Real Capital Markets: Investment Outlook Strong Despite Slowdown in Sales, Construction

by Jeff Shaw

CARLSBAD, Calif. — Seniors housing investment and construction in the United States slowed in the first part of 2019, but investors are confident in the long-term outlook for this sector, according to a “Senior Housing Snapshot” report by Real Capital Markets (RCM).

Following several years of robust sales and construction activity, the seniors housing market is redefining itself, adjusting to shifts in investor activity and a focus by many investors on a long-term horizon, the report concludes.

RCM’s national report incorporates the sentiments of investors across the country and national statistics on investment activity from Real Capital Analytics (RCA), as well as construction and occupancy statistics from the National Investment Center for Seniors Housing & Care (NIC). Based in Carlsbad, RCM is a marketplace for selling commercial real estate properties.

U.S. investment sales in seniors housing totaled $2.8 billion in the first two months of 2019, down from $3 billion in the same time period in 2018. This follows $15.2 billion in sales for all of 2018. According to U.S. investors, developers and real estate brokers surveyed and interviewed for the report, 66 percent believe that activity levels in 2019 will be comparable to the total sales for 2018.

“Perspective is an important attribute for all commercial real estate investors, including those focused on the seniors housing sector,” says Tina Lichens, chief operating officer of RCM. “The sector as we know it today is vastly different from five years ago and rapidly changing. There remains considerable demand and capital in the market, yet investors need to look at the long-term as the market redefines its new normal.”

Highlights of the report include:

  • The investor profile has shifted — Private investors, followed by institutional investors, are now leading the charge as REITs have pulled back significantly.
  • Construction is down — The delivery of newly constructed senior housing units declined by 14.8 percent from 2017 to 2018, according to NIC; experts consider this a needed slowdown, as demand catches up to the strong supply cycle.
  • Strong operating partners a must — Over 61 percent of investors agree that a strong operating partner is key, given the industry concerns regarding a shortage of skilled labor, cost management and shrinking profits.
  • Outlook still strong — Experts remain bullish on the sector, but note that investors should look at the long-term as an oversupply of new construction is absorbed in many markets.

“Investor concerns reflect the tremendous level of activity that has taken place in the U.S. over the last decade, and the bidding up of prices that resulted,” says Steve Shanahan, executive managing director of RCM. “With so much product changing hands, and so much demand, investors are concerned about the quality of product that remains and whether sellers have an inflated impression of what properties can command.”

To view the full report, click here.

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