News & Press Releases

Loan Performance and Capitalization Rates in Seniors Housing May Be Starting to Feel Impact of Recession

Press Room – 2009 NIC Press Releases

Loan Performance and Capitalization Rates
in Seniors Housing May Be Starting to Feel Impact of Recession

FOR IMMEDIATE RELEASE: January 27, 2009
Contact: Renee Tilton, (410) 626-0805 or rtilton@crosbymarketing.com

Annapolis, Md. – The continued slowing of the economy and further deterioration in the credit markets may be starting to affect loan performance and capitalization rates in seniors housing and care, according to third quarter 2008 data tracked by the National Investment Center for the Seniors Housing & Care Industry (NIC). Each quarter, financial and performance data are collected by NIC from the nation’s leading senior living lenders, owners/operators and appraisal professionals and posted as the NIC Key Financial Indicators™ (KFIs) on the organization’s Web site.

Loan volume placed in the industry has been in a downward trend since the first quarter of 2007 when it reached $2.28 billion. The amount placed in the third quarter of 2008 was $1.01 billion compared to $1.55 billion in the second quarter.

The loan data collected by NIC represent the quarterly lending activity of major national lenders (non-REITs) that make permanent and short-term debt investments in seniors housing and care. This includes data provided by Fannie Mae, Freddie Mac, and several of the larger commercial credit companies and banks.

“The area that we will be closely monitoring in future quarters is loan performance,” said Robert G. Kramer, president of NIC. “Although loan performance held up well during the third quarter, it did fall below 99.0 percent for the first time since 2005.” Loan performance decreased to 98.9 percent, down from 99.5 percent – which was an all-time high – in the second quarter.

“We’ll need to see how this unfolds,” continued Kramer. “Since there is likely a good amount of debt that needs to be refinanced over the next few years and considering the current turmoil in the credit markets, refinancing will be a challenge in the short term. As such, we may see some deterioration in loan performance during the next 18 months.”

Also during the third quarter of 2008, NIC’s KFI data showed that mean occupancy rates were flat to slightly higher when compared to the previous quarter. Independent living (at 89 percent) and skilled nursing (at 84 percent) remained the same. Assisted living (at 88.5 percent) and continuing care retirement communities (CCRCs, at 89.5 percent) increased their occupancy levels by half a percentage point.

“Occupancy rates, as measured for the major metro markets by our NIC MAP® data service and nationwide by the KFIs, have declined from their peaks in late 2006 and early 2007,” said Lawrence J. Horan, Ph.D., financial research and analysis director for NIC. “Since then, mean occupancy for both independent living and skilled nursing have dropped by four percentage points. Assisted living fell two percentage points to a low of 87.5 percent in the second quarter of 2007 and rose to 88.5 percent by the third quarter of 2008.” During the same period, CCRC rates fell three percentage points to a low of 89 percent in the second quarter of 2008 but have rebounded slightly in the third quarter.

Average capitalization rates have been higher in 2008 than in 2007. The mean capitalization rate for independent living hit a low of 7.3 percent in 2007 and rose to 8.7 percent in the third quarter of 2008. The spread for the sector in the third quarter of 2008 ranged from a low of 6.5 percent to a high of 13 percent. Assisted living’s low was 8.5 percent in 2007 and in the third quarter of 2008 it was 9.2 percent. The mean capitalization rate for skilled nursing hit a low of 12.0 percent in 2007 and was at 12.75 percent in the third quarter of 2008. The reported number of transactions for the third quarter of 2008 dropped by almost 50 percent from the second quarter.

About NIC

Founded in 1991, the National Investment Center for the Seniors Housing & Care Industry is a nonprofit education and research organization providing information about business strategy and capital formation for the senior living industry. NIC is the leading provider of historical and trend data on the industry through its Key Financial Indicators™ (KFIs) that report nationwide statistics and its NIC MAP® Data and Analysis Service that tracks properties in the 100 largest metropolitan areas. Proceeds from its annual events are used to fund research on issues of importance to seniors housing and care decision-makers. For more information, visit www.NIC.org or call (410) 267-0504.

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