In the latest in a series of dialogues with key players regarding the current capital environment in the seniors housing and care industry, Michael Hargrave, NIC’s Chief Market and Data Strategist, recently interviewed Gary Lucas, Senior Vice President and Managing Director at Marcus & Millichap.
NIC: Marcus & Millichap has a long history in our sector. Can you provide us a brief overview of your reach into seniors housing and care and provide us an update on your 2012 performance?
Lucas: Over the past 25 years we have developed the largest national collaborative team of 22 members. Our team’s sole purpose and expertise is to transact in the seniors housing sector across the nation. Our platform enables us to participate across the full spectrum of seniors housing product types, from skilled nursing to independent living and from one-offs to large portfolio transactions. We represent clients that run the gamut from the private investor to the institutional owner. In 2012 we closed 78 individual transactions with a sales volume over 700 million dollars.
NIC: In 2012, through our joint Real Capital Analytics/NIC database, we tracked $9.6B worth of transactions across 816 properties. Of this volume, the REITs/public operating companies were responsible for 51% of the buying activity, which is down considerably from 89% in 2011. Do you see this as a sign that other capital sources are becoming more competitive/active?
Lucas: It is true that that there are a number of capital sources and plenty of cash on the sidelines that makes it very competitive. However, 2011 was such an extraordinary year for the REITs that they needed to take a breath and determine strategies for the large volume of properties they had acquired. They were aggressive in taking down the low hanging fruit, consolidating and partnering on large portfolios. Some took on some operational risks and simply needed time to work through their new assets. They will remain the primary buyers and drivers of the market and their issue will be the dearth of product available.
NIC: The cap rate data sources we maintain are showing compression in 2012. If we disregard the larger portfolio transactions, are you seeing cap rate compression and, if so, why? Do you have an outlook for valuations in 2013?
Lucas: Compression for cap rates will continue for high end properties due to the scarcity and remain reasonably static for mid-market and lower end. There will be some pressure on smaller regional portfolios of lesser quality product due to buyers from outside the industry attempting to participate because of the attractive returns relative to other product types. They will pay a little more.
NIC: There is a sense that we may be settling into a more certain reimbursement environment (in the near/medium term) for skilled nursing. What sort of impact is this having on skilled nursing transactions?
Lucas: If you believe there is a growing certainty to the reimbursement environment, then there definitely will be an acceleration of transactions. I suggest that the reimbursement environment is still volatile and there seems to be a new state budget cut proposed weekly that creates uncertainty. We see the sellers in this market to be primarily hospitals, lenders and owners affected by life changing or altering events. The market for SNFs should remain status quo for 2013.
For the past year, seniors housing cap rates have generally been declining. On a rolling 12-month basis, the seniors housing cap rate as of February was 7.5%, which represents a decline of 80 basis points from a year earlier. The decline in cap rates over the past year would imply a 10.6% increase in value, assuming constant NOI. More recently, however, seniors housing cap rates have flattened. During the past three months, seniors housing cap rates have remained unchanged at 7.5% on a rolling 12-month basis.
While seniors housing cap rates have remained essentially flat recently, office and apartments have risen by 10 basis points and 20 basis points, respectively, since December. As of February, cap rates for apartments and office were 6.1% and 7.1%, respectively, both on a rolling three-month basis.
NIC MAP Data & Analysis Service The National Investment Center for the Seniors Housing & Care Industry (NIC) is pleased to announce the arrival of John Blumer, who joins NIC as National Sales Director and Kristen Joy, Senior Sales Director, NIC MAP.
“NIC has expanded its NIC MAP® Data & Analysis Service team to support the continuous growth of our NIC MAP® subscriber base,” said Robert Kramer, NIC President. “This reflects our continuing efforts to provide subscribers with comprehensive market data and further the transparency of the seniors housing and care sector.”
John and Kristen bring a wealth of knowledge and experience to the NIC team. In this new position, John will provide strategic direction of the NIC MAP® Data service and Kristen will focus on expanding the subscriber base.
Registration for the 23rd NIC National Conference, October 9-11, 2013, at the Sheraton Chicago Hotel and Towers will open in early May. Keep an eye out for conference related announcements. NIC conferences are known for unparalled networking and deal-making opportunities; the 23rd NIC National Conference will be no different. To facilitate this process and make it easier, registered attendees will have immediate access to the Online Conference Community to start networking well in advance of the conference. They will be able to view profiles and interests of other attendees, develop their personal itinerary, and schedule private meetings. Once again, the NIC National Conference will have an outstanding educational program, with a stellar line up of keynote speakers along with industry and financial experts. We look forward to seeing you there!