There is enthusiastic capital in the senior housing industry. Day by day, the market attracts new players, builds new deals, swaps facilities and grows. In fact, the senior housing industry has now evolved into an institutional grade asset class allowing private equity firms to turn their attention to the senior housing market in a big way. In addition, real estate investors from other product types are planning and executing their entrance into the senior housing industry
With a new supply of players and money, conditions are bound to change. At the JCH Group, we see firsthand just how these new investors are changing the game.
A Case Study of a Distressed Asset
The JCH Group recently handled a lucrative transaction of a distressed assisted living facility located in Southern California. The seller listed this property at a very healthy price that many would consider overvalued.
The JCH Group continued to build and design the transaction, pushing forward with marketing. In only a few weeks, we received multiple offers.
Three of these offers came from well-established veteran operators. They were individuals who worked in the senior housing industry for more than 10 years with several senior housing investments in their portfolio. Their bids were, as expected, lower than the asking price. However, all three bids were within $500,000 of each other.
This revealed that veteran investors are disciplined in their bids, fair and know the value of certain senior housing investments. For the most part, they set the parameters for the senior housing industry by keeping valuation metrics consistent.
The other two offers came from first-time buyers. These individuals had experience in real estate but not within the senior housing industry. However, they did have plenty of capital to support their bids, which were 40 percent higher than the previous group of bidders. Consequently, their bids were very close to the seller’s asking price.
The transaction proceeded with the seller accepting the highest bid, after the two first time buyers got into a bidding war.
New Players May Cost Veterans
Naturally, the seller will almost always accept the highest bid. This is becoming a problem for veteran players because new investors share the habit of overpaying for senior housing investments. In the end, this drives market prices higher. If seasoned operators want certain deals, they may need to pay more than the property is worth in their eyes.
The senior housing industry has always been vulnerable to outside influence. In this case, new capital may push valuations higher than necessary, even if there is no experience or education to support those moves.
The Top Brokerage in the Senior Housing Industry
As of now, senior housing industry veterans outnumber newcomers. In addition, overvalued senior housing investments are becoming the norm, only time can reveal when the tide will shift.
Experienced operators trust the JCH Group with their senior housing investments. From business valuations to marketing and deal closing, our specialists are your top resource.
For more key insight within the senior housing industry, contact one of our team members. We are more than happy to help you design the best senior housing investment possible.