In an earlier post, we discussed some of the reasons why senior housing performed so well this past year. Today we will discuss how industry analysts feel the sector will perform next year and the reasons why they feel this way.
Mergers and Acquisitions in the New Year
2014 turned out to be a huge year for senior housing mergers and acquisitions as low interest rates and strong demand for senior housing services drove mega-mergers like the $4 billion merger between NorthStar and Griffin-American, and also helped encourage huge acquisitions like Omega Healthcare Investors $3 billion purchase of Aviv REIT and Brookdale Senior Living’s $2.8 billion purchase of Emeritus. Analysts are divided as to whether or not the dollar amount and number of mergers and acquisitions will be greater in 2015 than they were this year, but they generally expect 2015 to be another strong year for these types of activities, primarily because favorable demographics and increased demand for senior housing services are leading to gains in occupancy and profits for senior housing communities. Industry analysts are also hopeful that the residential housing market will improve further in 2015, encouraging seniors to sell their homes while their value is up and to use their sale proceeds to transition into senior housing.
In terms of which segment of the market could see the most merger and acquisition activity next year, many analysts believe that in contrast to some of the mega-mergers that occurred in the industry this year, 2015 could be the year that value-add opportunities lead the way as owners of these properties attempt to sell them before interest rates go up and investors start to look for properties that have room to grow and could generate outsized returns with improved management and/or some additional capital investments.
When it comes to who will be investing in senior assets, many analysts believe that senior housing’s strong returns during the last few years will motivate a growing number of international investors to enter the market and that public REIT’s will also increase their investments in the sector as well.
Construction Activity in the New Year
Although some analysts are concerned that the ample amount of senior housing construction that took place this year could lead to market saturation, this is a minority view within the industry, primarily because the demand for senior housing services is so strong and is projected to increase even further for years to come. However, while it is highly unlikely that market-wide oversaturation will occur, most analysts do believe that there is a slight danger of oversaturation in particular markets but that this is easily avoidable as long as providers and developers perform their proper due diligence and confirm that there is enough demand in a region to support any additional properties that they are considering building there.
Overall, the vast majority of senior housing analysts believe that 2015 will be another good year for the industry. Providers and investors who wish to take advantage of this situation by purchasing additional senior housing assets for their portfolios should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions, sale/leasebacks, joint venturesand other senior housing transactions as well.
