On February 17, Ben Swett, Editor of The SeniorCare Investor, hosted our annual webinar covering the latest proprietary M&A statistics from the previous year. He was joined by panelists Dan Revie of Ziegler, Dan Lahey of LCS Real Estate and Yitzy Rosenblum of Cascade Capital Group to discuss what happened in 2021, where values settled more than a year after the pandemic, and what buyers, sellers and operators can expect for 2022 and beyond. The full picture will be presented in our Senior Care Acquisition Report, 27th Edition, to be released soon.
First, the panel reflected on 2021. And what a year 2021 turned out to be, with 443 publicly announced deals closed and the busiest December we’ve ever seen. But what did it take for such a rebound to occur? Mr. Revie speculated that after operators got their arms around COVID with protective and preventive procedures, cases began to stabilize mid-year and trends started to head in the right direction. With stability came more trust from lenders, who accelerated putting their pencils to the paper in the latter half of 2021. Dollars spent in 2021 was also quite high, with $19.1 billion of seniors housing transactions.
The panel also covered the changes in the average and median prices for each sector. Of note, with few skilled nursing facilities on the market, prices were driven quite high in that sector, averaging nearly $100,000 per bed. Mr. Rosenblum noted that there is pricing pressure from new buyers who have come into the industry from other areas of real estate. Looking for yield, these new buyers may have also noticed that healthcare properties received a healthy amount of funds from the government to mitigate effects of the pandemic, which bodes well for the industry’s survival and eventual strength.
The conversation eventually turned to the question on everyone’s mind: when can the industry expect stabilization? The short answer, unfortunately, is that no one really knows. On the SNF side, nearly all facilities on the market are experiencing distress of some kind, whether it be staffing or census or both. Mr. Rosenblum believes that there are solutions, but the road to pre-COVID census levels, on a national scale, will likely take several years.
And what about the availability of capital? Lenders are certainly back, often offering lower interest rates than pre-pandemic, but it’s a matter of who they’re lending to. Mr. Lahey noted that he prefers to work with long-time industry lenders, who have worked closely with LCS and have faith in their ability to weather the storm. In turn, lenders emphasize the quality of the operator when getting into deals. We heard it said: good debt isn’t hard to achieve when you’ve got a good deal.
The outlook for 2022 and 2023 is clouded with questions, but for those who can navigate the storm, growth years for the industry might not be far away. All of this discussion led to our last question for the panel: in 2022, would you rather be a buyer or a seller? A consensus was reached among the panelists, who resoundingly agreed that for the first half of 2022, they would be sellers. For the second half, buyers. Our guess is that distressed asset sales will start coming onto the market in droves in the second half of the year, with buyers hopefully restoring operations at those properties. Will their predictions for the market come true? Time will tell.
