More than 2000 attendees gathered in downtown Chicago for the 23rd NIC National Conference held Oct. 9 – 11th at the Sheraton Chicago Hotel & Towers. Seniors housing and care owners and operators met with capital providers throughout the three-day conference while also participating in education sessions designed to offer greater insights into industry data and trends.

From former treasury secretary Timothy Geithner’s luncheon keynote session to the live simulcast release of NIC MAP’s quarterly data to breakout sessions specifically focused on the evolving skilled nursing sector, conference attendees had access to actionable market intelligence to support strategic business decisions.

As the seniors housing and care industry continues to garner investor interest, this year’s conference attracted the largest number of operators to attend an NIC event. Additionally, the conference created an environment conducive to deal making, with an equal split of seniors housing and care operators and debt and equity providers.

Networking played a prominent role at NIC’s conference. The hotel was filled with attendees looking to connect with peers, forge new relationships and do deals. Participants took advantage of two networking lounges which remained busy throughout the duration of the conference.

One attendee remarked that “it was a fantastic opportunity to network in a deal focusing environment,” another noted “this event represents ½ of my deals for 2014. It’s very important and effective.”

In this special edition of the Insider Newsletter you will find some of the highlights of the conference as well as a one-on-one interview with Bob Kramer, NIC President, as he reflects on his impressions following this year’s conference.

Interview with Bob Kramer

NIC: In a nutshell, how would you describe the mood of the attendees at this year’s NIC conference?

Bob Kramer: I think it was upbeat. There was a lot of energy amongst the attendees. Folks were excited to do business and, quite frankly, eager to move forward. Despite the fact of some continued uncertainty about the economy there was definitely an overall bullish sense when it came to the future of seniors housing. Amongst those involved in the post-acute space, there was a sense of great opportunity, though coupled with enormous challenges.

NIC: What were some of the noticeable industry-wide themes or trends that were discussed?

Kramer:

• First and foremost, the increased capital availability, both equity and debt. On the equity side, in addition to the big three REITs that have played such a huge role in the increased prominence of the sector, it was very evident at this conference that there are a number of smaller REITs, including non-traded REITs, who have become very active investors in the space. In addition to that, there is a lot of private equity. But perhaps the biggest change from last year was the number of lenders in attendance who were actually lending. A key change in the profile of our attendees, this year over last year, was the number of new banks and banks returning to the space.
• There was a lot of talk about new development and construction, especially in assisted living and memory care. The importance of understanding the local market and even submarket and therefore the critical role of good data was obvious as people sought out underserved markets while seeking to avoid being the last new project of many openings in the same submarket.
• On the skilled nursing and post-acute side, there was a great deal of discussion of what the market-driven and policy-driven changes in the healthcare delivery system, and the shift from rewarding volume to rewarding value and outcomes, would mean for opportunities and challenges for skilled nursing and other post-acute care providers.

I think it’s fair to say that who attend at our conference tend to see the glass half full and not half empty, and therefore are excited by the opportunities, whether as investors or as operators.

NIC: Generally speaking, what type of feedback did you get from attendees about the conference?

Kramer: The comments I received from conference participants where that they were elated with the quality of business contacts and leads, even while they were exhausted from the pace and number of meetings.

Those who were able to break away from their non-stop meetings commented how helpful the sessions were in providing them both context and direction for their own strategic business planning.

General Session Highlights

Entitlement Reform – Approaches and Impacts

With leaders seeking solutions to reduce the deficit while balancing growth, entitlement reform was the topic of a debate during the opening session with Governor Howard Dean and Scott Gottlieb, MD, resident fellow with the American Enterprise Institute. The two debated on everything from what it would take to return to a stable government to the impact of reform measures on seniors housing.

Referring to the ACA, Dean said that while he may have done it differently, “I do think it’s going to work but I’m a little worried about the tech rollout. But I think it’ll work because it worked in Massachusetts,” he told the audience. When it comes to advice for those investing in the post-acute space in today’s reform environment, Mendelson said that it’s important to offer “a suite of options, the full continuum of care.”

