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A Healthy Healthcare Industry Expands As Senior Housing Unit Prices Skyrocket

THE TIME TO ACT IS NOW: The acquisition market is hot as existing providers stay competitive by adding to their portfolio.  Bigger rather than smaller is producing lower costs, higher quality care, and attractive bottom line for aggressive providers in all types of Senior Facilities:  Assisted Living, Memory care, Independent Living, Post Acute Care and Continuing Care Residential Communities.

Low interest rates and cap rates trending downward prompt established providers as well as new players entering the space to compete for the purchase of facilities on the market or future development.  According to statistics, senior housing is the No. 1 asset across all commercial real estate based on returns.  Consequently if a facility which is on the market was purchased at a 12% return, a new operator could be interested in buying it at an 8% return because the perception of risk is diminishing.

As Senior Housing mergers and acquisitions reach over a reported 16 billion, increases in the average price paid per unit is hitting new highs.   Data shows for the 12 months ending September 30, 2014 compared to the previous year the average price per unit for assisted living increased 30.5%  from $150,600  to $196,000, jumped 28.8% from $164,000 to $211,300 per unit for independent living/assisted living, and 7% from $73.300 to $78,400 per bed for skilled nursing.  Driving the increase in skilled nursing prices was the growing number of over $100,000 per bed skilled nursing facility acquisitions in the past two years.

Buyers are positioning themselves for the changing post-acute care market by purchasing those skilled nursing facilities with the most potential to increase their sub acute census and managed care business according to a report by Stephen Monroe.

The Market for high-quality senior living properties today is stronger than it was at the peak of the last bull market in 2006-2007.  The availability of equity and cheap debt, plus an influx of new buyers continues to drive prices up and cap rates down in a senior housing bull market that is seeing more mergers and acquisition transactions than ever before according to Irvin Levin Associates.

THE PRUDENT, DEMAND DRIVEN HEALTHCARE PROVIDER is an active player in today’s   Healthcare Industry which is providing an attractive bottom line as well as a quantum leap in qualitative care for the senior population.

By: Shep Roylance

Decisions Decisions! A Healthcare Providers Dilemma “Keep Up With The Jones” or Sell

Shifts in Health care, the aging population and consumers’ expectations are key elements in forcing providers to evolve and keep up with the fast pace advancement in all areas of the Healthcare industry. Today, senior living is about wellness and engagement which provides programs that fit resident’s emotional, physical intellectual or vocational needs. So the provider is faced with keeping up or falling by the wayside. Keeping up, however, offers many options for a thoughtful healthcare provider to consider.

BIGGER IS BETTER: Operators of Assisted Living, Independent Living, Skilled Nursing, and CCRC who own one or two facilities are drastically and aggressively increasing their portfolios. Portfolio growth will not only help if one facility has a bad year, but it will also help to reduce cost. Mergers and acquisitions are the key growth strategy for the senior housing and care industry by using economies of scale.   High merger and acquisition activity is also being driven by new investors switching from other real estate markets to the senior housing. Some transitions and affiliations have been necessity-driven due to financial and operational challenges. However, recent activity has clearly been strategic in nature. Large and small providers are on the move. For example, the recent merger between Omega Healthcare Investors and AVIV REIT created a 10 Billion real estate trust (REIT)

SENIORS COME IN ALL SIZES AND SHAPES. At one end of the scale are the high end senior living communities offering bistros, Wi-Fi, well equipped fitness and wellness gyms, and all the luxuries that the affluent boomers demand as a necessity. But what about the seniors that can’t afford these expensive services and amenities? The Gap in care will ultimately push the senior housing industry to provide more affordable options. So another opportunity and choice is given to the healthcare provider to address the need of low to moderate income services for the middle class. Not “keeping up with the Jone’s” and merging with other providers to improve quality of care and lower costs may be the answer to keeping a provider from exiting the industry.

SO HANG IN THERE The future looks bright. As Senior and Housing mergers and acquisition reach phenomenal heights the average price paid per unit is hitting new highs as well. The average price per unit for assisted living has increased 30.5 % from $150,600 to $196,600, for independent living from $164,000 to $211,300 per unit, for skilled nursing from 73,300 to 78,400 per bed. Driving the increase in skilled nursing prices was the growing number of over $100,000 per bed skilled nursing facility acquisitions in the past two years, which has gone from just five in 2012 to 12 in 2013 and 11 so far in the first three quarters of 2014 data shows. The availability of equity and cheap debt, plus an influx of new buyers, has been driving prices up and cap rates down in a seniors housing bull market that is seeing more mergers and acquisitions than ever before.

