Investor Appetite for Skilled Nursing Remains Meager in 2017

Senior housing investors are excited to grow their portfolios in 2017, but not necessarily through skilled nursing acquisitions, according to the latest CBRE U.S. Seniors Housing & Care Investor Survey.

For the survey, commercial real estate services and investment firm CBRE Group, Inc. (NYSE: CBG) polled 74 influential senior housing developers, investors, brokers and lenders throughout the United States. A lot has changed in these investors’ eyes over the past year, survey results indicate—but not when it comes to their opinion of skilled nursing.

This year, for instance, just 14% of respondents said nursing care would be the biggest opportunity for investment in the senior housing space. The exact same percentage of respondents said nursing care would be the biggest opportunity for investment in 2016.

Q: Where do you see the biggest opportunity for investment?

The stagnancy surrounding the “skilled nursing opportunity” may have to do with the fact that there’s been so much uncertainty in U.S. health care lately, according to Zach Bowyer, senior managing director and seniors housing and care practice leader at CBRE.

“I think overall that has to do with uncertainty in the market,” Bowyer told Skilled Nursing News. “We had the roll out of the Affordable Care Act (ACA), now we’ve got the repeal and replace of the ACA.”

Overall, skilled nursing is much more susceptible than private pay senior housing to changes made at the governmental level —and 2017 has been rather unpredictable on that front.

“Skilled nursing is a different animal as it relates to seniors housing,” Bowyer said. “You’re dealing with a lot of government reimbursements, Medicare, Medicaid, drastically shifting regulatory environments.”

Independent living’s big opportunity

Senior housing investors, on the whole, are more bullish when it comes to independent living and age-restricted communities, survey results indicate.

About 40% of survey respondents said that independent living is the biggest opportunity for investment this year. Last year, just 31% of respondents held that opinion.

Additionally, only 18% of respondents indicated that assisted living is the biggest opportunity for investment in 2017, down from 27% of respondents in 2016.

“We’re seeing people a little bit more interested in the lifestyle option, in the independent living and age-restricted sub-segments, than we’ve seen in the past,” Bowyer said. “Developers are starting to get a lot more comfortable focusing on that lifestyle option.”

Investors also believe that memory care currently has the least opportunity for investment—an opinion that can likely be traced to recent overbuilding in this segment, according to CBRE.

Portfolio growth

About 59% of U.S. senior housing investors anticipate increasing the size of their portfolios in 2017, the survey revealed. That’s up from 47% in 2016.

The percentage of investors who anticipate no change in the size of their portfolios, meanwhile, fell to 34% in 2017 from 44% in 2016.

Q: How might you change your exposure to seniors housing over the next 12 months?

“We’ve got a lot of new investors who are continuing to be more and more interested in the senior space, and we have a lot of people who’ve been involved in the senior space for a while now looking to find new ways to innovate and grow their activity,” Bowyer said.

Worries galore

Despite an air of relative optimism, senior housing investors aren’t entirely worry-free. Mainly, investors are concerned about increased construction activity that may negatively affect the industry over the next 12 months, with 38% of survey respondents indicating that this worried them.

Rising interest rates and property-level operation also weighed on investors, with 22% and 21% of respondents concerned about these things, respectively.

Q: What are your top concerns in relation to market changes that would negatively impact the seniors housing & care market over the next 12 months?

Still, the survey results indicated that pricing stability may continue this year—52% of investors anticipate senior housing capitalization rates will remain stable over the next year.

However, the proportion of people who foresee higher cap rates rose to 44% from 33% in 2016, with just 4% expecting to see a drop.

Written by Mary Kate Nelson

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Mary Kate Nelson
Assistant Editor at Aging Media Network
When not in the newsroom, Mary Kate can reliably be found reading on her back porch, marathoning TV shows she’s already seen or overspending at Trader Joe’s.

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