Seniors housing and care properties are attracting much interest from capital providers and investors, and a new report provides seven reasons.
More than $13.6 billion in transactions occurred on a rolling four-quarter total for the sector in the second quarter, according to “Emerging Trends in Real Estate,” a report from pwc and the Urban Land Institute.
Although challenges exist, the authors wrote, “Investors who have partnered with solid operators located in strong markets are seeing outsized investment returns today.”
Seven reasons for the interest, according to the report:
- Private equity returns for senior housing properties on appreciation and income return performance have outpaced returns associated with other commercial real estate for the past 10 years. “According to first quarter 2018 NCREIF Property Index results, the total return for senior housing on a ten-year basis was 10.52 percent — far outpacing the overall property index of 6.09 percent and apartment returns of 6.1 percent,” according to the report.
- The sector is not as cyclical as other property types and was resilient to the effects of recession during the global financial crisis, making it appealing for portfolio diversification. Also, due to the fact that move-ins are based on needs, assisted living can withstand many of the downwind recession pressures faced by other commercial real estate sectors.
- Net operating income is expected to outpace NOI averages in other major sectors in 2020, 2021 and 2022.
- Two-thirds of the inventory was built before 2000, so properties are need updated designs and improved functionality and efficiency.
- Seniors housing increasingly is viewed as an important part of healthcare cost containment.
- Investors’ understanding of the industry is increasing, and data are more readily available; therefore, the capital market is more knowledgeable and disciplined.
- Transaction volumes are increasing, causing investors to believe that they will be able to divest their properties should they wish to do so.
The complete report may be downloaded online.