OPTIONS AND CHIOICES are numerous for the Healthcare provider. We are all living longer and leading a healthier life style and as demand for healthcare communities far exceeds the supply, it behooves the healthcare provider to take a long look at the future before making definitive decisions to stay in the industry or to sell.

Rosy Future For Healthcare Industry Is Bringing Everyone Into The Act

Senior Housing investors who are eager to fill the gap between supply and demand, expect to acquire more healthcare real estate as they look forward to growth through acquisition and development. Senior Living industry leaders see that the demand for senior housing is expected to grow as the population of older Americans is projected to double by 2050. That growth is sparking increased activity in the entire Healthcare market for Assisted living, independent living, Continuing care communities, Skilled Nursing facilities, and transitional post acute care facilities. The market for senior housing mergers and acquisitions continues to shatter records and expectations, making 2014 a landmark year for the Healthcare industry.

REITs, public and private equity firms and foreign investors are all competing for acquisition opportunities. According to statistics, more than 50%of the acquisitions are being completed by local and regional providers, 40% by publicly traded and national chains, and the rest by private equity and not-for-profit.  In 2013 non-traded REITs raised 20 billion in capital carving out their roles as significant players in senior housing figures. Non-traded REIT’s have raised approximately 11 billion year to date.   In 2014 the BIG THREE REIT’s have already acquired several billion dollar portfolio deals. Reported at the recent Chicago Nic Conference, the three REITs have been responsible for 7 billion of transactions year to date. A California based private equity firm is moving forward with plans to develop 750 million worth of new construction over the next three years for which it is enlisting foreign investors to help fund a portion of the pipeline.

The growing demand for Senior Housing includes seniors of varied financial capability. There is the demand for high end Assisted Living for the affluent, but there is also a growing need for low-to moderate income senior housing for those seniors with less financial resources. The gap in care offers the investor the opportunity to provide more affordable options not only for the 3.5 million seniors currently living below the poverty level, but also for the middle class Americans who are aging. Developers who formally sought inexpensive building sites, now are biting the head of the snake and building in highly regulated zoning areas like California and New York.

The future looks bright for the Healthcare Industry in the 21st century as we see increased investor interest in all types of Senior Housing. It is no longer viewed as an investment just in a singular property type, but as an accepted asset class in a “complex delivery of care”.

Memory Care Demand Exceeds Supply & Shapes Future of Healthcare Industry

SENIOR LIVING PROVIDERS anticipate increased return on investment as a result of a favorable demographic environment. It’s just basic Business Cycle 101”.   With the growing baby boomer population there will not be enough senior housing for the demand of retired boomers.  Memory care communities are specifically in demand.

It is reported that every 68 seconds, an American develops Alzheimer’s disease.  By 2050 Americans will develop Alzheimer’s every 33 seconds.  The disease, which has no cure, no prevention and no proven way to slow its progression affects 5 million Americans today. It is expected to nearly triple by 2050 as baby boomers age. The nation’s 65+demographic, which currently accounts for 13% of the overall population, is expected to more than double by 2050 to more than 89 million  (20% of the population) according to the U.S. Census Bureau.

To support the need for memory care facilities, many assisted living communities are adding memory care to their services, and developers and architects are including specific design to accommodate the growing demand.  Memory care is very different from Assisted Living care and requires a unique structural design to support optimal living conditions for those who suffer from dementia. It also can effect financing and loan terms. However difficult, the need must be met and the return on investment encourages Healthcare investors to venture into the market.

Brookdale, one of the nation’s largest senior-living operators, has 647 communities in 36 states.  12% of the company’s residents (5771 seniors) are enrolled in Brookdales’s Clare Bridge memory care program at 86 facilities.  Smaller assisted living facilities are also devoting the much needed care and space to Alzheimer residents.  Maristone Living with two locations in the Nashville area, reports that Alzheimer is a growth unit for the company.  About 25% of rooms at Maristone are devoted to memory care residents.

As memory care providers compete to meet the needs of this growing segment of Americans with dementia many are turning to innovative solutions that revolve around engaging the senses.  The emergence of Snoezelen Therapy on the memory care scene is growing.  The therapy requires a controlled multisensory environment which allows memory care residents to guide their own therapy.  The purpose of a sensory room is to excite the five senses and re-engage residents with their environment.  Silverado Senior Living, a memory care provider in 8 states has shown the therapy to be successful.  Vice President of Silverado reports that incorporating the senses is the best means to communicate with memory-care residents.

So once again we see progress being made and the HEALTHCARE INDUSTRY IS ALIVE AND WELL.  The demand driven providers adjust to the demand and make giant steps in quantity and quality of service.