News & Press Releases

NIC Data Show Fewer Transactions, Rising Cap Rates for Seniors Housing and Care

Press Room – 2009 NIC Press Releases

NIC Data Show Fewer Transactions,
Rising Capitalization Rates for Seniors Housing and Care

FOR IMMEDIATE RELEASE: March 31, 2009
Contact: Renee Tilton, (410) 626-0805 or rtilton@crosbymarketing.com

Annapolis, Md. – The credit crisis is clearly showing its impact in lower transaction volumes and rising capitalization rates in seniors housing and care, according to fourth 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.

During the fourth quarter, about $1 billion in loan volume was placed in the seniors housing and care industry. Although this was a slight increase from the third quarter, loan volume is below the $1.54 billion quarterly average of the last three years. Loan volume reached a high of $2.28 billion during the first quarter of 2007.

The loan data collected by NIC represent the quarterly lending activity of a same store sample 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.

“When we look at loan volume, government sponsored enterprise [GSE] mortgages have taken on increased importance, with multifamily and seniors housing becoming more dependent on Fannie Mae and Freddie Mac as a major source of long-term debt financing,” said Robert G. Kramer, president of NIC. “In fact, the share of GSE mortgages for multifamily, including seniors housing, as a percentage of all mortgages outstanding has gained 640 basis points since the first quarter of 2007.”

The GSE share of the total multifamily mortgages outstanding grew from 14.6 percent in the first quarter of 2007 to 21 percent in the fourth quarter of 2008. “This has important implications for Fannie Mae and Freddie Mac over the next few years,” continued Kramer, “as Congress has mandated that they must begin to reduce their portfolios by 10 percent per year beginning in 2010.”

The NIC KFIs showed that overall loan performance for the seniors housing and care industry is still quite good, with just a minor drop of 40 basis points from last year in the percentage of performing loans. However, the fourth quarter 2008 data did show a foreclosure for the first time in five years, which took place in the assisted living category. Restructurings also went up year over year, as did the number of delinquencies.

“Any deterioration in loan performance during the fourth quarter is still well below the 10-15 percent levels of non-performing loans that the industry experienced during the last downturn 6-7 years ago,” said Lawrence J. Horan, Ph.D., financial research and analysis director for NIC. “Back then, specifically in the fourth quarter of 2001, the amount of performing loans hit a low of 83.2 percent, whereas it was 98.5 percent during this previous quarter.”

Mean occupancy rates were down slightly from the third to the fourth quarters of 2008 for independent living from 89 percent to 88.5 percent. However, occupancy rates for assisted living, skilled nursing and continuing care retirement communities (CCRCs) held steady.

Lastly, the fourth quarter 2008 NIC KFIs showed evidence that capitalization rates are rising. Year-over-year capitalization rates for independent living were up 140 basis points from 7.3 percent to 8.7 percent, while those for assisted living were up 20 basis points from 9.1 percent to 9.3 percent. During the same period, nursing home capitalization rates were up 110 basis points from 12 percent to 13.1 percent and CCRC capitalization rates were up 120 basis points from 7.8 percent to 9 percent.

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 NIC MAP® Data and Analysis Service that tracks properties in the 100 largest metropolitan areas and its Key Financial Indicators™ (KFIs) that report nationwide statistics. Proceeds from its annual conference and other events are used to fund data and research on issues of importance to lenders, investors, developers, operators, and others interested in meeting the housing and care needs of America’s seniors. For more information, visit www.NIC.org or call (410) 267-0504.

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