Senior housing investment sales, which have been slowly creeping up this year, could see a big boost in activity in the near future. Investors in the sector see senior living assets continuing to benefit from the ongoing recovery in housing, which is making it easier for older owners to sell their homes in anticipation of moving to a senior housing facility.
Seeing this trend, several major public REITs are beginning to sell some of the their commercial assets, which are getting premium pricing in the current market, to raise money to redirect towards senior housing and care facilities, in expectation that the prices will rebound.
Sales volume of senior multifamily housing properties, including assisted living and congregate care facilities, in the first half of this year is ahead of volume in the first half of last year - $1.59 billion vs. $1.18 billion, according to CoStar COMPs records.
However, per unit sales prices have been trending down since peaking in the third quarter of 2011 from about $88,000/unit to $58,000, according to CoStar COMPs.
HCN Leading the Charge
One of the biggest players in the market, Health Care REIT Inc. (NYSE:HCN), completed the $745.2 million final phase of the Sunrise Senior Living property portfolio acquisition this past summer. The REIT’s aggregate $4.3 billion investment in Sunrise Senior Living includes 120 wholly-owned properties and five properties owned in joint ventures with third parties.
HCN has also acquired senior living portfolios in Canada and the United Kingdom. And the Toledo, OH-based REIT is far from done. According to SNL Financial, the REIT has $2.76 billion in revolving credit facilities and cash on hand, giving it the third largest war chest of any equity REIT in the country.
"There are a lot of buyers in the market right now," Scott M. Brinker, executive vice president of investments of the REIT said recently. "Like us, they're attracted by resilient returns and strong fundamentals. In times like these, we turn to our vast network of relationships for proprietary deal flow."
Other investors are also positioning themselves for future investment in the sector. This past week, Senior Housing Properties Trust in Newton, MA, announced a deal extending the term and reducing the interest rate and fees on its $750 million unsecured revolving credit facility. It owns 395 properties in 40 states and Washington, DC.
Senior Housing Properties Trust‘s credit facility had a maturity date of June 2015 and interest paid on drawings was LIBOR plus 160 basis points. The maturity date of the amended credit facility is extended to January 2018 and interest paid on drawings is reduced to LIBOR plus 130 basis points.
The REIT had no problem finding lenders willing to back the deal. Wells Fargo, Royal Bank of Canada and Citigroup lead the facility, which also included 16 other national and international lenders.
Lenders across the board are stepping up their activity in the market.
"We expanded our large corporate banking team to add a senior housing team," Kessel Stelling, chairman and CEO of Georgia-based Synovus Financial, recently announced. "They specialized in skilled nursing, assisted living, and independent living facilities. [There is] great growth and great quality growth in that area, and we adopted a bank-wide unified sales platform system to allow these new units to communicate better with our existing bankers spread throughout our five-state footprint as we began to sell deeper and cross-sell opportunities throughout our footprint.”
Investors Real Estate Trust, a Minot, ND-based that invests primarily in income-producing properties in the upper Midwest, this summer said that, for the remainder of its 2014 fiscal year, it planned to dispose of assets in non-core markets, particularly industrial and retail segment assets, and use the proceeds to buy more assets in its multifamily and health care segments.
The REIT currently owns 65 health care properties (including senior housing) and 88 multifamily residential properties with 10,351 apartment units. It also owns 68 commercial office properties, 14 commercial industrial properties and 28 commercial retail properties with a total of approximately 12 million square feet of leasable space.
Roundabout Way to Invest in Senior Housing
Another REIT, Mortgage REIT Newcastle Investment Corp. is also setting itself up to expand its senior housing debt investment activity, but in a roundabout way.
Newcastle, which owns approximately 52% of GateHouse Media Inc.’s $1.2 billion of debt, is beefing up its newspaper investments so that it can eventually spin off its media assets into a new company leaving it to be more singularly focused on senior housing assets.
Newcastle Investment Corp. this week acquired Dow Jones Local Media Group, which operates 33 local publications, including eight daily and 15 weekly newspapers, from News Corp. for $87 million.
The Local Media Group operations will be managed by GateHouse Media, which Newcastle plans to put into bankruptcy reorganization. Newcastle has entered into an agreement with other creditors in a prepackaged plan of reorganization, which will convert its debt position into equity of GateHouse. The company would then emerge from bankruptcy as a new stand-alone entity.
Following the deal, Newcastle will be more concentrated in the senior housing sector.
As of this week, Newcastle has invested about $167 million in senior housing. By the end of the year, it expects to have $400 million deployed.
"That’s our estimate based on current market conditions and on current pipeline that although we have in front of us," Wesley R. Edens, chairman of Newcastle said.
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