Question of the Month: Opportunity from Distress

by Jeff Shaw

To what extent will there be opportunities to acquire distressed assets in 2024, and what will be the factors?

Defaults may be coming

By Cindy Hazzard


JCH Senior Housing Investment Brokerage

The failing debt-
coverage ratios due to rising expenses, without equivalent resident rate adjustments, may push lenders to enforce loan covenants. This would trigger defaults for many owners, creating a surge in distressed properties. 

If pursued, the focus shifts to what discount lenders might accept to cleanse their books, creating prime opportunities for cash-ready buyers. The market could see a surge, creating a window for astute purchasers with capital. 

The exact discounts and benefits remain speculative but warrant close observation as 2024 progresses.

Buyers need willing sellers

By Matthew Gourmand

Senior Vice President, Corporate Strategy and Investor Relations

Omega Healthcare Investors

It’s very possible there’ll be distressed opportunities in 2024. It fundamentally comes down to three factors — interest rates, operating fundamentals and the appetite of lenders to recognize losses. 

While access to capital is limited right now, there’s always capital for quality operators with the right opportunities. However, a willing buyer needs a willing seller. 

If interest rates stay high and operating fundamentals don’t improve, operators who bought at the peak of the market will likely struggle. It will then come down to the lenders. 

Many lenders are sitting on underwater loans, but seem to be willing to “extend and pretend” for now, rather than recognize their losses. To the extent that this mindset changes, I think you’ll see more distressed opportunities come to market.

There will be more distress

By Aron Will

Vice Chairman, National Senior Housing

CBRE Capital Markets

Although the seniors housing sector’s operational fundamentals are expected to improve in 2024, the anticipated rate cuts may not provide immediate relief from the challenges posed by debt paydowns and maturities. As a result, opportunities to acquire distressed properties are likely to persist for those who are time-constrained or perceive certain investments as potentially risky. 

It is important to note that the decision to sell distressed properties will often be determined by the banks or debt funds that hold the debt, especially when property values fall below the loan balances. Therefore, it is crucial to thoroughly understand the counterparty when engaging in the acquisition process.

Deals will flow

By Michael Gordon

Chief Investment Officer

EPOCH Senior Living

Acquisition opportunities will come roaring back in 2024. There is a pent-up supply of assets that have been on the sideline over the past 18 months that are now facing the need to be monetized as investor-fund lifecycles mature and debt balances come due. This group has been in price discovery mode, which has led to recent discussions around the seller/buyer price gap.

But I believe that the price gap will narrow in 2024, which will result in deal growth. 

As development continues to no longer “pencil out,” capital will be chasing higher returns and pivoting to value-add opportunities. More buyers in the market will result in a better auction process and give sellers a better understanding of current valuations. Sellers will come to realize that, unfortunately, this is where we are in the cycle of monetizing assets and deals will flow.

No ‘fire hydrant’ of deals

By Sevy Petras

CEO and Co-Founder 

Priority Life Care

Given some calls we started to get at year-end 2023 we should start to see some changes being made with managers prior to any sales, but we will see assets sell for below replacement cost pricing. 

However, I don’t think there are going to be a lot of fire sales happening, given the fact that the Federal Reserve has halted rate increases and the markets are already anticipating some relief in the middle to second half of 2024. 

Strong capital with long-term strategies for seniors will hold — though they’ll perhaps make a manager change or pay down some debt to relieve constraints. 

I think the sales we will see, especially in the first half of 2024, will be the assets that are in a fund that is due to be closed out, or the capital partners are done throwing good money after bad and do not have the capacity to pay down the debt or fund the losses. Those will be trying to get out as close to par on their debt as possible. 

It won’t be a release of the fire hydrant on the street to run through — more like a yard sprinkler that will hit you at the right time when passing by the lawn.

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