CHICAGO—Housing for senior citizens came through the Great Recession with a solid reputation for healthy returns, and the signs of increased interest in the sector were obvious at this week's National Investment Center's National Conference in Chicago. John D. Cobb, the executive vice president and CIO of Ventas, Inc., for example, pointed out during an afternoon session that ten or fifteen years ago the same conference attracted about 500 participants, while this year the hallways and ballrooms of the Sheraton Chicago Hotel & Towers thronged with about 2,000 conference goers.
And the recent rise in interest rates does not seem to have dampened enthusiasm. Cobb and several other practitioners in the sector hashed out this and other factors that could affect valuations in the coming year during a October 10 discussion led by Charles Bissell, principal and national team leader for Integra Realty Resources.
William D. Pettit Jr., the president and COO of the R.D. Merrill Company, a Seattle-based holding company that operates senior communities, said that many elements, not just interest rates, were having an impact. Competition, for example, has grown more intense in the sector. “I can't think of a transaction we've been shown in the last four years that hasn't been multi-bid.”
Furthermore, the bump up in rates has been rather modest, said Gray W. Hampton III, managing director of Bank of America/Merrill Lynch, and even though it has certainly influenced transactions, “I don't think that it's changed how the people we deal with look at things.” Their clients, he added, especially health care REITs, “still see this as a very opportune time to raise capital.”
Cobb agreed. “I think more people are into the [senior sector]; so it's attracting a lot of capital.”
Bissell also asked whether or not this increased interest could overheat the sector, but the panelists did not think so.
“It's the new normal,” said Steve Blazejewski, a principal in seniors housing for Prudential Real Estate Investors, of all the new money and investors flowing in.
Cobb also did not seem worried. He pointed out that, back in the 1990's, when the market for senior housing did perhaps overheat and overbuild, a lot of developers in the sector had the capacity to put up large numbers of units very quickly. Currently, however, “no one is set up to do that.”
Participants also largely discounted the notion that the Affordable Care Act would have earthshaking consequences for the sector. Hampton termed the ACA “a work in progress” that would take a considerable time to make itself felt. He did note, however, that over the long term, the expansion of coverage is “going to benefit those companies that can provide the lower cost solutions,” especially larger firms that can align all the types of care needed by their aging clients.
Pettit was asked whether, as an operator, the requirement to expand coverage for employees would affect his business, perhaps forcing R.D. Merrill to push some full-time employees over to part-time. “I don't think so,” he replied, “because that's a losing game.” He prefers having one well-trained employee to spending money and time training a second. He also believes clients get better service from workers that don't have to worry about paying for their own health care, so providing insurance is something the company already does. “I'm far more concerned about the interest rates we may see.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
