REITs and other ‘well-funded’ qualified nursing investors rejoice as buyer’s market returns
Skilled nursing lenders are becoming more selective with their financing, adopting stricter underwriting standards while regulatory uncertainties and reimbursement changes leave investors more cautious.
There is also a more definite shift towards a buyers’ market as more deals return to the sector, according to industry analysts. Many potential deals have stalled over the past year or so as underwriters and capital providers need additional collateral before closing a deal.
“This is good news for well-financed buyers, including [real estate investment trusts] to move from debt deals to real estate,” Stifel analysts said in a note released on Monday. “We could finally see more deals taken out based on the current yield.”
Stifel analysts heard from a wide range of qualified nursing and senior housing stakeholders at the National Investment Center for Seniors Housing & Care (NIC) Fall 2022 conference last week.
Despite concerns over the challenges facing the skilled nursing sector, some investors have not been shy about taking an interest in the industry.
Private buyers closed about $1 billion in skilled nursing deals in the second fiscal quarter of 2022, according to preliminary data from NIC MAP Vision.
Public REITs seem to be the sellers in the market right now, according to investors in the sector.
According to CIO and Co-Chairman Clint Malin, LTC Properties has specifically “recycled capital” from many of the former skilled nursing properties in its portfolio.
Still, Malin said REITs are “counter-cyclical” and as the sector reaches a new environment with rising interest rates, it could make them more competitive in the market to acquire additional assets.
The general mood in the space is ‘optimistic’, Stifel analysts said, as growth projections and yield expectations are reshaped into a more realistic outlook – after more than a year of inflation and doom. increase in the cost of debt.
A reshaped vision for the industry did not happen in 2021, Stifel analysts said.
Looking ahead to 2023, providers of capital should be more cautious while owners and operators take a more pragmatic approach. Stifel analysts believe the new outlook will help “tighten the gap” between asset prices and fundamentals.
Operators, among other space stakeholders, believe that a positive supply and demand backdrop will support occupancy growth at a faster rate than historic levels.
This despite the fact that staffing is always a “pain point” for operators. Many believe the cost of workforce growth has peaked as agency work declines and operators achieve more net hires, but there won’t be a ‘clear improvement’ anytime soon , Stifel analysts said.
“Employee poaching continues to be a thorny issue for all operators. Work culture and incentives play a big role in retaining workers, but caregivers and assembly line workers are themselves the biggest victims of inflation and need wages higher to support their families,” the analysts said. “Operators also need to better understand the needs and priorities of the current generation of workers.”
A scarcity of construction finance, why is scaling up operations more important given today’s ‘revenue boost’; and the need for more robust data analysis and sharing was also a priority for operators.