Seeing Best case scenarios

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Thilo Best, chairman, National Investment Center for the Seniors Housing & Care Industries

An owner of Horizon Bay Properties, Best has been involved in seniors housing and care issues for more than two decades.

Although conditions aren't quite as bright for skilled nursing, the board chairman of the pre-eminent association for seniors housing investment sees solid reasons for optimism. In fact, skilled nursing may be more stable than a lot of people realize right now, says Thilo Best. He thinks the seniors housing business is being driven more by residents' care needs.

Q Where do you see the seniors housing and care markets having come from over the past year?
AThe industry has come through a nice transition period and the people who have elected to stay in the industry, as a rule, are more professional than in the past. Occupancies have been trending in the right direction, although not rapidly. New construction levels, relative to historic levels, are less, which is positive.
The unit absorption across all product types, except maybe nursing homes, has been good, not fantastic, but I don't think anybody's expected that. The fact that the independent living sector did so reasonably well during an economic time in history that was not so great bodes pretty well.

Q What is your outlook on the specific sectors -- independent living, assisted living and skilled nursing?
A I think everything bodes pretty well. If you have an independent living project that has some sort of care with it, that's beneficial. The potential wildcard in independent living is if we, in fact, get a lot of development. I know a lot of people have started to discuss development opportunities, but I don't think the industry has seen any irrational growth plans.
On the assisted living side, if you're looking at recent history, I think a lot of the problem was driven by the fact that Wall Street came around and delivered a lot of capital to it in a short amount of time. Developers and companies are going to feel they have to put that capital to work, and they sort of all did it at once.
Assisted living is really producing what seniors want. The historical challenge that any freestanding assisted living properties had was due to overbuilding. I don't think that many projects were functionally obsolete the day they came out of the ground.
The industry did a good job of creating something seniors want. I don't think there were any problems with the product, just the supply and demand. A lot of it has shaken out.
The trends are up in assisted living. The interesting thing in assisted living, and probably for the entire industry, will be the entire trend toward consolidation. You would expect to see a little more consolidation than we've seen in management companies.
Surviving the last five-year period in the cycle, you had to be good, have the right capital structure, and provide residents with good quality care. I think there are way more of those types of people servicing the industry than we've had.
In short the industry is grown up. It's not necessarily a cottage industry any more.
As for skilled nursing, the interesting thing is occupancies are probably the lowest of the three, but I think even a little bit of stability has come into the market as people sell assets that might not be in geographic areas.
It's probably more stable than people give it credit for being. If you're a nursing home operator, day in and day out you want to see the pricing disparity between nursing homes and what private pay assisted living would be. I would expect private pay to become a lesser factor in the revenue stream of nursing homes. I don't see that as happening overnight, but as more of a trend.
The reason to go to skilled care is they can provide level of care that assisted living cannot. There's always going to be that need. I don't think we're going to see a whole lot of new construction in nursing homes, but it does have the oldest stock of properties out there.
But assets are shifting a bit to more entrepreneurial hands. Companies historically do better regionally than nationally.