Kimberly Marselas

The active adult and senior living markets got much of the attention at NIC’s fall meeting this week, with sessions devoted to capturing the “middle market” and attracting residents with lifestyle amenities.

But it’s what’s happening in skilled nursing transactions that’s left some deal brokers scratching their heads.

Beds are going empty for lack of staff, COVID-19’s trajectory remains a concern and wages and other costs are driving operators into the red. Yet many transactions continue to post per-bed prices that crush averages of the past few years.

Recording a podcast with me Tuesday, Laca Wong-Hammond of Lument called the “white hot prices that are being paid … very enticing” for prospective sellers and noted the current deal pipeline is the strongest her mergers and acquisitions group has ever seen. 

Conversations at the conference reinforced her belief that investors will continue to pursue opportunities in this distressed market by offering premium values, at least until interest rates budge upward.

Lee Delaveris, vice president at KeyBank Real Estate, told an audience Tuesday that those “extremely favorable” interest rates are driving demand, but “now we just need stabilized deals.”

Indeed, some industry insiders remain cautious about snatching up available skilled nursing properties without more clarity about the future. In outlining a series of new investments, LTC Properties last week said it is building a pipeline of shorter-term cash flow strategic deals with “reduced risk profiles.” Ensign called its current approach to buying “disciplined,” even as the number of opportunities to buy increases. 

And to be sure, there are plenty of solid options available, with many investors (including Welltower) jumping on opportunities to invest in facilities going for less than their replacement cost.

But it’s also the arrival of outsiders driving interest in riskier products or even traditionally successful (but now distressed) portfolios at what some view as unrealistic price points.

Kelly Sheehy, principal and managing director of healthcare business for Artemis Real Estate Partners, said outside investors continue to drive growth in the senior care market because they’re tired of sitting on dry powder. Without their usual outlets in retails, office and industrial real estate markets, more investors are willing to back private equity’s interest in the LTC industry.

“I think there’s going to be a lot of new owners of properties by next year if we don’t hit these business plans and things. There’s going to have to be some fresh equity coming in,” he said. “Money is going to flow to where the yield is, and I think right now, right, wrong or indifferent, there’s still yield in the seniors and the skilled world. You’re going to continue seeing money coming in, unless some other (variant) or some other thing pops up.”

That solves for the who, but not necessarily the why. It’s a question that continues to dog competing investors and some lenders who hesitate to get involved in deals for which there seems to be no clear rationale for per-bed pricing.

At the final NIC session Wednesday, a panel of lenders, bankers and operators talked about how well they’d done in coming through the pandemic — and their expectations of returning to “stabilized” occupancy levels, even if those levels are permanently lower. It, too, ended in concern as an audience member brought up the per-unit pricing conundrum.

Zach Bowyer, managing director for real estate services firm JLL, said valuations, more than ever, come down to income and how a property operates in a given market.

“The challenge for us is valuations and sales are all over the place, and there’s a lot of different components that are driving the sales,” he said.

Seems like a fancy way of saying investors know value when they see it. Let’s hope their vision holds true.

Kimberly Marselas is senior editor of McKnight’s Long-Term Care News.

Opinions expressed in McKnight’s columns are not necessarily those of McKnight’s.