Brian Chandler:
Inflation, rising interest rates, and limited supply have all had an impact on the seniors housing sector, similar to other commercial real estate sectors. Partner Valuation Advisors recently released their inaugural Seniors Housing Investor Survey Report which gathered insights from experts in the field including lenders, investors, developers and investment sales professionals. The survey revealed that financing availability and increasing interest rates were top concerns among respondents. Additionally, property values have declined due to higher capital costs and cap rates.
According to senior managing director Brian Chandler of Partner Valuation Advisors , these findings are not surprising given current market conditions and pricing metrics in the debt market. He notes that increased interest rates make floating rate loans more attractive for borrowers looking for alternative avenues of entry into the market.
The survey also found that lenders tend to be more conservative with loan-to-value ratios in this sector with a cap at 75%. However, many respondents expressed a need for more flexibility with LTVs ranging from 65%-70%. This is likely due to stricter lending requirements resulting in loan limits between 55%-65%.
Transactions within this sector typically take longer than others as buyers want extended due diligence periods before closing deals. There is also a disconnect between buyers and sellers as owners are seeking credit for future rent increases while active buyers are hesitant about offering asking prices.
Supply may continue to be constrained as construction costs rise along with labor shortages caused by the pandemic leading up until at least 2024 according to Chandler’s discussions with survey respondents.
Despite these challenges over the next two years or so there will still be opportunities available particularly within active adult communities or assisted-living facilities according most surveyed individuals who believe cap rates will increase during this time period.
Chandler remains optimistic about demand drivers continuing strong performance despite economic volatility thanks largely demographic fundamentals driving demand especially considering how well seniors housing has performed during past recessions being considered needs-based investments making them less susceptible compared other asset classes.
