Here’s a cautionary note for those institutional investors who, in record numbers, find themselves falling in love with senior housing/healthcare industry demographics.
“The obvious truth is that not all senior housing/healthcare opportunities are created equal. Investments can be adversely or unevenly affected by challenging or unexpected developments,” says Cambridge Realty Capital Companies Chairman Jeffrey A. Davis.
“Institutional investors are well-advised to partner with an experienced ownership group that fully understands the nuances of the business,” he suggests.
Cambridge is one of the nation’s leading senior housing/healthcare lenders and is directly involved in property acquisitions and joint ventures through its Cambridge Investment and Finance Co. subsidiary.
Mr. Davis points out that the industry has proven to be more recession-proof than most, but undulations in the economy affect different businesses differently. The same can also be said about the regulatory changes and adjustments that impact the industry unevenly.
For example: A few years ago, Medicare cut payments by an average of 11 percent across-the-board, which produced a greater hardship for those senior care businesses that rely more on these payments than others, he noted.
“Planning for the unexpected is an important idea. Investors are more likely to realize success when parties come together in a cooperative arrangement that effectively aligns the mutual interests of everyone involved.
“It’s not enough to have a well-crafted lease or loan covenant. Needed is a more all-encompassing asset management strategy that addresses common goals and expectations,” he said.
Mr. Davis says the economic assumptions of owners and investors must be compatible, with everyone pulling for the same thing.
“Ideally, the ownership group will provide a series of metrics that function as an early warning system for potential problems. It’s important to have a plan in place to correct problems before they can escalate,” he added.