Seniors Housing Weekly Update - Interest Rate Rise Changing the Shape of the Seniors Housing M&A Market

August 20, 2013

August 20, 2013. 60 Seconds with Steve Monroe. With the sharp increase in interest rates, and the resulting plunge in REIT share prices, the dynamics of the M&A market are changing, and for some deals, cap rates will rise.

Interest Rate Rise Changing the Shape of the Seniors Housing M&A Market

Many people considered 2011 to be the year of the health care REIT, with their explosive growth by acquisition that looked as if it would not stop. Then came the change in interest rates this year, with the 10-year Treasury note rate up 75%, or 120 basis points, since early May. That has caused health care REIT share prices to plummet by more than 25% from their spring highs. That drop, coupled with the interest rate rise, most likely has put into hibernation those big deals that had been rumored, such as Ventas and Brookdale. They just don’t make sense anymore, and if a deal isn’t significantly accretive, there just is no point. But the smaller REITs continue to buy because the pricing for the small, under $100 million deals is different from the mega-deals. Unfortunately, for those in-between deals of $100 to $400 million, they just aren’t going to sell for what they would have last March.  While deals closing today have not seen a cap rate rise, those in the market today are feeling the pinch. It’s simply a matter of math.



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