LOS ANGELES — Dan Baker, director of capital markets for JLL, says the seniors housing and care industry doesn’t need to speculate on whether the market rebound is real or perceived because the numbers tell the story.
“I think last year saw the most announced seniors housing transactions ever in a calendar year, not necessarily the most dollar volume,” said Baker during a recent investment panel discussion at InterFace Seniors Housing West in Los Angeles. Baker cited the lack of larger portfolios trading hands as the reason for the modest dollar volume in transaction activity in 2024.
According to research firm MSCI, property and portfolio sales in the seniors housing and care space totaled $13.2 billion in 2024 compared with $10.9 billion in 2023, a year-over-year increase of 21 percent. That’s still far below the $20.7 billion in deal volume notched in 2021. The data is based on independent reports of sales $2.5 million and above.
One compelling trend noted by Baker is the tremendous growth in net operating income (NOI), not simply revenue growth. In 2024, for example, Ventas’s Seniors Housing Operation Portfolio (SHOP) posted a nearly 16 percent increase in same-store cash NOI growth, driven by increased occupancy and revenue per occupied room. Welltower, meanwhile, saw same-store NOI growth of nearly 24 percent in the fourth quarter of 2024, the ninth straight quarter in which the REIT’s NOI growth surpassed 20 percent.
The improving NOI landscape has led JLL to re-evaluate its broker opinion of value on several prospective deals that it first looked at a few years ago. “It’s been pretty widespread, not perfectly consistent, to see a healthy rebound in NOI. So, what we’re seeing in the market is buyers step up for that cash flow and that yield,” said Baker, who is based in JLL’s San Diego office.
Jacob Gehl, chief vision officer and co-founder of Blueprint Healthcare Real Estate Advisors, served as moderator for the panel discussion, which focused on the state of the investment market and where pricing is headed.
Joining Gehl and Baker on stage at the Omni Los Angeles were Emma Rosen, director of acquisitions for RSF Partners; Darrin Smith, executive vice president of investments for Sabra Health Care REIT; Tri Tran, senior vice president of investments for CareTrust REIT; and Joe Weisenburger, vice president of capital markets and investment for Kisco Senior Living. The day-long conference, which took place Feb. 20, attracted more than 220 professionals from across the industry.
Blueprint notched a record year in 2024 after experiencing some challenging times in 2021 and 2022 when the capital markets imploded, said Gehl. “We just had a big backlog of stuff, and it feels like more sellers are coming to the market.” Gehl didn’t provide any specifics on Blueprint’s deal volume in 2024.
Margins Rebound
Kisco Senior Living, an owner and operator based in Carlsbad, California, has a portfolio of approximately 6,000 units across 35 communities throughout the United States. The firm’s portfolio is currently 93 percent occupied, with revenue per available room (RevPAR) at around $8,000. “We’re a very high-end provider of independent living, assisted living and memory care,” said Weisenburger, whose job is to raise capital for the company and help it grow through acquisitions and development.
“Our margins are recovering. They’re not back to pre-pandemic levels, but they’re definitely coming back,” he said, adding that Kisco isn’t currently using any staffing agencies. “Labor has come back. We see a bright future.”
Gehl asked Weisenburger to provide a ballpark estimate of where Kisco’s margins were pre-COVID and where they are at now. “It just really depends on what that mix of independent living, assisted living and memory care is. High-end projects can hit as high as 47 percent margins, and low-end projects are doing 30 percent margins. It’s all in that range, and it really just depends on what that [care] mix is.”
Buyers Have the Upper Hand
From a negotiations standpoint, Smith of Sabra Health Care REIT describes today’s environment in the seniors housing segment as a buyer’s market. “Pricing has been fantastic the past year (for buyers). I hope it continues to hold this year. It’s a matter of how long this window is going to be open,” said Smith.
As of year-end 2024, Sabra’s portfolio included 364 real estate properties held for investment, consisting of 224 skilled nursing/transitional care facilities; 39 seniors housing communities that it leases out; 69 senior housing communities operated by third-party property managers; 17 behavioral health facilities; and 15 specialty hospitals and other facilities.
Sabra, which is headquartered in Tustin, California, is pursuing seniors housing acquisition opportunities in secondary and tertiary markets where cap rates last year ranged from 8 to 8.5 percent, but have since compressed to about 7.25 to 7.5 percent, according to Smith.
Sabra completed about $200 million in investments in 2024, said Smith. “These are assets that are 6 years old or newer in secondary markets. Think suburban Indianapolis.”
The properties that Sabra is targeting for acquisition are not Main-on-Main locations, Smith pointed out. “We typically try to look where we think Welltower primarily is not, because we’re not going to be competitive against them,” he noted. Welltower, the giant healthcare REIT headquartered in Toledo, Ohio, has a market cap of $100 billion, compared with $4.1 billion for Sabra.
Simultaneously, Sabra continues to prune its skilled nursing portfolio. “We’ve been able to sell quite a lot of inventory into the market. So, we’ve been able to cull our portfolio and recycle that capital,” said Smith.
Strong Appetite for Acquisitions
CareTrust REIT, based in San Clemente, California, was quite busy in 2024, with $1.5 billion in total investments compared with $250 million in previous years, noted Tran.
As of year-end 2024, the REIT owned 247 net-leased healthcare properties across 32 states. The portfolio included 189 skilled nursing facilities, 30 seniors housing properties and 28 multi-service campuses (facilities that offer a range of senior living options, including assisted living, skilled nursing, and memory care).
Although the vast majority of CareTrust’s portfolio is comprised of skilled nursing facilities, Tran is generally bullish on acquisition opportunities in the seniors housing sector in 2025.
“Our team comes from the skilled nursing background (CEO Dave Sedgwick has over 20 years of experience as a licensed nursing home administrator), so that’s something that we’re very comfortable with. But the case for seniors housing investing is very compelling. It’s something that is definitely a possibility with the right platform,” said Tran.
Private-equity perspective
RSF Partners is a private equity firm based in Dallas that has been investing in real estate assets and related companies for more than 25 years. The firm focuses primarily on the senior living sector and opportunistic commercial real estate investments. Over its lifespan, the firm has launched a series of fully discretionary funds, each of which is about $350 million to $400 million in size. RSF is currently investing Fund VIII with over $300 million in committed capital.
“We’ve got a few development projects in there right now, and we’re looking at some acquisitions. I think we’ll be putting this fund out more quickly than we did the last one,” said Rosen, who was asked by panel moderator Gehl to provide an overview of the seniors housing industry from the perspective of a private equity investment firm.
When COVID struck, the conventional wisdom was that there would be a wave of distressed properties coming to market, but ultimately that didn’t happen, recalled Rosen.
“There were a lot of groups who were ready to sell, and there were a lot of groups looking for other financing strategies, and they all just went on hold. I said before that I think this fund (RSF VIII) will be put out faster because there was like this 18-month slowdown when everyone thought the activity would be high, and then it wasn’t,” explained Rosen.
“We are seeing a bunch of groups who we talked to back then that are now finally ready to sell — whether it’s because their fund is at the end of its life, or the lenders are forcing it, or they’ve done what they need to do. They’ve implemented some good rent growth that they can now capitalize on,” added Rosen.
There’s also been a rotation of investors in and out of the seniors housing and sector, which complicates matters, noted Rosen. “Some of the groups that were really active three to five years ago are not in the game anymore, which is good. But you’ve had new entrants come in, and they’re willing to pay prices that maybe a group like us is not. So, it’s a little bit tricky.”
— Matt Valley