As strong as the market for senior housing merger and acquisition activity was in 2013, the market for 2014 is shaping up even better. Strong demand for senior housing services and low interest rates continue to drive plentiful deal activity in the space. Going forward, demand for senior housing services is projected to remain high due to the aging of the population, but interest rates are projected to rise next year as the Federal Reserve rolls back some of the stimulus efforts that it implemented during the last recession. Before this happens and the cost of capital for senior housing transactions increases markedly, providers and investors who are seeking capital to acquire additional properties for their portfolios should contact Cambridge Realty Capital to learn more about the different financing options that it offers for acquisitions and other purposes as well.
Third-Quarter Deals Set Records
According to data from the Irving Levin publication The Senior Care Investor, during the third-quarter of 2014, the dollar volume for senior housing and care acquisitions reached approximately $9 billion, and the number of announced deals increased by 33 percent from the second-quarter. So far this year, the dollar volume for senior housing and care acquisitions reached $16 billion, and could break the record of $22 billion that was set in 2006. Furthermore, with 80 transactions announced during the third-quarter alone, a record for a single quarter, the record for the announced number of transactions in a year which was just set last year at 225, could also be broken.
In terms of the entities that are involved in these deals, real estate investments trusts account for roughly 75 percent of the dollar value of these transactions, even though they average only about 20 transactions each quarter. Some analysts were surprised to learn that REITs were not involved in more transactions given their low cost of capital, but the reality is that most of the acquisitions taking place this year were completed by local and regional senior housing providers. They accounted for roughly 40 percent of deal activity. Publicly traded or national chains accounted for another 11 percent, and the remaining deals that were completed were done by private equity firms, nonprofits and other buyers whose identities were not disclosed.
While the market for senior housing activity is projected to remain strong during the remainder of 2014, many in the industry are anxious to know if it will remain just as robust in 2015. This is important because of the way a robust market affects the planning and decision making of property owners and potential buyers. For example, if property owners believe that the market will continue as strongly in 2015 as it has this year, then some of them might hold off on selling their assets for now, and instead will spend the rest of the year trying to engage more buyers in an effort to bid up the sale price and close a deal next year. However, if they believe that projected interest rate increases will come to fruition and slow down the market next year, then they might be more willing to sell assets now instead of holding off until 2015. Only time will tell what the market for next year will look like, but as of today, the market for senior housing assets remains strong, M&A activity continues to occur at a robust pace, and this should remain the case throughout the remainder of the year.