Liquidity Abundant in 2018
Private Buyers Remain Very Active
There may have been some challenges in the seniors housing and care markets in 2018 but it is safe to say that liquidity did not seem to be one of those challenges based on the latest sales transactions data. Indeed, not only was there strong dollar volume registered in terms of closed sales transactions, but the sheer number of transactions closed was greater than in 2017.
In terms of the number of deals closed, a measure different than dollar volume, we saw continued signs of a very strong transaction market. There were 514 deals closed in 2018 of which 85 were portfolio transactions and 429 single property transactions. That compares to the 502 transactions closed in 2017 of which 101 were portfolio and 401 were single property transactions. Portfolio transactions have consistently represented about 20% of overall closed transactions when looking at the past few years, including in 2015 when the public buyer type, namely the publicly traded REITs, were more active with larger deals. However, 2018 saw portfolios represent closer to 16%, highlighting the fact that single property transactions are very important to the market in terms of the flow of transactions closing. We have seen 21 consecutive quarters of more than 100 total deals close.
As far as the size of the deals, small deals of $50 million or less dominated in the fourth quarter, which is typical with every quarter given the large percentage of single property deals, representing about 89% of all deals closed. Over the past few years we have seen a significant decrease in large deals of $500 million or more. In 2015 we saw 10 transactions of $500 million or more and only 10 combined in 2016 and 2017, and only 1 in 2018. However, we did see a significant pick up in deals between $250 million and $500 million as only 2 were closed within that range in 2017, but 7 were closed in 2018.
To take a deeper look at the activity, let’s dig into the annual trends of who the buyers were for 2018.
Private Buyers Still Very Active
As far as the trends in buyer activity in 2018, one notable trend is the institutional buyer decreased significantly from 2017 to 2018 as a share of volume and the public and private buyers increased as a percentage of closed volume. The public buyer category is just that — any publicly traded company. The private type is any company that is not publicly traded—for example, a private REIT or single owner or partnership. The institutional type is usually the equity funds that manage pension money or other types of institutional money.
The institutional buyer type represented only 19% of the $13.9 billion in closed transactions in 2018 as its total closed dollar volume decreased by 48% from 2017 when it represented 32% of volume and closed $5.2 billion in transactions. However, 2017 was represented in a significant way by Blackstone, within the institutional category, when they closed some larger deals over $500 million. For additional comparison purposes, the institutional buyer closed $3.9 billion in 2016 representing 27% of closed volume that year. The institutional buyer has averaged $3.9 billion in closed transactions per year over the last three years.
From the public buyer side, its representation of volume increased from 25% in 2017 to 29% in 2018. In terms of the dollar volume, it held relatively steady as the public buyer closed $4 billion in both 2017 and 2018. In 2018 the volume was really carried by the Welltower/QCP deal and in 2017 it was carried by the Sabra/Care Capital Properties deal. The public buyer has also averaged $3.9 billion in closed transaction per year over the last three years.
The private buyer (see chart below) continues to be the most consistent and steady source of capital as it registered close to $6 billion in closed transactions in 2018 at $5.9 billion. It represented 43% of all volume in 2018 which was up from 34% in 2017 when it closed $5.5 billion in transactions. Over the past three years the private buyer has averaged $5.7 billion and it has closed above $5 billion in transactions for five straight years.
Lastly, just to touch on cross-border activity as we have seen a steady decrease in that dollar volume ever since the 2015-time period when it registered $2.1 billion. It has averaged about 5% of volume over the past three years and only closed $500 million in 2018 which was down from 2017’s $900 million.