It’s an exciting time to be involved in investing in the senior housing sector – and the “big wave” of boomer residents has yet to break!
Platinum Commercial Holdings, LLC’s principal Carole Crawford joined fellow panelists Michael Treiber of Capital Healthcare Investments, LLC and Chris Kronenberger of Blue Moon Capital Partners in New York City recently to discuss the current state of the industry and where it’s headed from an investment perspective.
Their roundtable was part of “Opportunities in Senior Housing and Care,” an April 3-4, 2018, conference billed as a “Summit for Investors, Lenders, Senior Housing Entrepreneurs and Transaction Deal-Makers,” sponsored by the International Institute for Business Information & Growth, LLC (iiBIG).
Crawford founded PCH in 2012, she said, to offer two services: First, to syndicate commercial real estate deals in certain market sectors and second, to offer high-level, very granular analysis, research and due diligence advisory services in the senior housing sector, primarily.
Types of assets within the senior housing sector range from the more-social “active adult,” generally 55+ independent living communities to assisted living to facilities offering skilled nursing/medical care (including Alzheimer’s and memory care centers).
There’s no lack of deals for investors, Crawford said, but she stressed that PCH is committed to finding the right deals. At this point, that leans heavily toward independent living investments in the Southeast, Southwest and some parts of the Midwest. “It’s a matter of cherry-picking and digging and making sure that you find the right deals – as in any market,” she said.
With eyes focused on a coming influx of baby boomers moving from single-family and multifamily residential into senior housing, “it has been one of the most interesting times to be involved in the industry,” Crawford observed.
The panelists agreed the senior housing sector is one that should prove lucrative to both developers and investors for the long term – provided they have the benefit of extensive due diligence and careful analysis.
From the panel discussion, here are some highlighted trends and projections:
Which is more restrictive in your investing efforts: a lack of quality real estate or a lack of quality operators?
“I really believe the operator landscape is the critical thing. This is an operator-driven business,” Crawford noted. It’s far easier to find an asset than to find quality operators, yet it’s crucial to have a balance of both: a sound asset and a proper management or operator team behind it to adapt to changing market conditions, consumer preferences and other variables.
Having the right operator can be a do or die situation, Crawford said, noting, “I’ve heard of there being as much as a million-dollar mistake by having an operator in place that does not really understand what can be done, for example, in a distressed property, the obsolescence factor.
“We’ve been pitched a lot of rosy opportunities that, when you dig down, are not what they seem and the client is going to be disappointed upon finding out that the investment is not even 50% of what he or she had planned on. And it’s mainly because operators either are not doing the financials right, or they’re not doing the type of innovations, or the type of work to make sure that the building can be competitive in the marketplace.”
What steps can you take to ensure you have a competent operator?
“Our process is very plainly checklist, financial due diligence … and there’s also the softer side, or the socioeconomic side. We analyze the marketing, in terms of how they are getting residents to come to the facility and of getting them to be happy to come there in the midst of a very tough emotional situation. “It’s important to match the personnel to the type of facility, too. And we look to see what has been done in the previous two or three years, making sure that the marketing is being done in a way that fits the facility, and that the operator understands what the mission is for the investors, and what the residents really want.”
What changes can we expect to see in the senior housing sector?
“Among the trends that we see that are also going to involve development will be dining options, and some other lifestyle options that we really haven’t seen before.
“We’re starting to see things being personally branded; there are facilities that are being very creative in an effort to keep their residents happy and are offering all kinds of dining solutions, including house brands. For example, at ABC Facility, they may be trying to provide ABC-branded coffee, wine, or whatever as an added incentive, and other in-house products. The industry really hasn’t been known up to this point for its glamor, or its marketing or its branding. But that is changing.
“Also, we see the active senior lifestyle, and independent living becoming more prominent. I believe you’re going to see even more demand and there are going to be a lot of other amenities offered that will affect development and cost – the bottom line. This is a market that is going to be active consumers more than previous generations, because they’re going to live a lot longer and be healthier into their later years. So I think it’s exciting that development is going to take on a whole different face of what we’ve seen before.
Owners and operators are going to have to be creative, and put that marketing brand to work in pitching that glamor and comfort factor for this new, pickier, healthier, longer-living resident.”
Cap rates in senior housing as compared to other sectors:
“There’s so much money pouring in compared to other parts of the commercial real estate industry, and we are especially sensitive to this because we work in the multifamily and the retail sides as well, but multifamily in particular. In the past it’s been our focus, but in those industries, there’s a lot of movement going on among investors because the cap rates are not anywhere near as promising as what they’re looking at in certain sectors of the senior housing market.”
Issues to look out for:
“One thing that we’re seeing coming on the market more and more is a lot of repurposed facilities, and that can be a dangerous thing to invest in if you’re not dealing with an operator who understands the limitations and the importance of loading up per-hour costs, and getting you a realistic income statement.
“Also, a lot of people are getting ahead of themselves in predicting when this ‘big wave’ is truly going to hit. We sometimes see a lag of 10 or 15 years, as to when we know that most of the new residents are going to come into the market. A lot of people who are buying and selling the facilities, they’re trying to push that ‘rush’ factor, but it simply is not presenting an accurate picture.”
What’s the ultimate outlook?
“I believe this is going to be a really good market for the long term, and people should not be in a huge hurry to jump in. Because I think it’s going be a good market for a long, long time. That’s the direction I see it going in, and I think this is a far more stable area for my clients to be in than some other market sectors.”