CoStar's index tracking repeat sales of investment-grade commercial properties jumped 10.6% in January over the same period last year, the largest year-over-year gain since the height of the real estate boom in 2006.
The increase in the index for higher-quality properties hit a five-year high for January despite dipping slightly from December, a reflection of how hard the index fell a year ago and how strongly it has recovered within 12 months.
"Pricing is all relative," said Chris Macke, CoStar senior real estate strategist. "The fact that January's reading was negative on a monthly basis but the largest gain since 2006 on a year-over-year basis indicates how fast the index was falling a year ago -- and how much it has improved since then."
The volume of investment-grade repeat sales transactions rose 54% in January from a year ago, a significant increase that reflects the appetite of buyers for trophy office, apartment, retail and hotel properties. Sales pairs of general grade properties, which reflect sales of non-investment grade buildings, declined 1% over the year-ago level.
The differences between changes in general sales versus investment-grade sales transaction counts and volumes are significant, Macke said.
"The investment grade pair count volume increase of 54% and the 1% general grade increase reflects the split in the market, which is caused by available financing to a large degree," he said.
Sale pair counts for investment and general grade property likely will both increase slightly when additional closings are recorded.
Meanwhile, the general grade index was down 11.3% in January versus the same period last year, even though general real estate index edged up slightly by 0.4% during the first month of 2011.
After being down 2.4% for the past three months and down 11.3% for the past year, the smaller property index may be approaching the market bottom for the first time in the past three years.
The CoStar National Composite Index, an equal-weighted analysis of both the investment grade and general grade indices reflecting the broad overall market, was flat in the first month of 2011. The composite is down 2.6% and 6.6% for the past three and 12 months, respectively, and down 30.7% from its August 2007 peak.
The March report of the CoStar Commercial Repeat Sales Indices (CCRSI) includes data through January. The CCRSI, a comprehensive and accurate measure of U.S. commercial real estate prices, includes a total of 32 sub-indices in addition to the monthly national composite index, including breakdowns by property sector, region, transaction size and quality, and market size.
CoStar tracked more than $211 billion in total sale transactions in 2010, a 79% increase over 2009. However, sales transaction volume remains 63% below peak market levels, despite the clear recovery taking hold in real estate markets.
In January 2011, CoStar recorded 483 pair sales compared to 434 in the same month of 2010, an increase of 11%. CoStar expects to see pair volume running closer to 20% ahead of January 2010 once additional sales from that period are confirmed and added to the database, in line with the 22% higher volume observed in December 2010 versus December 2009.
Distress sales as a percent of total sales increased in each of the four quarters of 2010, with an increase of just over 20% in the fourth quarter and an increase of 18.5% for all of 2010. By property type, the highest percentage of distress in the fourth quarter was found in the hospitality sector at 36%, followed by multifamily (24%), office (21%) and industrial and retail (both near 19%).
By transaction count, General Grade Index sales accounted for 68% of total transactions in January. By volume, Investment Grade Index sales represented 78% of the total. The average investment grade deal size was $10.5 million in January -- down from nearly $16 million in December but more in line with long-term averages. The average dollar size for general real estate was $1.4 million in January, compared to $1.6 million in December.
Also in the March release, CoStar announced a one-time change in the index methodology effective this month. The monthly numbers are now based on a two-stage/frequency-conversion of rotating quarter procedure, which roughly means the monthly changes will now be anchored to quarterly changes, which results in slightly less noise in changes and movements compared with direct monthly estimates. The quarterly indices methodology and approach have not changed.
Thursday, March 10, 2011
Thursday, March 3, 2011
Health Care Real Estate Mega Deals Show Rebound in Seniors Care Property Sector
Blockbuster transactions this week for seniors housing, skilled nursing and other post-acute care assets by Ventas Inc. and Healthcare REIT Inc. underscore the expansion and growth potential of health-care REITs. The deals also demonstrate that investment in the seniors care subsector has picked up as public companies deploy hundreds of millions in equity capital raised over the last 12-18 months.
Senior care facilities suffered more pain than other health-care properties during the recession as older Americans postponed decisions to move into retirement housing. The sector also endured uncertainty in 2008 and 2009 over the future of government health care legislation and reduced Medicare and Medicaid reimbursements. As baby boomers begin to enter retirement and the population of 85+ -year-old Americans grows, cash-flush real estate investment trusts have scrambled to acquire a diminishing supply of available seniors housing, assisted-living and post-acute facilities.
