Top 5 Reasons to Invest in Healthcare and Senior Housing Real Estate

By Kevan McCormack

Everyone in the commercial real estate business has been talking about healthcare and seniors housing for the past several years.  While these are not your “typical” commercial real estate property types, the fundamentals for these sectors have provided some of the most stable operating results we have seen during the economic recession.  Why is this?  Because people do not spend more or less on healthcare as the broader market fluctuates.  This has proven that healthcare real estate is more insulated from the normal real estate cycles and, thus, makes it one of the top real estate investment options.

Here are the Top 5 Reasons to invest in Healthcare and Senior Housing Real Estate:

Number 5:  Demand is Increasing

Due to increasing life spans and the aging Baby Boomers, the fundamentals supporting healthcare and seniors housing real estate have never been better.  The 65 and older population is currently about 42 million and will increase to 55 million in 2020 and 71 million by 2030 (about 20% of the total population).  Average lifespans are increasing to an average of 79 years in the U.S. (76 years for men and 81 years for women).

Number 4:  The Product is Evolving. 

The country is spending more on health care as a percentage of GDP.  This is expected to reach 20% of GDP by 2017.  Healthcare real estate is a direct beneficiary of this spending pattern.  More healthcare spending leads to higher levels of care, new technology and procedures, and more specialized facilities from which to perform these new, cutting-edge procedures.  And, this leads to better outcomes for patients.

Number 3:  Supply is Lagging. 

Higher levels of healthcare produce longer and more active lifespans.  Yet, the U.S. has only about 22,100 senior housing and care facilities.  At this level, supply does not meet demand.  All this while, construction loans are still not easy to close, leading to historic lows in starts.

 

Number 2:  Buyers are Well-Capitalized. 

Healthcare REITs are extremely active.  In 2012, healthcare REITs raised $10.57 billion, second only to retail REITs, which raised $11.18 billion, according to Forbes.com.  The market capitalization for healthcare REITs has grown to about $67 billion.

Some of healthcare’s top REITs include: Ventas, Inc.; HCP, Inc.; Health Care REIT, Inc.; Healthcare Trust of America (HTA); Omega Healthcare Investors; and Medical Properties Trust.

Number 1:  Cap Rates are Falling. 

Because REIT’s are raising so much money, they have to get that money out the door and producing returns, which means that they are aggressive.  In the last couple years, cap rates for post-acute care rehabilitation hospital have decreased 150 bps from mid-9% to today’s high 7% and low 8% for non-investment grade credit.  Senior Housing real estate has experienced similar cap rate compression over the same time period.

However, healthcare real estate is not completely insulated from the market.  In order to get a healthcare or seniors housing facility off the ground, you still need a bank construction loan and even a JV Equity Partner.  With banks still feeling the pinch from the recession, it takes a practiced hand in healthcare real estate finance to guide a borrower through a successful finance operation.  Metropolitan Capital Advisors has gained that experience over the last 21 years helping our Clients secure debt and equity for their healthcare and seniors housing developments.  To further discuss your healthcare project financing requirements, contact Kevan McCormack at kmccormack@metcapital.com.

Posted on by Scott Lynn in Commercial Real Estate Finance Comments Off on Top 5 Reasons to Invest in Healthcare and Senior Housing Real Estate