Commercial Investment Real Estate

JAN-FEB 2015

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

Issue link: http://cire.epubxp.com/i/443516

Contents of this Issue

Navigation

Page 27 of 55

23 January | February | 2015 CCIM.com housing has consistently generated strong returns as well, at 15.09 percent. Seniors housing's strong performance stems from outperformance for both appreciation and income. On a 10-year basis, the NCREIF index of income return has outperformed the NPI by 131 bps, while the appreciation return for seniors housing has outperformed by 495 bps. Transaction Activity T e seniors housing property transactions market is very active, with 3Q14 acquisition activity the strongest on record. Nearly $7 billion worth of deals were closed during the 3Q14, up more than 30 percent from the previous high-water mark of $5.3 billion during third quarter 2011. For comparative purposes, $8.5 billion of hotel deals and $27 bil- lion of apartment deals closed in 3Q14, according to Real Capital Analytics. For the 12 months ending in September 2014, seniors housing investment totaled more than $15 billion, surpassing any four-quarter total on record. Investment activity should close out the year on a high note, as the fourth quarter itself is traditionally strong and two large real estate investment trust transactions, representing nearly $6 billion, are expected to close. Acquisition activity has been spread across investor types, with institutional, equity, and private investors accelerating investment activity. T ese investor groups closed roughly 30 percent of the 3Q14 transaction volume by dollar amount. Investors include pension funds, insurance companies, universities, endowments, and high net worth individuals who provide funding to an ever-increasing roster of private equity f rms. T ese f rms are specif cally targeting seniors housing acquisitions and development opportunities. However, publicly traded companies still account for the lion's share of activity, with more than $9 billion in completed acquisitions during the past four quarters, including nearly $5 billion of invest- ment during 3Q14. While $9 billion represents signif cant investment in the sector, that sum is about 25 percent below the peak rolling four-quarter activity established during late 2012. T e acquisition wave for public companies, particularly REITs, should continue into 4Q14. T e two blockbuster deals that are scheduled to close during 4Q14, Ventas' acquisition of American Realty Capital and NorthStar Realty Finance's acquisition of Grif en- American Healthcare REIT II, collectively represent $5.7 billion of investment and should propel the rolling four-quarter total for public investors to new heights. A survey conducted by National Real Estate Investor and the National Investment Center for Seniors Housing and Care among 223 industry participants during mid-summer 2014 further cor- roborated the appeal of seniors housing to investors. A full 95 per- cent indicated that 2015 transaction volumes would exceed those of 2014. T e majority of survey respondents also believed that both debt and equity capital would be readily available for acquisitions and development. A separate survey conducted by GE Capital in September 2014 of 150 seniors housing and care executives showed similar results and interest levels. More than three of four persons surveyed expected better business performance in the next 12 months and 56 percent of the survey respondents believed that property valuations are sustainable. Recession-Resilient? Certainly seniors housing is not yet considered one of the traditional real estate property types, alongside of ce, retail, multifamily, and industrial. Nevertheless, it is becoming more mainstream and is now showing up in core real estate funds. In general, institutional investors' portfolios encompass a mix of stocks, bonds, cash, and alternative assets. Commercial real estate is typically lumped into the alternative asset bucket and can of en generate strong returns for an institutional portfolio. T is has been most evident for investors who have participated in seniors housing opportunities, as discussed earlier. Moreover, seniors housing invest- ments of er portfolio diversif cation benef ts, since seniors housing may not respond in the same way as stocks and bonds during swings in business and interest rate cycles. Seniors housing returns are also of en less volatile than that of other property types. Indeed, during the Great Recession, returns for seniors housing, as measured by NCREIF, were less volatile and suf ered an outright decline of 6.7 percent over the course of only two quarters versus returns on apartments, which declined 24 percent over the course of seven quarters. Moreover, real estate can provide a steady income stream from rental income. T is economic resil- iency is especially true for assisted living properties, where residents of en move in out of necessity, regardless of the broader economic environment. Long-Term Fundamentals Market fundamentals for seniors housing continue to improve. Occupancy rates in 3Q14 for the NIC MAP primary markets climbed to 90.3 percent, the best showing since late 2007. T e 100- bps improvement from the prior year ref ected outsized gains in demand (as measured by absorption or the change in occupied stock), which overshadowed inventory growth. On a four-quarter moving average, absorption totaled 13,664 units, a record amount, and well in excess of new supply, which totaled 9,031 units, for the same four-quarter moving average. T e dif erential between record strong demand and new inventory has never been so great. T at said, nationwide there are a number of properties still in lease- up, as well as a number that have broken ground but have not yet been delivered in the primary markets. Combined, this amounts to 321 properties (128 non-stabilized properties and 193 properties under construction) or 29,531 units (11,368 non-stabilized units and 18,163 units under construction). In aggregate, these properties represent an increase in the inventory of units of 5.6 percent. If demand keeps pace at its recent levels, this inventory should be absorbed in a little over G

Articles in this issue

Links on this page

Archives of this issue

view archives of Commercial Investment Real Estate - JAN-FEB 2015