Press Room

2007 NIC Press Releases

LOAN VOLUME IN SENIORS HOUSING AND CARE EXCEEDS $2 BILLION FOR FIRST TIME IN FOURTH QUARTER OF 2006

FOR IMMEDIATE RELEASE: April 4, 2007
Contact: Renee Tilton, (410) 626-0805 or rtilton@crosbymarketing.com

ANNAPOLIS, Md. – Loan volume placed in seniors housing and care continued to rise and the industry sustained its strong performance during the fourth quarter of 2006, according to the NIC Key Financial Indicatorsä released today by the National Investment Center for the Seniors Housing & Care Industry (NIC).

Loan volume for the fourth quarter of 2006 was $2.2 billion, up from $1.64 billion placed in the third quarter. “Once again, this was the highest amount ever placed in our industry by the major national lenders, including Fannie Mae and Freddie Mac, whose lending data we have tracked since 1999,” said Robert G. Kramer, NIC president.

“This loan volume also represented a 50 percent, year-over-year increase from the fourth quarter of 2005 and a 37 percent increase from the previous quarter,” continued Kramer. “Particularly noteworthy was the amount placed in assisted living, which went from about $432 million a year ago to about $875 million, an increase of more than 100 percent. So both the loan volume and loan amount placed continued to set record levels.”

Loan performance also continued to be very strong across all sectors. During the last quarter of 2006, the percentage of performing loans remained at 99.4 percent.

Median occupancy rates stayed fairly stable during the fourth quarter for skilled nursing and continuing care retirement communities (CCRCs), with just a slight drop from the third quarter in independent living (from 93 percent to 92 percent) and assisted living (from 89 percent to 88.5 percent). NIC draws its occupancy rate data from market-rate properties open at least 24 months. More than 3,300 properties and 393,000 units were reflected in this quarter’s data summary.

Capitalization rates for the fourth quarter continued to be at historic lows. “We've seen a stable plateau now for mean cap rates, with percentages in the high sevens for independent living, high eights for assisted living, low eights for CCRCs and then high 12s for skilled nursing,” said Anthony J. Mullen, NIC research director.

“What’s interesting is that you see quite a compression among independent living, assisted living and CCRCs in terms of their differentials, both in the mean and also now in the low rates reported,” observed Mullen. “In this fourth quarter, mean rates were again at 7.7 percent for IL, 8.7 percent for AL and 8.3 percent for CCRCs. The lowest reported cap rates were for IL at 5.9 percent, for AL at 6.5 percent and for CCRCs at 6.5 percent. But these are for the best-performing portfolios with outstanding properties in key locations and not what the average seller is able to attract.”

Mullen also noted that the very best properties in assisted living today could actually trade below the median or average in independent living. “It just really depends on where the property is located, how new it is, who's managing it and how many properties are being sold at a time,” he explained. “All of those impact what the ultimate cap rate will be.”

How do these capitalization rates compare to those in office, industrial, retail and multifamily? “In analyzing data over the last six years, there is pretty strong evidence that we're now pushing down towards the cap rates seen in the other institutional real estate asset classes,” said Mullen. “We are not pushing down to be equal with them, but we are certainly getting closer.”

“I do think that phenomenon will continue as our performance and risk-reward ratio are recognized as being equivalent, or in some cases, even superior, depending upon how one looks at risk,” he continued. “Now, is that permanent? We don't know. But in my opinion, we are now starting to see the risk versus reward being reevaluated by many investors for stabilized properties, especially the best ones, and we are starting to see that gap narrow. I believe that was what a lot of people were hoping would happen. Now we'll have to see whether it continues to be the case.”

Why has this happened? According to Kramer: “The new level of transparency due to vastly improved industry data at both the national and major metro market levels have enabled investors to better understand the risk-and-reward profile. This, in turn, has led to a narrowing of the cap rate spread with office properties and the other institutional real estate classes.”

“Several knowledgeable institutional commentators believe that seniors housing and care has better data on supply and demand than the other real estate asset classes,” added Raymond W. Braun, president of Health Care REIT, Inc., and NIC Board Chair. “That is a testament to the professionalism of the field and the work of our industry leaders.”

Each quarter, the nation’s leading senior living lenders, owners/operators and appraisal professionals have reported their key financial and performance data to NIC. The results can be accessed free of charge at www.NIC.org. Loan volume represents the quarterly lending activity of the major national lenders (non-REITs) that make permanent and short-term debt investments in seniors housing and care, including Fannie Mae, Freddie Mac, and several of the larger credit companies and banks.

About NIC: Founded in 1991, the National Investment Center for the Seniors Housing & Care Industry is a nonprofit organization providing information about business strategy and capital formation for the senior living industry. Proceeds from its annual conference – scheduled next for Oct. 3-5, 2007, in Washington, D.C. – are used to fund research and data that lead to informed investment decision-making to advance the seniors housing and care industry. For more information, visit www.NIC.org or call (410) 267-0504.

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