I am all-too-well aware of the fact that nobody likes a party pooper.
Yet it’s time to point out a possible scenario few among us will want to acknowledge: A senior living bubble may be about to burst.
A reckless, fearmongering prediction on my part? Perhaps, but I don’t think so. And before you get back to the dance floor, please consider the following three observations.
Observation One: There is an awful lot of low-cost, low-hurdle capital for the taking right now. Rare is the operator who cannot find funding for remodeling, renovations, a new wing or something a bit more ambitious. That’s not a bad thing per se. But history has shown that too much of a good thing is rarely a good thing in senior living.
It was not long ago that the National Investment Center for Seniors Housing & Care Fall Conference limited participation to 1,500 attendees. This year, there were more than 3,100. Happy-to-be-here newbies accounted for much of the increase. Many of these exuberant deal-seekers have yet to experience the ugly side of senior living investing. Believe me, it’s not pleasant for anyone involved. Except maybe bankruptcy attorneys.
Observation Two: There are not a whole lot of good deals to be had right now. When lenders compete, you win. That’s a phrase Lending Tree is making famous. But what happens when an operator obtains money that never should have been forked over? Well, it was about 11 years ago that we saw that scenario play out in the housing market. As for how that story ended, anyone remember the Great Recession?
Observation Three: A lot of players seem to be hedging their bets. Take a look at our update from yesterday: Brookdale continues to trim its portfolio, National Health Investors has restructured its Holiday lease agreements and LTC Properties is trying to figure out why occupancy is down. Not exactly warm and fuzzy developments, are they? Again folks, those are stories from a single day.
Each of these observations is a bit troubling on its own merits. Collectively, they make a strong case for trouble on the horizon. Hardly want to sound like I’m crying wolf here. But don’t say you weren’t warned.