Networking Luncheon with Keynote Speaker Timothy Geithner

Given that at the time of the conference the country was in the midst of a Federal government shutdown, another budget crisis, and an impasse on increasing the debt ceiling, and with the new Federal Reserve chair having just been announced, a healthy dose of economic uncertainty filled the air.

Attendees were able to hear former Treasury Secretary Timothy Geithner speak about challenges and solutions in the U.S. and world economy. In a question and answer format, Geithner, interviewed on stage in front of a packed audience by Bradley Razook, president and managing director, CS Capital Advisors LLC, offered his insights on the current and future direction of the economy, in an off-the-record session that was closed to the press.

Geithner answered questions centered on economic growth levels, challenges and opportunities in the financial markets, and how proposed policies will impact the availability and cost of capital.

Getting to Growth – A Fiscal and Monetary Policy Debate

Debra Cafaro, chairman and CEO of Ventas Healthcare, moderated an afternoon general session debate between Austan Goolsbee, economist and former chairman, Council of Economic Advisors under President Obama, and Todd Buchholz, economist and former director of economic policy under George H.W. Bush. The two economists discussed fiscal and monetary policy measures and what steps need to be taken to stimulate economic growth.

Goolsbee said consumer confidence has dropped and added that “we’re living in a pretty sour economic environment.” He noted that the government’s focus should be on boosting U.S. exports and growing business services as opposed to re-inflating the housing bubble.

When asked whether or not the government shut down will impact economic growth, Goolsbee explained that “it has a pretty detrimental impact. For however long it lasts, I think it’s cutting about three-tenths of a percent off growth.”

“So, if the partial government shutdown lasted for a day or two that would be virtually nothing. If it lasted for the whole year, that’s the kind of difference between unemployment going up and unemployment coming down when you are growing as slow as we are,” he said.

Buchholz added that “a structural fundamental change has to take place” in the current economy. While he explained that the U.S economy is growing faster than that of Europe and Japan, he said economies in Canada, South Korea and Israel are all growing faster than the U.S. economy.

“I don’t think it’s an adequate excuse to say that because Europe or Japan has seen growth of 1.5 percent or 2 percent that we should be proud of the 2 percent that we’ve got,” he said.

Luncheon keynote speaker, former U.S. Treasury Secretary Timothy Geithner with moderator Bradley Razook, President and Managing Director, CS Capital Advisors, LLC

Breakout and Roundtable Highlights

One of the morning breakout sessions featured the live simulcast of the 3^rd Quarter NIC MAP data release. John Blumer, NIC’s national sales director, moderated a panel including NIC’s research team and analysts Jeff Theiler of Green Street Advisors and Daniel Bernstein of Stifel, Nicolaus & Company, Inc.

The panelists provided a capital markets overview looking at transaction volume and property pricing, market fundamentals, including overall growth and occupancy trends, absorption and specific construction trends.

Of particular note in this quarter’s data was that seniors housing occupancy rose 30 basis points, with gains in independent living and assisted living of 20 basis points and 40 basis points, respectively. NIC’s research team noted that the recovery in seniors housing has gained some footing after remaining flat during the first half of the year.

Additionally, the third quarter data revealed independent living annual asking rent growth slowed to 1.1%, which is down 110 basis points from the third quarter of 2012. Assisted living annual asking rent growth remained steady at 2.4%, a pace it has sustained since the first quarter of 2013. Independent living inventory growth continued to remain tempered, with inventory expanding only 0.6% from the prior year, while assisted living continued to expand more rapidly, growing 2.3% from the prior year. The pace of inventory in assisted living is apt to accelerate, as the construction pipeline continued to expand during the quarter. As of the third quarter of 2013, the research team also found that assisted living construction represented 5.2% of existing inventory, which is above the pre-recession peak of 3.9% established during the fourth quarter of 2008. Read more

When it comes to investing in the sector, Theiler said “It really looks like the private market is now catching up with what’s been going on with the public REIT market. Over the last few years you’ve seen a lot of investors dump money into healthcare REITs, they’ve been the biggest investors in the space as their investments have done well.” Bernstein noted that “as money and liquidity flows into seniors housing, I think that will serve to compress cap rates in the industry.”

