How Private Equity Went From Desperate To Dominating In Senior Housing

June 23, 2016, Mary Kate Nelson, Senior Housing News - In the first quarter of 2016, private equity buyers finally got their foot in the door—and then some—after a period of being largely shut out of deals.  “This was the quarter of private equity,” CBRE National Senior Housing Executive Vice President Lisa Widmier told Senior Housing News.

Private investment in senior housing has doubled since 2015, with private equity buyers involved in about 55% of senior housing transactions in the first quarter of 2016, according to data compiled by Real Capital Analytics and reported in CBRE National Senior Housing’s  “Senior Housing Market Insight” report for the first quarter of 2016.

The jump is huge—and meaningful.

“This is exciting for the private equity folks, because in the last few years, they’ve been trying desperately to get into senior housing sector,” Widmier said.  “They were super excited to finally get a little tiny foot in the door.”

To finally accomplish that, Widmier explained, private equity buyers made some financial sacrifices. 

“They ended up paying prices public real estate investment trusts (REITs) would have paid,” she said.  The private equity buyers were essentially paying for “a ticket of entry with highly-coveted senior housing operators.”

Solidifying a relationship with a good operator, while difficult to accomplish, is necessary for long-term success.

“The operator is key to creating value in senior housing real estate,” Widmier said.  “There are a shortage of really good operators that are known.” 

Once private equity buyers secure an “in” with a good operator and secure a portfolio, they can start doing single transactions, Widmier said. 

Meanwhile, only 15% of transactions in the first quarter of 2016 involved REITs or other publicly traded buyers. Institutional buyers were involved in 25% of senior housing transactions in the first quarter of 2016, jumping from involvement in 10% of transactions in the first quarter of 2015. 

In fact, uncertainty as to how much public REITs will participate in the senior housing market this year is one of the biggest challenges facing the sector, CBRE’s report says. REITs have scaled back market activity in recent quarters due to interest rate uncertainty, slumping share prices, skilled nursing woes and various other issues.

Other key findings in the report include:

  • 90% – average senior housing occupancy over the last four quarters
  • 357 – the number of of publicly announced transactions in 2015
  • $1,555,500,000 – first-quarter 2016 transaction volume