In senior housing, operation is as critically important as location.

By Pam McDonald

Shep Roylance, Senior Vice President of JCH Consulting Group, a full-service real estate brokerage company and Senior Housing Forum partner, reminds us that location, location, location is, and historically has been, the by-word for real estate. It speaks to the fact that identical properties can increase or decrease in value due to their location.

Consider Both Sides of the Formula

However, Shep points out that in senior housing, operation is as critically important as location. He says, “Location and operation are the two components in the formula for success in senior living.”

He counsels those senior living and long-term care providers that are expanding their portfolios as well as financing providers investing in the space to consider the importance of both sides of the formula.

New Players in the Industry

The growing demographic demand for options in senior housing has brought an influx of new investors into the market. Shep notes, “An inexperienced new provider – being unaware of the complexities of the operation – requires lenders and financiers that can closely examine the operations side of the business.

“At the same time, attractive capital is drawing new investors into acquisitions of assisted living, memory care, community care residential, and skilled nursing facilities. Each of these demands expert operational management to assure financial success and insure quality of care for residents,” Shep concludes.

More Institutional Money

Expanding further on the availability of capital, Shep notes that new institutional money has become available. Competition and the resulting lower return on investment in other forms of real estate have brought many investors into senior housing.

He also points out that many new investors are taking advantage of the opportunity, including pension funds, private equity players with plans for new development, and multifamily investors who are entering the business for the first time after specializing in other property types.

Changing Role of Commercial Banks

As a result, commercial banks that looked unfavorably at senior housing investment during the recession are becoming active. He says, “Because of the explosion of the demand for senior housing, banks are becoming more knowledgeable in the intricacies of the operation. They demand and look closely at the historical financials of the operation and examine the experience and qualifications of the operator.”

A Hybrid Industry

A successful facility speaks for itself, Shep points out. He cautions that developers in the senior housing market can construct architecturally outstanding buildings in the right location, but they must join with an historically experienced operational partner for the development to be successful.

From a developer’s perspective, it is much more an operational deal than a real estate deal. Likewise, the same is true from the investor’s perspective . . . it’s much more an operating business than a real estate business.

According to Shep and other experts, senior housing is a hybrid business. It requires both components. For financial success and quality of care for senior living residents, the watchword is: location, location, location plus operation, operation, operation.

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