More Seniors Housing Investors Dealing With Short-Term Negative Leverage
Also the buyer pool has been comprised of a higher-than-normal share of private buyers over the past 18 months.
There are strengthening opinions that the commercial real estate markets are approaching their bottom and new “green shoots are emerging,” based on declines of approximately 100 bps in the 10-year Treasury in recent months.
This is expected to lead to a gradual improvement in investor sentiment, according to JLL. In its Investor Survey and Trends Update for Seniors Housing, rising debt costs have led to widespread repricing across all commercial real estate. Cap rates for seniors housing averaged 5% in Q2 2021, according to NIC MAP, and since then, they have expanded by around 200 bps.
Spreads between the 10-year and seniors cap rates have averaged 462 bps going back to 2008, however, the spread as of Q4 2023 decreased to 292 bps, “with more investors having to contend with negative leverage in the short-term,” according to the report.
Transaction volumes in the seniors housing and nursing care space have seen a notable decline, with activity in the first three quarters of 2023 down 33% compared to prior year levels. Price per unit trends continue to diverge based on income growth profiles, according to the report.
There was less price appreciation during the past several years for the seniors housing and nursing care sectors, in part because of increased labor costs.
The buyer pool of seniors housing assets has been comprised of a higher-than-normal share of private buyers over the past 18 months, JLL said, with institutional investors’ share of purchases decreasing from 28% in 2019 to 5% in 2023.
“Private capital has taken advantage of a less crowded buyer landscape, a trend seen across other property sectors as well,” according to the report.
Seniors housing is among the top three alternative sectors in terms of three-year investment volumes.
Over the past 10 years, alternatives’ share of total investment volume has risen from 8.4% to 13.1% “as capital has poured into smaller sectors with a compelling demand and growth thesis,” JLL said.