NEW YORK CITY-Ten years ago, Ventas Inc. CEO Debra A. Cafaro waged a campaign to get healthcare REITs recognition in the commercial marketplace. But now, Ventas is a $22-billion enterprise and the largest owner of senior housing in the US—and Cafaro predicts healthcare real estate to grow exponentially. “Driven by the aging of our population and the coming changes in our healthcare delivery system, I believe that healthcare real estate is just now starting to rev up,” Cafaro said at the 16th Annual REIT Symposium sponsored by NYU’s Schack Institute of Real Estate Thursday morning, serving as the conference’s keynote speaker.
Cafaro says healthcare arena—a $1-trillion real estate market with 90% of assets still in private hands—will skyrocket due to the fact that 79 million Baby Boomers will turn 65 years old starting this year. The federal government healthcare overhaul will also bring an additional two million people requiring care into the national healthcare system, signaling a demand for medical offices and outpatient facilities. “Because they are need-based, healthcare and senior housing assets performed the best of any real estate asset class during the recession,” she explained.
Additionally, the population segment at 85-years-old and above is growing at three times the rate of the general population, now totaling six million individuals, she says, providing investors an opportunity to invest in long-term care facilities, senior housing and nursing homes. At the same time, construction on these projects remains constrained. “The pipeline for private pay on senior housing construction was down fully by two-thirds over the past two years,” she says. Coupled with increasing demand, limited supply is driving companies—like Ventas—to fill the void by acquiring new properties.
Since mid-2010, Ventas made more than $10 billion in new acquisitions, including Chicago-based design and construction firm Lillibridge Healthcare Services; the $3.1-billion acquisition of private Atria Senior Living in October; and a $7.4-billion pending acquisition of Nationwide Health Properties, Cafaro said. In 2007, the company acquired the Sunrise Senior Living REIT—including 74 assisted living communities in the US—for $1.8 billion, one of its most well-known assets.
Overall, the company holds a portfolio of over 1,300 healthcare and seniors housing assets located in 47 states, the District of Columbia and Canada. Ventas was the top performing publicly traded financial company for the first decade of this century, with total shareholder return exceeding 2,000%.
“We are no longer ignored by the index keepers or more importantly the investment community,” she says, predicting that healthcare REITs will comprise between 13% and 15% of the major REIT equity industry, adding, “healthcare real estate provides better returns, lower risk than any other asset class. It is simply a matter of supply and demographic demand.”
Following Cafaro’s address, industry professionals predicted during a panel discussion that the future will bring increased construction, fewer IPOs and better earns in multifamily development. David J. Neithercut, CEO of Equity Residential agreed with Cafaro, saying there are “great opportunities for REITs to add overall size,” but explained that funding for new projects would need to come from the private side more than public, at least in the residential sector. Michael F. Kirby, chairman and director of research at Green Street Advisors, said, “it is a great time to be a REIT to the extent that acquisitions are available.”
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