Next, the discussion moved to the panelists. Timothy Fox, EVP/chief investment officer for Senior Resource Group, said during times of high volatility in the economy, traffic for senior housing dries up. “We're constantly trying to be a high-quality-of-life option for residents, but the decision-making matrix comes from a fear of change during great or poor economies.”

Imran Javaid, managing director of BMO Harris Bank, said while short-term interest rates have turned a corner, the long-term picture is unclear. In terms of the 10-Year Treasury, we're not that different from where we have been for quite some time, even when interest rates were lower.

Mace said the expectation is that inflation isn't really out there and asked the panelists if they think the interest-rate hikes are justified. “There needs to be some differential between multifamily and senior housing, but I'm not sure what the spread should be.” Fox said the spread will be determined by all players in the market.

In discussing thresholds, Fox said, “Our evolution as an industry marries nicely with how capital is coming in. People are more knowledgeable now.”

Mace asked about the effect of rising interest rates on the cost of capital. Justin Hutchens, president of HCP Inc., said traditional sources of capital for HCP have been the debt markets, which are 90 bps to 100 bps higher than they were 10 years ago. After some repositioning in the market, for HCP, “the green light is on to make acquisitions.” He added that his firm can move in to make investments without having to access the capital markets, and he said, “we haven't seen movement in the cap rates despite the interest-rate hikes.”

Javaid said, “But isn't it like you've been here before? That's why cap rates aren't moving. Until there's a significant change [in the interest rates], the cap rates won't move.” He added that it will be interesting to see in the next six to 12 months if cap rates rise.

An attendee poll revealed that they believe international investors will increase their interest in US senior housing, and Hutchens agreed with them. “That's absolutely right. Investors are relying on the expertise of local firms.” He added that REITs should follow.

Javaid warned that capital flow from foreign investors could stop if US trade policy changes under Trump. “Don't count on it.” There's uncertainty with that market, and trade wars could impact foreign investment in US senior housing significantly, he said. Private-equity funds will likely increase their investment in this market sector, seeing it as a good place to invest.

Fox said his firm has had interest from foreign investors and is seeing more large institutions looking to find ways to come in directly. “More is coming.”

Mace shifted the discussion to senior-housing development. “Are lenders being more careful about whom they're lending to for development?” she asked. Javaid said his firm focuses on the operator. “We're looking for a strong operating partner in place.” Fox said people are becoming more sophisticated about nuances in the type of property, the market and capital. Also, he said, “What the consumer wants has changed. The product from 10 years ago is not what we will need five years from now. We want to improve the quality of life for residents. It wasn't long ago that seniors housing was thought of as the apartment with a kitchen and dining room.” Now, he said, residents want to engage more, so the industry is continuously trying to refine what creates intimacy in this environment. Javaid said most lenders are looking at the right measures. “So far, so good.”

Mace asked, with senior-housing asset pricing at record highs, how can the panelists find impactful deals for their portfolio? Hutchens said his firm focuses on life science, senior housing, hospitals and MOBs. “We have an active MOB office pipeline to review. We're the biggest player on the West Coast and an active developer.” He added that his firm has a lot of properties under review and develops through relationships. “There are not a lot of operator-driven recapitalizations. We will be cautious and selective in underwriting.”

Attendees considered labor shortages and the rising cost of labor to be the biggest risk facing the senior-housing business today, followed by excess supply and growing competition. Fox conceded that finding a balance between adequate wages and keeping costs under control was difficult.

A final note of interest: the panelists all said that while independent and assisted living are thriving, the skilled-nursing sector is contracting due to shorter stays and reduced need for beds.

SAN DIEGO—Rising interest rates are creating a feeling of racing against time for senior-housing developers and investors, yet with most of the large wave of Baby Boomers still too young to consider living in senior housing, investors and lenders are cautious, speakers at NIC's Spring Investment Forum said Wednesday. In the panel session, “The Economy in 2017 and its Impact on Seniors Housing & Care,” a panel of experts addressed the economic issues affecting this sector.

Moderator Beth Mace, chief economist for NIC, gave an overview of the national economy and its broad impact on senior housing. She said after the recession, the labor markets did not hit a new peak until 2014, and while we had 227,000 jobs gained in February, the labor-force participation rate is weak at 63%, and as much as 9% of the population is either discouraged or not fully employed.

