The SeniorCare Investor: Seniors Housing Acquisition Market-
New Study Differentiating The A From The B Properties
The seniors housing and care acquisition market appears to have taken a bit of a vacation, or at least that is what many market participants have come to believe. “Where are all the deals?” they ask. “Where are the high-quality properties that we saw last year?” they want to know. The transactional volume is certainly lower than a year ago, but not as low as most people have come to believe. Of publicly announced deals, we have recorded 76 acquisitions in the first half of 2012, and this compares to 84 in the first half of 2011, representing just under a 10% drop, or nothing to get your knickers in a knot over. But the second quarter was relatively slow, posting just 35 announced acquisitions, or a 22% drop from the year-ago quarter and a 15% drop from the first quarter of this year.
What everyone seems to be noticing is the lack of excitement, and by “excitement” we are talking about the large, transformative deals that make a statement either in size, valuation or cap rate, and sometimes all three. In the first half of 2011, the dollar value of the publicly announced acquisitions was about $14.1 billion, most of that coming from a half dozen acquisitions by REITs. In the first half of this year,that number has declined by 75% to just over $3.5 billion. However, if the five largest REIT acquisitions in the first quarter of 2011 are removed from the totals, the first half of 2011 had just $2.3 billion, demonstrating that the two periods have not been all that different. It is highly unlikely that during the remainder of the year we will see transaction volume pick up enough to even approach last year’s $16.4 billion of announced acquisitions in our market, let alone get half way there, unless “Big Deb” decides she wants to consume another competitor. While always possible, the Vegas odds-makers give it a small probability for this year, but there is no comment on 2013.
So, to answer the first question above, the deals have been in front of you, but they may have been too small to notice or not of a high enough quality to interest you. And as for the rest of the year, we expect the third quarter to be average to slow, but by the fourth quarter we anticipate more activity than we have seen in many years as uncertainty will drive the desire to sell. With a better than even chance that capital gains tax rates will increase next year, and sellers knowing that interest rates for buyers are at historic lows, it is almost a win-win as sellers can command high values, especially for quality properties (more on that in a minute), and with historic low capital gains tax rates, they can put the proceeds under the mattress and wait until government inflation-indexed bonds (known as TIPS) start to provide a positive return. While we do not know of any mega-deals coming along in the fourth quarter, the transactions mostly will be single assets and small portfolios with a cross section along the quality spectrum, but not as many high-quality properties as the market wants.
And this leads us to the second question, “Where are the high-quality properties?” The simple answer is that if those owners missed the boat in 2006 to 2007, they didn’t want to repeat the mistake and have already taken advantage of the current strong market and the perhaps unprecedented demand for quality. The bottom line is that most of them have already sold or teamed up with REITs in sale/leasebacks or RIDEA sale/manageback transactions. Obviously, there are still owners of high-quality assets out there, but if they didn’t sell five years ago, and haven’t sold in this market with the threat of capital gains tax rates rising..................Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today