These Properties Outshine Senior Living In Investors’ Eyes

April 17, 2017, Mary Kate Nelson, Senior Housing News - Health care real estate investors have expressed interest in acquiring assisted living communities and skilled nursing facilities this year—but not nearly as much interest as they have in acquiring medical office buildings.

That’s according to the U.S. Healthcare Capital Markets 2017 Investor & Developer Survey, recently published by commercial real estate services and investment firm CBRE Group, Inc. (NYSE: CBG).

For the survey, CBRE polled a total of 91 institutional investors, private capital investors, health care real estate investment trusts (REITs) and developers across the country.

Approximately 28% of respondents, when asked to name all health care real estate properties that currently meet their acquisition criteria, indicated an interest in assisted living communities, while 16% of the respondents indicated they were interested in acquiring skilled nursing facilities.

Medical office buildings and ambulatory surgery centers saw the most interest, however, with 97% and 80% of respondents indicating an interest in acquiring these assets in 2017, respectively.

Supply and demand don’t appear to be worrying many health care real estate investors—at least where skilled nursing is concerned.

About 43% of respondents expect the demand for skilled nursing facilities to stay the same in 2017, but 36% expect demand will fall and 21% expect demand will rise. On the flip side, 47% of respondents expect the supply of skilled nursing facilities will stay the same in 2017, while 34% expect supply will rise and 19% expect it will fall.

Supply of Assets in 2017

Demand of Assets in 2017

The pricing of different single-tenant health care real estate assets is expected to vary greatly this year, the survey shows.

Medical office buildings are expected to be the most aggressively priced single-tenant health care investments this year, with 39% of the survey respondents indicating these assets will fall within a cap rate range of between 6% and 6.49%, and 38% of respondents indicating they’ll have a cap rate under 6%.

Skilled nursing facilities, meanwhile, are expected to not be priced so aggressively.  About 46% of respondents indicated that the market capitalization rate for single-tenant skilled nursing facilities will be between 7.50% and 8.49% in 2017, for instance.

With respect to the amount of equity respondents’ companies have allocated to health care real estate development and investment activity this year, the total for all the companies combined amounts to almost $14.9 billion, the survey shows.  That’s up about 3% from the estimated $14.5 billion that was reported in CBRE’s 2016 survey results, but still about equal to the reported available equity in 2015-2016, CBRE says in the report.

Additionally, the large amount of equity estimated in 2017 is substantially greater than in 2011, 2012, 2014 and 2014, and is also about 146% of the total market transaction volume that traded last year, CBRE notes.