GDP growth has been moderately paced, but productivity growth has been low, said Mace. Solutions such as a focus on infrastructure, tax policies and jobs training could raise productivity, but it has a long way to go to reach the 4% growth seen between 1050 and 1973—presently, growth is at 1.7%, projected to be at 1.9% between 2021 and 2027. “We need to incentivize the labor force,” said Mace. Economic growth is projected to rise through 2018, then decrease through 2021, although President Trump's economic and trade policies may speed up growth.

With regard to senior-housing fundamentals, capital inventory for this sector was high in 2007, and capital was very available. Then, the recession hit and demand and occupancy decreased. The most supply on record occurred in Q4 2016, along with the highest absorption levels, and starts, which peaked in 2015, began to decrease. Transactions for senior-housing activity in general fell last year, raising the question: is it a race against time due to the promise of another recession and rising interest rates, or are we preparing for the upcoming silver tsunami, when the bulk of Baby Boomers reach the age to begin living in these communities?

Next, the discussion moved to the panelists. Timothy Fox, EVP/chief investment officer for Senior Resource Group, said during times of high volatility in the economy, traffic for senior housing dries up. “We're constantly trying to be a high-quality-of-life option for residents, but the decision-making matrix comes from a fear of change during great or poor economies.”

Imran Javaid, managing director of BMO Harris Bank, said while short-term interest rates have turned a corner, the long-term picture is unclear. In terms of the 10-Year Treasury, we're not that different from where we have been for quite some time, even when interest rates were lower.

Mace said the expectation is that inflation isn't really out there and asked the panelists if they think the interest-rate hikes are justified. “There needs to be some differential between multifamily and senior housing, but I'm not sure what the spread should be.” Fox said the spread will be determined by all players in the market.

In discussing thresholds, Fox said, “Our evolution as an industry marries nicely with how capital is coming in. People are more knowledgeable now.”

Mace asked about the effect of rising interest rates on the cost of capital. Justin Hutchens, president of HCP Inc., said traditional sources of capital for HCP have been the debt markets, which are 90 bps to 100 bps higher than they were 10 years ago. After some repositioning in the market, for HCP, “the green light is on to make acquisitions.” He added that his firm can move in to make investments without having to access the capital markets, and he said, “we haven't seen movement in the cap rates despite the interest-rate hikes.”

Javaid said, “But isn't it like you've been here before? That's why cap rates aren't moving. Until there's a significant change [in the interest rates], the cap rates won't move.” He added that it will be interesting to see in the next six to 12 months if cap rates rise.

An attendee poll revealed that they believe international investors will increase their interest in US senior housing, and Hutchens agreed with them. “That's absolutely right. Investors are relying on the expertise of local firms.” He added that REITs should follow.

Javaid warned that capital flow from foreign investors could stop if US trade policy changes under Trump. “Don't count on it.” There's uncertainty with that market, and trade wars could impact foreign investment in US senior housing significantly, he said. Private-equity funds will likely increase their investment in this market sector, seeing it as a good place to invest.

Fox said his firm has had interest from foreign investors and is seeing more large institutions looking to find ways to come in directly. “More is coming.”

Mace shifted the discussion to senior-housing development. “Are lenders being more careful about whom they're lending to for development?” she asked. Javaid said his firm focuses on the operator. “We're looking for a strong operating partner in place.” Fox said people are becoming more sophisticated about nuances in the type of property, the market and capital. Also, he said, “What the consumer wants has changed. The product from 10 years ago is not what we will need five years from now. We want to improve the quality of life for residents. It wasn't long ago that seniors housing was thought of as the apartment with a kitchen and dining room.” Now, he said, residents want to engage more, so the industry is continuously trying to refine what creates intimacy in this environment. Javaid said most lenders are looking at the right measures. “So far, so good.”

Mace asked, with senior-housing asset pricing at record highs, how can the panelists find impactful deals for their portfolio? Hutchens said his firm focuses on life science, senior housing, hospitals and MOBs. “We have an active MOB office pipeline to review. We're the biggest player on the West Coast and an active developer.” He added that his firm has a lot of properties under review and develops through relationships. “There are not a lot of operator-driven recapitalizations. We will be cautious and selective in underwriting.”

Attendees considered labor shortages and the rising cost of labor to be the biggest risk facing the senior-housing business today, followed by excess supply and growing competition. Fox conceded that finding a balance between adequate wages and keeping costs under control was difficult.

A final note of interest: the panelists all said that while independent and assisted living are thriving, the skilled-nursing sector is contracting due to shorter stays and reduced need for beds.