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NIC Investment Guide
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Gain mission critical insight into the seniors housing and care industry. This must-have resource
is essential for anyone involved in, or looking to enter, the industry.
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Frequently Asked Questions
Industry Participants in the Seniors Housing & Care Property Market and Their Business Models:
What are the ownership and operating structures/models?
Who are the capital sources for seniors housing and care properties?
Who are the operators and managers for seniors housing and care properties?
Who are the developers of seniors housing and care properties?
Who are the appraisers and consultants for seniors housing and care properties?
What government programs impact seniors housing and care properties?
What are the ownership and operating structures/models?
Properties may be owned and operated by a single company care provider, managed as a fee-based
service by a care provider with capital backing, or leased by a manager/operator from a financial institution.
Larger companies may use each of the above operating structures in varying situations, depending upon financing, although
many companies simply pick one of the operating models for all assets.
Who are the capital sources for seniors housing and care properties?
Capital for seniors housing and care properties comes from three primary sources – debt, equity, and lease capital. Traditional
sources of debt capital include government sponsored enterprises (GSEs), such as Fannie Mae, Freddie Mac
and HUD, commercial banks, commercial finance companies, and FHA and
tax‐exempt bonds. Leverage typically ranges from 60% to 80% for secured debt instruments.
Equity financing comes from both public and private real estate investment companies, and participates
in both majority and minority equity positions. Property operators and managers may also own a significant portion of their
communities, often with passive investment support from financing entities. Private equity firms, both
small and large, also play a significant role in the capital stack, and tend to seek shorter term investments.
Lease financing is typically provided by relatively passive investment companies such as Real Estate Investment Trusts
(REITs), both public and private. Because lease financing is normally capitalized at the corporate level through the capital
markets, properties financed with leases are often considered as having 100% financing, though lease risks security measures
are common. Lease financing often has a longer term expectations.
Recently, some REITs are using a partnership structure under the REIT Investment and Diversification and Empowerment Act
(RIDEA) of 2007, which allows REITs to keep a share of the building's operating income and not just the lease payments.
A more detailed explanation of each common financing source can be found in Section 7.1 of the NIC Investment Guide
2010.
Who are the operators and managers for seniors housing and care properties?
Operators and managers range in size from large, publicly traded companies to single facility and family-oriented
owner-operators, and many sizes in between. Following are lists of the largest operators of seniors housing
and nursing care properties within the 100 largest metropolitan area markets. Lists of the largest independent and assisted
living operators can be found in the Sections 2.3 and 3.3, respectively, of the NIC Investment Guide 2010.
Operators' and managers' business models are often closely correlated to their respective, chosen financing model.
Who are the developers of seniors housing and care properties?
Developers of seniors housing and care properties include owner-operator developers and third-party, fee-based
developers, as well as more traditional multi-class developers such as those taking part in mixed-use developments. Mixed-use
developers often partner with industry-specific parties for unique industry and market expertise.
Compared to other major real estate classes, developing seniors housing is most closely related to developing multifamily
property, and multifamily developers often take part in seniors housing development. Independent living and assisted living
are typically somewhat more capital‐intensive than multifamily, however, while nursing care is less capital‐intensive. Each
also faces unique entitlement challenges. Section 6 of the NIC Investment Guide 2010 provides
a detailed analysis of typical seniors housing and care development projects.
Who are the appraisers and consultants for seniors housing and care properties?
As is the case with other real estate classes, appraisers provide project valuation and description services
to lenders, buyers, and investors, typically in conjunction with sale of an asset. Marketing and sales consultants
provide consultation to owners and operators regarding effectiveness of sales and marketing programs, both at the company
strategic and property specific levels. Market study and feasibility consultants provide fee-based services
to various parties which may include market definition and analysis, project sizing and scoping, and demographic analyses.
What government programs impact seniors housing and care properties?
Any government program, legislation, or initiative that affects health care reform, reimbursement, and regulation has a
significant impact on seniors housing and care properties. Medicaid and Medicare are significant components
in the industry revenue structure, especially in the skilled nursing, and to a much lesser extent in the assisted living,
subsectors. As such, any governmental initiative to modify these entitlement programs may have considerable effects throughout
the industry. Many states have defined governing or oversight agencies that oversee property
licensing, regulation, and inspection, to include need-based certifications to operate properties’ units or beds. Additionally,
tax credit and incentive based financing programs may be affected by changes in respective governmental
programs.
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