The senior housing investment market is facing unprecedented challenges due to the ongoing effects of the COVID-19 pandemic, rising interest rates, and other economic pressures. However, experts in the field remain optimistic about the opportunities available in this dynamic environment. During a recent panel at the Senior Living Executive Conference 2024, industry leaders Jason Punzel, Managing Director, Senior Living Investment Brokerage, Kevin Pascoe, Chief Investment Officer, National Health Investors, Paul Branin, Vice President, Business Development, Health Dimensions Group and Sharon Thole, LNHA, LALD, Executive Vice President, Health Dimensions Group shared their insights on how to navigate these challenges and make informed decisions for portfolio growth and financial stability.
Understanding the Current Market Landscape
The conference session provided a comprehensive overview of the current state of the senior housing market and emphasized the complexity of the market, noting that the increase in interest rates and other economic factors have significantly impacted deal flow and investment strategies.
The session categorized the types of deals currently seen in the market into three buckets: stabilized properties, value-add properties, and distressed properties. Stabilized properties, which are 90-95% occupied and have market-rate rents and operating margins, have seen an increase this year. Value-add properties, which are not yet stabilized but have a realistic path to stabilization, remain a significant portion of the market. Distressed properties, typically older and losing money, continue to present challenges but also opportunities for investors willing to undertake the necessary turnaround efforts.
The market remains active across all three categories. There is an importance of establishing strong relationships with operators and being flexible in deal structuring to meet the specific needs of each project.
Financing and Deal Structuring
Financing remains a critical factor in senior housing investments. Pascoe explained that National Health Investors focuses on a range of financing options, including loans, leasebacks, and joint ventures, to accommodate different operator needs. The company’s approach emphasizes long-term ownership and building strong relationships with operators to ensure successful outcomes.
Punzel provided insight into current cap rates and price per unit for assisted living and memory care properties. He noted that cap rates for stabilized properties are typically in the low to mid 7% range, while distressed properties can be significantly lower. The price per unit varies widely based on factors such as location, age of the property, and market conditions.
Sharon Thole, Executive Vice President at Health Dimensions Group, discussed the operational challenges and strategies for managing senior housing assets. She highlighted the importance of strong leadership and a focus on quality and culture to drive occupancy and financial performance. Thole shared a recent success story of a new memory care community in Colorado that achieved 75% occupancy shortly after opening, thanks to effective staffing and relationship-building efforts.
Operational Strategies for Success
Thole emphasized that successful operations begin with evaluating and strengthening leadership. In turnaround situations, Health Dimensions Group focuses on replacing or supporting the administrator and building a strong team. By investing in leadership development and fostering a positive culture, the company has successfully reduced agency staffing costs and improved financial performance in several communities.
One of the key strategies for driving occupancy and revenue in new developments is building relationships with professional services and referral sources. Thole’s example of the Colorado community demonstrated the value of engaging with the local market and creating buzz through events and partnerships. This approach not only boosts occupancy but also establishes the community’s reputation and visibility.
Market Outlook and Future Trends
Looking ahead, the panelists expressed cautious optimism about the future of the senior housing investment market and noted that while cap rates are unlikely to decrease significantly in the near term, net operating income (NOI) is expected to continue rising, which could drive modest increases in property values. He also observed that more stabilized properties are coming to market, reflecting improvements in occupancy and financial performance.
The importance of being prepared for a range of scenarios and maintaining flexibility in deal structuring was also highlighted. Each panelist stressed the need for thorough due diligence and a focus on the long-term viability of operator relationships.
Additionally, the panelists emphasized the importance of staying adaptable and responsive to market conditions. Many noted that while some markets continue to face staffing challenges, others are showing signs of recovery.
Key Takeaways for Senior Housing Investors
There were several key take-aways from the session:
- Diversify Financing Options: Flexibility in financing options, including loans, leasebacks, and joint ventures, can help meet the specific needs of different operators and projects.
- Focus on Leadership and Culture: Strong leadership and a positive organizational culture are critical for driving occupancy, reducing costs, and improving financial performance.
- Build Local Relationships: Engaging with local professional services and referral sources can significantly boost occupancy and establish a community’s reputation.
- Conduct Thorough Due Diligence: Comprehensive due diligence and a focus on long-term operator relationships are essential for successful investments.
- Stay Adaptable: The senior housing market is dynamic and subject to economic pressures. Investors must remain adaptable and responsive to changing conditions.
The senior housing investment market is at a pivotal moment, with both challenges and opportunities on the horizon. By leveraging diverse financing options, focusing on leadership and culture, building local relationships, conducting thorough due diligence, and staying adaptable, investors can navigate this complex landscape and achieve long-term success.
The insights shared by industry experts at the Senior Living Executive Conference 2024 provide valuable guidance for making informed decisions in various parts of your business. This breakout session is just one of 40+ workshops and mainstage sessions that were offered at the Senior Living Executive Conference this year. Mark your calendars for next year’s Senior Living Executive Conference taking place May 19-21, 2025, in Tampa, Florida. Registration for the 2025 event will open this fall.
