted living, as well as nursing homes, finished 2016 at 90.9 percent, close to its 91 percent average over the last two years.
M&M expects rent growth to increase in all of these asset classes. Occupancy should get tighter in independent living and CCRCs this year, while assisted living and skilled nursing should remain flat or slightly dip.
With a population that is getting older and a housing market that is bouncing back, giving the elderly more financial incentive to make a move into a facility, there is no reason to assume that senior housing shouldn’t continue to strongly perform over the near future.