The debut of a new investor presentation focused on the evolving skilled nursing sector highlighted the afternoon sessions. A panel of industry experts, moderated by Jerry Doctrow, senior advisor, investment banking with Stifel, Nicolaus & Company, Inc., discussed the opportunities and risks in investing in skilled nursing properties, a $115 billion investment grade property market, as well as the sector’s evolving clientele.

While Doctrow presented some of the risks within the skilled nursing sector, including political and operational, he noted that “there’s a transformation underway in skilled nursing and what’s driving it is changes in healthcare delivery. It’s starting to break down barriers between hospitals and skilled nursing properties.”

Skilled nursing properties are among the low cost alternatives for post-acute care, according to Doctrow. As a low cost provider, skilled nursing operators can play an instrumental role in the solution to controlling healthcare expenditures. However, panelists agreed that it will be operators that can deliver, document and demonstrate quality that will be the winners within the transformation.

Doctrow pointed out that while skilled nursing properties used to serve exclusively as home for frail, elderly residents, 80 percent of the patients in today’s skilled nursing properties leave the property to go back home or to an assisted living property.

The ancillary services roundtable discussion focused on why owners and investors should consider ancillary services and what makes the most sense for both residents and owners. Ray Thivierge, executive vice president of West-Genesis Healthcare, facilitated the discussion.

“Clinical expectations have changed over the last few years,” said Jeff Barton, vice president of national accounts with TridentUSA, adding that the model has changed for what used to be considered ancillary services. “You need a trusted a partner,” he said.

“There’s increased acuity and need for physical services,” according to Todd Kislak, vice president of marketing and development with IPC, The Hospitalist Group, who emphasized the importance of making those services essential and not ancillary.

A session on seniors housing acquisitions and valuations highlighted some of the transactions in 2013 as well as past and future market activity. Moderated by Charles Bissell, principal and national team leader of Integra Realty Resources, part of the session also delved into how interest rates were affecting cap rates and valuations.

Steve Blazejewski, principal, seniors housing with Prudential Real Estate Investors, said both debt rates and rising interest rates affect Prudential’s underwriting.

“It obviously causes us to be a little bit affected in terms of pricing and what we can pay for a building,” he said. However, he added that Prudential may have witnessed less of an impact because they are a “low leverage shop that puts in a little more equity than other private equity investors.”

John Cobb, executive vice president and CIO of Ventas, Inc. said while interest rates and competition drives valuation, when looking to buy senior housing he also looks at long term growth as well as historical and future expectation for performance.

However, William Pettit Jr., president and COO with R.D. Merrill Company, said his company made a strategic decision several years ago and saw better value in development as opposed to competing for existing assets.

Additional Conference Highlights

• Seniors Housing & Care Journal Awards
  The recipients of the 2013 Seniors Housing & Care Journal awards, sponsored by Prudential Real Estate Investors, were presented during the keynote luncheon.
  • Sheryl Zimmerman, PhD., professor and director of aging research, School of Social Work at the University of North Carolina at Chapel Hill, accepted the award for outstanding research article titled, Families Matter in Long-Term Care: Results of a Group-Randomized Trial.
  • Evan Plys, PhD. candidate at the University of Colorado, won the New Investigator Award aimed at graduate students for his paper titled, Family Involvement and Well-Being in Assisted Living.

  The Journal is available free of charge for download, copy, print or link to the full texts of articles without asking prior permission from the publisher or author. Click here to read the Executive Summaries from the Journal or to download the full articles.

• Audio recordings
  Audio recordings of the 23rd NIC National Conference sessions are available for purchase. Click here to view the full list of available session recordings.Please note: audio recordings are not available for two breakout sessions: Live Simulcast-NIC MAP 3Q Data Release and the Skilled Nursing Investing: Opportunities & Risks. In addition, the audio recording of the Networking Luncheon’s moderated discussion with Secretary Timothy Geithner is not available for purchase.

Who attended?

• More than 2,000 attendees
• 40% Operators
• 40% Capital Providers (debt and equity)
• 20% first-time attendees

What they said:

• It was a very well thought out conference. From amenities to technology
• I thought this was THE BEST conference I’ve attended in my thirty something year career in Senior Care
• Very professional event commensurate with the high caliber of investors, owners and operators NIC wants to attract