August 9, 2013
FINANCING THE EXPANSION OF AN ASSISTED LIVING FACILITY
Real Estate Investment Trust
A Real Estate Investment Trust (REIT) has become a helpful tool for owners and operators of assisted living facilities, of late, in their efforts to expand or build anew. An REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Three Types of REITs
First, Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents. Next, Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Lastly, Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages. Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate – shopping malls, for example – or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.
A recent article (May/June 2012) in Senior Living Executive, in fact wrote that 2012 has “been called by many in the senior living business ‘The Year of the REIT,’ because REITs rushed in where private equity lenders feared to tread.”
The number of REITs investing in senior living properties increased greatly between 2010 and 2011, with “the overall dollar volume of publicly announced housing acquisitions top(ing) $16 billion, about 40% higher than 2010….”
As a result of these investments or lack of, the NY Times has found, “At the height of the housing boom, there was a nationwide surplus of retirement and assisted-living housing, but with construction bottoming out, demand is now outstripping supply. New construction starts in such housing have dropped by 53 percent since the crash and now make up just over 1 percent annually of the senior housing inventory, according to the National Investment Center.”
If you are interested in expanding your facility or wish to start construction on another plot of land, give us a call and let us assist you in any way possible.