[Blog] Cheap Options and the Long Game: Making Hay out of the Uncertainty and Easy Money, While the

To our friends, colleagues, and clients in the Seniors Housing and Healthcare Sector, we know that you are no strangers to risk, change and constant uncertainty. Whether those challenges come in the form of regulatory overhaul, staffing gaffes or partnership woes, your place as leaders of business and care is a precarious but ultimately rewarding one. You are the pioneers on the frontiers of commercial real estate.

So, what are you bold-but-calculated risk-takers to do with the current market environment and its apparent contradictions? On one hand we see unprecedented growth, on the other, falling occupancy, looming governmental reform and more competition from shiny, brand new neighbors than ever before.

The bull case includes these facts:

  • The second quarter of 2017 saw over $9.7 billion of publicly announced Senior Housing and Healthcare sales, which is the highest dollar volume recorded in the last 3 years (according to Seniors Housing News).

  • The number of announced deals has increased from a pre-recession high of about 135 per year in 2006 to over 350 per year in 2016 (CBRE study).

  • Seniors property level returns beat out all other asset classes in 1, 5 and 8-year old studies (CBRE study).

While the bears would point out that:

  • 2017 has seen the lowest national occupancy levels in healthcare since 2013 (now at 88.8%), with AL at its lowest since 2010 (now at 86.5%)—according to NIC.

  • More than 5,900 units came online in Q4 2016 (NIC).

  • The average cap rates for Seniors/Healthcare in 3Q 2016 were between 8.0% and 12.5%, which is up from 7.0% to 11.5% over the previous years (Hargrave Analytics).

It’s hard to know what will follow the above data points: which, if any, of the aforementioned are trends that are here to stay, and how many are merely blips with little insight into the industry’s direction. Yet, in the face of uncertainty, there are some measures you can take to shore up against whatever else the industry will throw at you in years to come. We see this moment as an unusually opportune time to leverage the cost and flexibility of niche capital to protect yourself and your facilities. Whether that capital is used to build a new facility to take advantage of supply-demand inefficiencies, to pull tax-exempt cash out of a performing facility, or to reposition units on an acquisition to realize the full value of an asset, that financing acts as a cheap, but hard to find, option.

We have spent this last year helping our clients take advantage of niche bank and private office interest in the Seniors/Healthcare space that is otherwise unavailable from major national banks or HUD/GSE providers. That has looked different for each owner-operator and his needs, but some examples include:

  • Assembling a consortium of local banks to lend an 80% LTC on a new AL/MC facility in a second tier MSA

  • Underwriting an acquisition loan to include higher acuity upgrades to 30% of the rooms for a SNF

  • Closing on a substantial cash-out refinance provided by a private family office for a recently converted IL to AL that was only 30% occupied

  • Securing a low-rate, 75% LTV land loan, which enabled our client to close on his acquisition while still assembling his development team and equity

While we don’t know what the future holds, we do know what the market can fund, today. It is the power of this capital that our borrowers are leveraging to ensure a more resilient and powerful future for their facilities. We invite you to join the discussion and learn more about what that looks like on this Fireside Chat between Jeremy Stroiman of ESI and me. Click here to play the podcast.

JD Stettin is the Managing Partner of Carnegie Capital, a commercial real estate finance firm with a special focus on Healthcare and Seniors Housing. JD may be reached at jdstettin@carnegiecp.com.


Recent Posts

See All