High interest rates have not been all bad news for investors in senior housing, stated Cambridge Realty Capital’s Senior Vice President, Brent Holman-Gomez. “While interest rates are declining, they are still higher than recent memory, causing deal makers to forge new paths. Further, many banks are not taking on new borrowers, so access to credit is a constraint.”
He went on, “While high interest rates tend to cool the market and frighten off many traditional property buyers, other types of transactions become more favorable in a market such as we are experiencing right now,” according to Holman-Gomez. He noted that Cambridge has, of late, seen three types of transactions in particular garnering the most attention:
Opportunistic acquisitions: Holman-Gomez reports an increase in the number of borrowers taking advantage of underperforming properties. “Funding is available for value-added acquisitions, even in cases where the existing facility fails to cover debt service. Such acquisitions are currently trading closer to fair market value, offering promising investment opportunities as cap rates have risen across all senior housing asset classes,” said Holman-Gomez.
Third-party Operators and Managers acquiring their communities: These operators and managers are increasingly presented with opportunities to acquire the real estate they operate. Such opportunities often arise when the M&A market is less active and competitive, making the present an opportune moment for them to capitalize.
Organic growth through expansions: With M&A and new development subdued, expanding existing communities in high-demand locations may prove advantageous, fostering a more hands-on approach to enhancing community economics.
Holman-Gomez speculated that there will be future opportunities to recapitalize on transactions or projects that close in the next 12-18 months. Key, he added, is having the right capital partner during such times. “Unconventional and creative financing methods often become necessary when navigating tough lending environments in order to finalize deals. In spite of the current market challenges, transactions are indeed being completed, with increasing interest and operators re-entering the market to capitalize on our favorable industry outlook.” He urges anyone who is considering entering this unique market climate to reach out to a senior housing and skilled nursing finance expert to discuss their options.
