Seniors Housing Loans, Capitalization Rates Feel Credit Crunch

As the economy continues its downward spiral and credit markets suffer, loan performance and capitalization rates in seniors housing and care feel the heat, too, according to third quarter 2008 data tracked by the National Investment Center for the Seniors Housing & Care Industry (NIC).Each quarter, financial and performance data are collected by NIC from the nation’s leading senior living lenders, owners/operators and appraisal professionals and posted as the NIC Key Financial Indicators™ (KFIs) on the organization’s Web site.Loan volume placed in the industry has been in a downward trend since the first quarter of 2007 when it reached $2.28 billion. The amount placed in the third quarter of 2008 was $1.01 billion compared to $1.55 billion in the second quarter, according to the report.“Depending on the type of seniors housing, there is a 2 to 4 percent decline in occupancy rates,” Lawrence Horan, Ph.D., financial research and analysis director for NIC, told CPN’s sister publication, Multi-Housing News, on Jan 27. “We have been tracking this market since 1999 and the previous recession saw close to 6 percent declines in occupancy rates. Of course that time around, over supply was a big issue.The loan data collected by NIC represent the quarterly lending activity of major national lenders (non-REITs) that make permanent and short-term debt investments in seniors housing and care. This includes data provided by Fannie Mae, Freddie Mac, and several of the larger commercial credit companies and banks.Loan performance fell below 99 percent for the first time since 2005 decreasing to 98.9 percent, down from 99.5 percent – which was an all-time high – in the second quarter, according to the report.Also during the third quarter of 2008, NIC’s KFI data showed that mean occupancy rates were flat to slightly higher when compared to the previous quarter. Independent living (at 89 percent) and skilled nursing (at 84 percent) remained the same. Assisted living (at 88.5 percent) and continuing care retirement communities (CCRCs, at 89.5 percent) increased their occupancy levels by half a percentage point. Average capitalization rates have been higher in 2008 than in 2007. The mean capitalization rate for independent living hit a low of 7.3 percent in 2007 and rose to 8.7 percent in the third quarter of 2008. The spread for the sector in the third quarter of 2008 ranged from a low of 6.5 percent to a high of 13 percent. Assisted living’s low was 8.5 percent in 2007 and in the third quarter of 2008 it was 9.2 percent. The mean capitalization rate for skilled nursing hit a low of 12.0 percent in 2007 and was at 12.75 percent in the third quarter of 2008. The reported number of transactions for the third quarter of 2008 dropped by almost 50 percent from the second quarter, according to the report.On Jan. 30, Multi-Housing News reported that CB Richard Ellis Senior Housing Services Group arranged the sale of a senior housing portfolio consisting of 3,554 units situated in 45 senior housing communities for approximately $364 million for an undisclosed seller. Located across 11 states, the communities offer independent living, assisted living services and dementia care. The communities were approximately 85 percent occupied at the time of sale. A CBRE spokesman said the lack of liquidity in the current environment made this transaction dependent upon the purchaser and existing lender working out mutually agreeable assumption terms of the existing in-place debt.Founded in 1991, the National Investment Center for the Seniors Housing & Care Industry is a nonprofit education and research organization providing information about business strategy and capital formation for the senior living industry. NIC is the leading provider of historical and trend data on the industry through its Key Financial Indicators (KFIs) that report nationwide statistics and its NIC MAP® Data and Analysis Service that tracks properties in the 100 largest metropolitan areas. Proceeds from its annual events are used to fund research on issues of importance to seniors housing and care decision-makers.