A Discussion with Lisa Widmier, Managing Partner at Vant•Age Pointe Capital Management & Advisory, Inc.
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 Lisa Widmier, managing partner at Vant•Age Pointe Capital Management & Advisory, Inc. (VP), a seniors housing and healthcare properties investment brokerage and advisory firm.
Among Vant•Age Pointe’s 2012 assignments was the June, 2012 sale of Morningstar of Littleton. Vant•Age Pointe represented the seller in that transaction. The seller was AEW SHI Littleton, LLC and the buyer was SHP IV Littleton, LLC, an affiliate of Prudential Real Estate Investors. The sale price was $33,100,000 or $389,412 per unit, which ranks among the highest price per unit trades for seniors housing properties in 2012.
NIC: In 2012, the M&A landscape “evened out” a bit more than in 2011 (SEE GRAPH BELOW) from an investor perspective. In 2012, private equity accounted for 33% of the buying activity across seniors housing and care. 2013 has seen an aggressive start with the $3.2 Billion HCN acquisition of Sunrise Senior Living. How do you see the M&A landscape playing out during the remainder of 2013?
Widmier: We view it as a favorable development that the REITS were not the primary “go-to” buyer in the sector during 2012.The onset of a more diversified investor base, including private equity/pension funds, indicates the “coming of age” of the seniors housing sector. This broader appeal results in lower required returns as seniors housing transitions from a “niche” real estate classification towards a core-plus classification. Increased investor demand will fuel the growth of the industry through the birth of new operating companies and the development of new communities, providing fuel for the M&A pipeline over the medium to long range. Short term, desperate for deals, investors will invest in the growth of existing operating platforms through the funding of acquisitions of other operating platforms and portfolios in order to accomplish their transaction volume goals.
NIC: NIC MAP data shows that construction starts remain near cyclical low levels as of the end of 2012. One of the hurdles to rising levels is the availability of financing. Can you provide an overview of the availability of construction financing and is this changing or improving as we move into 2013?
Widmier: The availability of construction debt financing for certain types of seniors housing communities with strong development sponsorship improved during 2012 and is expected to continue to improve in 2013. Current sources of construction debt include not only traditional HUD loan programs (previously the only source) but also local, regional, and national banks. These banks have established an allocation to private-pay seniors within their overall commercial real estate debt portfolios. In addition, a handful of insurance companies have returned to the market and have begun to quote construction to permanent debt facilities for top tier sponsors.
Construction lenders are still very selective with respect to the types of seniors housing communities and the profile of the sponsor borrower. Preferences include:
- Need-driven community mix – assisted living/memory care
- NIC MAP 50 Metro market area location
- Sponsor/Borrower with significant seniors housing industry track record
- Sponsor/Borrower with balance sheet strength and ability to provide guarantee
Current debt financing market terms include:
- Recourse – 25% to 35% cash equity, 75% to 65% LTV, priced at 225 to 350 basis points over 30-day LIBOR
- Non-Recourse – (limited to completion guarantees), 45% to 50% cash equity, 55% to 45% LTV, priced at 205 to 340 basis points over 30-day LIBOR; however, non-recourse construction debt is still scarce
NIC: Price per unit trends within NIC MAP show a sharp divergence over the past several years between portfolio trades and non-portfolio (single property) trades. Do you see this price per unit premium generated by portfolios as a structural change in the market or do you see it as cyclical?
Widmier: In 2010 through 2011, there has been a very high pricing premium for portfolios vs. single assets. Yes, there is an economies-of-scale aspect that always will contribute to this premium. However, we do think that cyclical factors play a role in the premium effect. The portfolio trades that occurred in late 2010 and 2011 served as “ice-breakers” in the transactions market flow. As we all know, late 2008 through mid-2010 transaction volume went to sleep along with the economy. The year-end 2010 flurry of portfolio deals revitalized the trade market and woke up both buyers and sellers. Once sellers realized that pricing had recovered, individual to small portfolio asset sellers jumped back in the market and buyers had an appetite just as voracious for them. Due to the thawing of the transactions market, we have seen a narrowing of the portfolio premium as evidenced by the pricing that we achieved on our recent single-asset offerings. Below are three examples of single-asset transactions closing in late 2012 through early 2013. Vant•Age Pointe exclusively represented the sellers in these transactions:
Construction Tempered Nationally, Surging in Select Markets
In the aggregate, seniors housing construction activity continues to remain tempered, representing 2.0% of existing inventory as of the fourth quarter of 2012. Despite the increased chatter of development, construction starts remain limited. Part of this is likely due to stringent financing requirements for construction loans. The lack of national development platforms also is adding to the limited construction activity, as there are no national development platforms currently in the market. Nevertheless, certain markets are experiencing heavy development. Houston’s assisted living market is one of the current hot spots, as construction activity represented 18.1% of the existing inventory as of the fourth quarter of 2012.
NIC began tracking seniors housing construction in 2005. In the last eight years we have expanded our construction coverage to the top 100 metropolitan markets in the US. NIC continues to provide industry transparency by supplying essential data needed to identify new opportunities, stay ahead of industry trends, measure and benchmark performance, and manage risk.
We ask for your assistance in contributing to NIC information on any new seniors housing and care construction projects. Property development and pipeline details you and your company provide will assist NIC in executing its mission of facilitating informed investment in seniors housing and care. Please contact Sarah Cooper at email@example.com , or 410-267-0504 with your construction details, or stop by the NIC MAP Data Center while at the Regional Conference in San Diego.
Attending the 2013 NIC Regional Conference? Be sure to visit the Data Center.
NIC Research and MAP representatives will be staffing the NIC Data Center during the 2013 NIC Regional Conference, held March 5-7 in San Diego, CA. The Data Center will be open throughout the conference and is a complimentary resource for conference attendees. Demonstrations will be offered of the NIC MAP Data & Analysis Service and will spotlight the reinvented and newly upgraded NIC MAP Portfolios Program, a dynamic web based product that helps owners and operators analyze and monitor the performance of their portfolio against a selected group of competitors. Find out how Portfolios already helps over 1,000 properties improve their portfolio management functions and anticipate emerging market trends.
Attendees can also view samples and purchase recently released research publications, which include the second edition of the NIC Investment Guide: Investing in Seniors Housing & Care Properties and The State of Seniors Housing 2012. Co-located with the Cyber Café, the Data Center will be located in the Sapphire West Foyer, at the Hilton San Diego Bayfront. We look forward to meeting you and helping you achieve your business goals through our data and report offerings. See you in San Diego!
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