These factors, combined with a change in REIT tax law that allows health care REITs to own third-party operators to manage and collect income from their facilities similar to hotels, have helped fuel a number of large transactions in recent months, including the two huge deals announced on Monday. As CoStar Group reported last week, . industry executives predict more mergers and acquisitions between both public and private companies.
"These large transactions are a very good sign for the senior housing industry," said Chris Macke, senior real estate strategist for CoStar Group. "It shows that the market, and specifically, health care REITs, is both confident in and capable of transactions that 18 months ago would have been unthinkable. The M&A activity we're seeing is due both to the strong performance of REIT stocks, which provides advantageous capital to acquirers, and the lack of available direct property acquisition opportunities."
Ventas (NYSE: VTN) announced an agreement to acquire Nationwide Health Properties (NYSE:NHP) for $5.8 billion in stock and $1.6 billion in assumed debt, a deal scheduled to close in the third quarter that would make Ventas -- already the largest owner of seniors care property -- the largest health care REIT, with a pro forma value of $17 billion. It's the second massive transaction in the last few months for Chicago-based Ventas, which agreed in October to acquire operator Atria Senior Living Group in a deal valued at $3.1 billion.
"The combination of Ventas and NHP increases the scale and diversification of the combined company, the strength and flexibility of the company's balance sheet and the quality and geography of the assets," said Ventas chairman and CEO Debra A. Cafaro. "With Ventas's successful track record of value-creating transactions and NHP's longstanding history of regional, asset-level acquisitions, taken together with one of the strongest balance sheets in the REIT industry, the combined company will have a unique opportunity for continued external growth."
In the second major deal Monday, privately owned JER Partners and Formation Capital LLC agreed to sell the real estate of Genesis Healthcare, a Kennett Square, PA-based provider of short-term post-acute, rehabilitation, assisted living and long-term care services, to Healthcare REIT Inc. (NYSE: HCN). In the $2.4 billion deal, HCN will acquire 147 facilities in 11 North Atlantic and Northeast states from Genesis, which will continue to operate the senior living facilities through a triple-net lease. In its fourth-quarter 2010 earnings call, HCN announced $2.2 billion of new investments in senior housing assets, on top of $600 million in investment in 19 senior housing facilities, which will continue to be operated by Brandywine Senior Living through a triple net lease.
HCN will have the right to acquire certain facilities at a fixed price that Genesis currently leases from third-party landlords, as well as any facilities that Genesis acquires or develops during the initial 15-year term of the lease. HCN further has the option to acquire a 9.9% ownership interest in Genesis for $47 million throughout the initial lease term. The option will enable HCN to share in the future growth of Genesis, HCN said.
The growth spurt also casts light on a law that went into effect in 2008 allowing health care REITs to both receive rents as landlords and profits from operators through partnership arrangements with operators, under tax treatments similar to hotels. HCN is investing another $1.6 billion in 61 senior housing facilities with Benchmark Senior Living, Silverado Senior Living and Senior Star Living structured as taxable subsidiaries under the law, called the REIT Investment Diversification and Empowerment Act (RIDEA).
Healthcare REIT launched the first RIDEA transaction in the seniors housing industry last year when it announced an $817 million partnership with Merrill Gardens to own and operate 38 seniors housing communities totaling about 4,300 units. The four RIDEA partnerships would boost HCN's senior housing portfolio to 22% of its total portfolio investment. The Genesis deal isn't formed under RIDEA, but HCN hasn't ruled out the possibility of converting it at a later date, said George L. Chapman, HCN chairman, CEO and president, in a conference call discussing the Genesis transaction.
While RIDEAs offer increased operating income, they're also exposed to the economy and property operations turn sour, a risk acknowledged by Chapman.
"We looked hard at whether or not there would be too much exposure given the rewards we would get from engaging in our RIDEA structure," he said. "I think there is some caution. But I could see as we get more color, more clarity on just what exposure there is, going back and talking further with the sellers Formation and JER about perhaps converting into a RIDEA structure. So we’re not against it at all. And the closer we can align without undue risk, the better we feel about it."
