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Contact Information:
Charles Bissell, MAI, CRE
National Practice Leader
Phone: (972) 960-1222
Cell: (972) 567-5380
Email: cbissell@irr.com
Brian Chandler, MAI, MRICS
Director
Phone: (972) 960-1222
Cell: (214) 808-0044
Email: bchandler@irr.com
David E. Dodd, MBA
Director
Phone: (972) 764-4200
Cell: (214) 454-4080
Email: ddodd@irr.com
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Portfolio Premium Analysis
A recent assignment we completed tasked us with determining if a portfolio premium is present in the seniors housing market. In other words, does a portfolio of assets sell for more than a single asset?
To find out, we polled active brokers and buyers. Via an email survey, we asked the respondents to comment on the presence of, and extent of, a portfolio premium for a portfolio consisting of 6 "Class A" independent/assisted living assets each worth about $15 million. The results of the survey are shown below:
The survey clearly indicates a portfolio premium is present. Based upon the responses, a 5% premium is the consensus for the portfolio in question. We have estimated a similar premium based upon a comparison of portfolio sales to comparable single asset sales. It is believed that a larger premium might be warranted for a larger portfolio. But for a smaller portfolio, or one with assets exhibiting a mix of care types and quality, no premium may exist. This certainly indicates that in the current market, an aggregator of seniors housing assets can realize a premium if they elect to sell. |
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Integra Participates in the City of Richardson Corporate Challenge
From August through October, employees of Integra Realty Resources participated in an event put on by the City of Richardson for local companies. The Corporate Challenge is an Olympic-style competition involving 22 events including a 5k run, dodgeball, volleyball, softball, horseshoes, badminton and other unique events. The event also involves a fundraising component to benefit the Special Olympics of Texas.
The events kicked off with opening ceremonies on August 19, some photos from which are shown below:
Selected Highlights for the Integra Team:
- Gold Medal won by the Irion sisters Jody & Samantha in Miniature Golf
- Silver medal won by the Dodgeball Team captained by Brett Prange
- Bronze medal won by the Volleyball Team captained by Ken Gill
- Lots of participation and team building by all Integra Dallas Employees!!
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Nursing Home Expense Survey
With the announcement of an 11.1% cut in Medicare rates, there has been speculation that operators will try to cut expenses. But many other industry experts have argued that any expense that can be cut already has been, and there is no "fluff" remaining to cut. In order to get insight into the expectations of active buyers, IRR conducted a survey in September of 2011 to ascertain the thinking of active SNF buyers relating to future operating expenses. The survey was sent to nearly 500 active seniors housing buyers, operators, and lenders. The question was asked "With an 11.1% cut in Medicare rates looming, many providers are discussing expense cuts. But others say that any expense that could be trimmed already has been. In underwriting new SNF transactions for your organization, what change in expenses are you forecasting?". The survey results are shown below:
Based upon this, the majority of market participants are not expecting reductions in expenses going forward. A number of operators have also reported to us that they anticipate therapy costs to rise over time due to changes in the way concurrent therapy must be handled going forward. |
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Property Tax Strategies
Last month we talked about the importance of taking economic obsolescence associated with below maximum occupancy into account in your property tax assessments, when the Assessor is valuing your asset using a Replacement Cost approach. Most Assessment officials neglect to apply this form of depreciation to seniors housing assets which can have a significant impact on your valuation. Understanding the proper methods of measuring and valuing this under-utilized application can have a significant impact on your annual tax liability
This month I want to remind you to consider any Functional Obsolescence that may exist. For example, the following design issues may provide opportunity for a reduced tax assessment:
1) Assets with long corridors, requiring residents to travel long distances to common areas
2) Absence of handrails in hallways and / or baths
3) Steps at entry points as opposed to grade level entryways
4) Unit sizes that are smaller than the typical unit type in the market
5) Unit sizes that are larger than the typical unit type in the market
6) Facilities that do not offer competitive amenities due to size or lot limitations
7) Independent living facilities with limited appliance packages and/or limited parking
8) Facilities with super improvements (improvements that are bigger/better than typical improvements in the market but do not realize a measurable increase in revenue associated with the improvement, such as enclosed walkways and / or excellent quality construction).
Since most Assessors have now moved to a replacement cost approach to value seniors housing assets, it is critical to a fair assessment that you understand how to identify, measure and value this form of depreciation. If you believe you may have an opportunity to take functional obsolescence in to account for one or more of your assets and would like further guidance, please give us a call and we'll be glad to discuss it with you. |
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Recent Transactions
The Inn at Sprucewood in Durham, NH sold for just over $19 million in May 2011, or approximately $211,000 per unit. This facility was built in 2001 and has 90 units (35 independent, 50 assisted living and 14 memory care units). The property was purchased by Emeritus for a reported cap rate just below 8.0%.
The Chateau in McKinney, TX, a suburb north of Dallas sold for approximately $82,000 per unit. This independent living facility was built in 2006 and has 202 units. The property was purchased by Fortress Investment Group for a reported cap rate of 7.8% on budgeted net income.
Clarion Partners Senior Apartment Portfolio Purchase in CA Clarion Partners purchased three senior apartment properties located in California in June 2011 for $100 million, or $170,000 per unit. The reported cap rate was just under 5.0%. Occupancies of the properties were in the mid 90% range. The three properties sold in the transaction were Buena Vida Town Center in Rancho Santa Margarita, CA, Village on the Green in Rancho Cucamonga, CA and Oak View in Rohnert Park, CA.
Summit Point in Macedonia, OH sold for just over $27 million in August 2011, or approximately $180,000 per unit. This facility was built in 2007 and has 151 units (101 independent and 50 assisted living units).The property was purchased by Capital Senior Living for a cap rate of just over 8.0%.
Harrison Street Real Estate Capital Independent Living Portfolio Purchase in TX & OK Harrison Street purchased 8 independent living properties (7 in Texas and 1 in Oklahoma) in October 2011 for just over $126 million, or $128,000 per unit from E-Quest. The reported cap rate was approximately 8.0%. Occupancies of the properties were between 70% and 100%. Harrison Street plans to reposition the assets to include assisted living and memory care units. The buyer has also partnered with Bridgewood Property Company to help manage, reposition and redevelop the properties. E-Quest Management will be purchased by Bridgewood and they will continue to provide management services for the properties.
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