Small Owners, Operators Lean Toward Development Over Acquisitions in 2015, Survey Finds

by Jeff Shaw

A newly released survey of seniors housing developers and operators reveals the overwhelming majority plan to focus more on new construction and renovation than acquisitions in 2015. One major reason: record-setting sales prices.

The 244 respondents to “The 2014 Seniors Housing and Care Survey” conducted by lender Lancaster Pollard last December are all leaders in seniors housing and care. The majority are small- to medium-sized owner/operators, according to Steve Kennedy, managing director of Columbus, Ohio-based Lancaster Pollard.

“One of the primary takeaways of this survey is that smaller operators are focusing on construction and renovation projects to grow their business, rather than pursuing acquisitions of existing assets,” says Kennedy. “Eighty percent of them said they plan to pursue a new construction project in 2015, but a relatively small amount responded that they planned to acquire additional assets.”

Eighty percent of respondents also indicated that they were either extremely likely or somewhat likely to pursue a renovation project in 2015. Only 23 percent indicated they were extremely likely to pursue an acquisition.

Kennedy says the emphasis on construction and renovation over acquisition is due to record-high prices on independent living, assisted living and skilled nursing communities that the industry set in 2014.

A recent study by research firm Irving Levin Associates showed that the average price per unit in the assisted living market jumped by 25 percent in 2014 to a record $188,700 per unit. The average price per unit for independent living communities also set a new record of $246,800 per unit, more than 28 percent higher than in 2013. The skilled nursing market set a record for the second year in a row, reaching $76,500 per bed, or 4 percent higher than in 2013.

The Irving Levin Associates study showed average capitalization rates falling to a record low of 7.75 percent in assisted living and 7.4 percent in independent living.

“While construction and renovation projects may not be as quick as an acquisition, today’s low cost of capital for borrowing and numerous funding options makes building and/or repositioning attractive,” says Kennedy.

Other key findings of the Lancaster Pollard survey showed that 63 percent of respondents believe memory care will be one of the leading growth areas of seniors housing in 2015, while only 14 percent believe continuing care retirement communities will leading growth area.

Operators are also optimistic that occupancy will increase throughout 2015, with 60 percent expecting an increase through June. Only 2 percent expect a decrease, with the remainder expecting no change.

Click here to download a copy of the Lancaster Pollard survey results.

— Jeff Shaw

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