Senior care facilities suffered more pain than other health-care properties during the recession as older Americans postponed decisions to move into retirement housing. The sector also endured uncertainty in 2008 and 2009 over the future of government health care legislation and reduced Medicare and Medicaid reimbursements. As baby boomers begin to enter retirement and the population of 85+ -year-old Americans grows, cash-flush real estate investment trusts have scrambled to acquire a diminishing supply of available seniors housing, assisted-living and post-acute facilities.
These factors, combined with a change in REIT tax law that allows health care REITs to own third-party operators to manage and collect income from their facilities similar to hotels, have helped fuel a number of large transactions in recent months, including the two huge deals announced on Monday. As CoStar Group reported last week, . industry executives predict more mergers and acquisitions between both public and private companies.
"These large transactions are a very good sign for the senior housing industry," said Chris Macke, senior real estate strategist for CoStar Group. "It shows that the market, and specifically, health care REITs, is both confident in and capable of transactions that 18 months ago would have been unthinkable. The M&A activity we're seeing is due both to the strong performance of REIT stocks, which provides advantageous capital to acquirers, and the lack of available direct property acquisition opportunities."
Ventas (NYSE: VTN) announced an agreement to acquire Nationwide Health Properties (NYSE:NHP) for $5.8 billion in stock and $1.6 billion in assumed debt, a deal scheduled to close in the third quarter that would make Ventas -- already the largest owner of seniors care property -- the largest health care REIT, with a pro forma value of $17 billion. It's the second massive transaction in the last few months for Chicago-based Ventas, which agreed in October to acquire operator Atria Senior Living Group in a deal valued at $3.1 billion.
"The combination of Ventas and NHP increases the scale and diversification of the combined company, the strength and flexibility of the company's balance sheet and the quality and geography of the assets," said Ventas chairman and CEO Debra A. Cafaro. "With Ventas's successful track record of value-creating transactions and NHP's longstanding history of regional, asset-level acquisitions, taken together with one of the strongest balance sheets in the REIT industry, the combined company will have a unique opportunity for continued external growth."
In the second major deal Monday, privately owned JER Partners and Formation Capital LLC agreed to sell the real estate of Genesis Healthcare, a Kennett Square, PA-based provider of short-term post-acute, rehabilitation, assisted living and long-term care services, to Healthcare REIT Inc. (NYSE: HCN). In the $2.4 billion deal, HCN will acquire 147 facilities in 11 North Atlantic and Northeast states from Genesis, which will continue to operate the senior living facilities through a triple-net lease. In its fourth-quarter 2010 earnings call, HCN announced $2.2 billion of new investments in senior housing assets, on top of $600 million in investment in 19 senior housing facilities, which will continue to be operated by Brandywine Senior Living through a triple net lease.
HCN will have the right to acquire certain facilities at a fixed price that Genesis currently leases from third-party landlords, as well as any facilities that Genesis acquires or develops during the initial 15-year term of the lease. HCN further has the option to acquire a 9.9% ownership interest in Genesis for $47 million throughout the initial lease term. The option will enable HCN to share in the future growth of Genesis, HCN said.
The growth spurt also casts light on a law that went into effect in 2008 allowing health care REITs to both receive rents as landlords and profits from operators through partnership arrangements with operators, under tax treatments similar to hotels. HCN is investing another $1.6 billion in 61 senior housing facilities with Benchmark Senior Living, Silverado Senior Living and Senior Star Living structured as taxable subsidiaries under the law, called the REIT Investment Diversification and Empowerment Act (RIDEA).
Healthcare REIT launched the first RIDEA transaction in the seniors housing industry last year when it announced an $817 million partnership with Merrill Gardens to own and operate 38 seniors housing communities totaling about 4,300 units. The four RIDEA partnerships would boost HCN's senior housing portfolio to 22% of its total portfolio investment. The Genesis deal isn't formed under RIDEA, but HCN hasn't ruled out the possibility of converting it at a later date, said George L. Chapman, HCN chairman, CEO and president, in a conference call discussing the Genesis transaction.
While RIDEAs offer increased operating income, they're also exposed to the economy and property operations turn sour, a risk acknowledged by Chapman.
"We looked hard at whether or not there would be too much exposure given the rewards we would get from engaging in our RIDEA structure," he said. "I think there is some caution. But I could see as we get more color, more clarity on just what exposure there is, going back and talking further with the sellers Formation and JER about perhaps converting into a RIDEA structure. So we’re not against it at all. And the closer we can align without undue risk, the better we feel about it."
Subscribe to:
Posts (Atom)
