As the Federal Reserve continues to delay the prospect of an interest rate hike this year, many investors, in particular borrowers that have obtained financing through the U.S Department of Housing and Urban Development (HUD), are finding the timing of such loans optimal in terms of the market. In fact, the investment numbers to date have been significant, and a recent article has highlighted how “investor interest in the seniors housing and care sector is strong [where] transaction volumes in the second quarter of 2015 reached near-record highs, with more than $23.4 billion of deals closing on a rolling four-quarter basis. the strongest pace of activity since 2011.”
Additionally, the article highlights how acquisition activity of such housing has similarly been at an all-time high and signifies strong financials in this regard, where “over the past four quarters, 554 deals closed, a near-record pace [and] strong acquisition demand for seniors housing and care properties is leading to bidding wars, with prices being bid ever higher [where] in the second quarter, per unit pricing averaged $173,000 for seniors housing and $73,000 for skilled nursing facilities on a four-quarter moving average basis. Prices for seniors housing have never been so high.”
So why the the interest in senior housing-based real estate and investment? It has primarily been the availability of financing and loans originating from low interest rates, but a number of other key factors are at play.
- Senior housing is demonstrating itself to have solidified, consistent, and reliable investment returns;
- Greater transaction volumes and liquidity of the sector;
- An emphasis on rising transparency and understanding of the sector;
- The potential impact of governmental and social policy changes towards health care and its costs; and
- The increasing understanding of the positive social and psychological benefits for residents.
Aside from the litany of factors that have contributed to real estate investment, two other issues that are similarly important – capital is still relatively inexpensive and readily available. As one article describes, “Today’s low interest-rate environment has led to a proliferation of lenders and a very competitive lending environment. Both large and small commercial banks, the agencies, HUD, life companies, and a number of other non-bank lenders, including CMBS lenders, are active in the market. This has greased the wheels, so to speak, for deal activity.” Until the Federal Reserve commits to raising interest rates, the level of real estate investment activity with respect to Senior Housing will remain the same. It will continue to greatly benefit from low interest rates and the availability of capital.
Senior Housing providers are at a pivotal moment in time, with many providers taking economic advantage of the trends among senior residents to seek housing and care facilities. Cambridge Realty Capital is versed in a variety of investments in the senior housing market. Our experience and expertise make us a leader in the investment world.