Fueled by low interest rates and increasing demand for senior housing services, mergers and acquisitions in the senior housing space continued to accelerate in the second quarter. M&A activity will most likely remain strong during the remainder of the year as industry participants and others seek to take advantage of opportunities in the space before interest rates go up. Accordingly, parties who are seeking capital for acquisitions should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions and other purposes as well.
M&A Activity Heats Up in the Second Quarter
M&A activity is on a torrid pace this year in terms of both the number of deals that are getting done and the dollar value of these deals as well. For example, a record 60 transactions were announced during the second quarter of 2014. In addition to being a record for a second quarter, these 60 deals were also more than twice the number that was announced during the second quarters of 2006 and 2007. Further demonstrating how strong the market for senior housing properties is, $10.8 billion in transactions took place during the first half of 2014, which is more than twice the $4.5 billion that took place during the first half of 2013. These figures show the robustness of a senior housing market that is being driven by a number of different factors.
The Main Drivers of M&A Activity
Of course one of the primary factors fueling mergers and acquisitions in senior housing is the continued low interest rate environment. Although the Federal Reserve has begun winding down its quantitative easing program, it has kept its benchmark federal funds rate near zero and there is still strong worldwide demand for Treasury securities as well. These factors have helped keep borrowing costs low and have also given buyers some flexibility in their valuations. Another factor driving M&A activity in the space is the influx of non-traditional investors that have entered it. Because of the strong returns they are generating and the fact that the industry withstood the last recession reasonably, senior housing assets are becoming increasingly popular amongst investor who previously shied away from them. As new investors have entered the market, the amount of capital available for transactions has increased and the number of deals that are being made has increased as well.
What the Future Holds for M&A Activity
Many analysts believe that the combination of low interest rates and new entrants in the space will continue to drive robust M&A activity in senior housing for the remainder of the year. Of course, this could change if interest rates rose suddenly and there has also been some discussion among analysts about the supply of senior housing properties potentially outpacing the demand for senior housing services, and the effect that this could have on M&A activity. However, as of today, there isn’t really any definitive evidence of this taking place. Indeed, most analysts believe that because of the steady increase in demand for senior housing services, construction activity in the space would have to ramp up significantly in order for supply to outstrip demand, and they don’t see this happening anytime soon. Accordingly, while interest rates remain low and the market remains extremely dynamic, industry participants and other parties that are interested in taking advantage of the robustness of the market by acquiring additional senior housing assets for their portfolios should continue to look to Cambridge Realty Capitalfor assistance in financing these transactions.