The resilience of seniors housing real estate and the global financial cri…


Published on

Discusses the financial crisis of 2007 - 2008 and how seniors housing real estate remained stable

Published in: Business
  • Be the first to comment

  • Be the first to like this

The resilience of seniors housing real estate and the global financial cri…

  1. 1. Advising the Senior Housing Community The Resilience of Seniors Housing Real Estate Following the Global Financial Crisis of 2007 – 2008 Presented by Sean Murphy, Executive Chairman, CensusUp1 1/2/2013
  2. 2. I. Thesis Residential real estate defaults negatively impacted the commercial real estate sector, generally, but seniors housing held its value  Residential real estate bubble peaked in April 2006  Prices began steep fall mid-2006  Bursting of residential real estate bubble:  Produced the Global Financial Crisis (GFC) of 2007-2008  Negatively impacted commercial real estate (CRE) for years to come, both debt and equity capital  Fundamentally changed institutional investors’ allocations to CRE Funds (CREFs)  Caused institutions to retreat to core assets (e.g. Central Business District office in select metro areas) and reduce exposure to other CRE asset classes 2 1/2/2013
  3. 3. II. The Residential Real Estate Bubble 2006 Peak to Rapid Crash - No Plateau US homeownership rate rose substantially between late 90’s and 2006 BUT: Hyper- growth driven by easy credit (i.e., “Subprime Debt”) Residential Real Estate Bubble: Average US Home Price Nearly Doubled between 1995 – 2005 from approx. $135,000 to approx. $250,000 Buyers’ manic purchasing, particularly by first-time homeowners with sub-standard FICO scores 3 1/2/2013
  4. 4. III. The Crash  Buyers sought quick wealth (“flipping”)  Unqualified/ unsophisticated borrowers  Popular Adjustable Rate Mortgages (ARMs) with “teaser rates”  Upon loan re-set: dramatically higher rates and mortgage payments  Widespread belief: real estate prices only riseManic Buying. Peak. Massive Crash  Misplaced reliance on ease of property refinances4 1/2/2013
  5. 5. III. The Crash: Subprime Meltdown Massive pools of Residential Mortgage Late 2006 July 2007 Backed Securities (RMBS) and Collateral Debt Obligations (CDO) Subprime defaults rise at alarming MBS/CDOs lose 2003 – 2007 rates most of their value Late 2006: Subprime For 6 more months, defaults rise ratings agencies New securitizations continue to give dramatically AAA ratings to new MBSs and CDOs vanish July 2007, Moody’s/ S&P downgrade RMBS 90% of AAA-rated RMBS downgraded & CDOs to junk 5 1/2/2013
  6. 6. III: The Crash: Foreclosures Nationwide  The days of easy credit and the residential real estate bubble rapidly morphed into a foreclosure epidemic across the country  Economic models failed – credit rating agencies relied upon erroneous assumptions of very conservative residential loan default ratesSource: 6 1/2/2013
  7. 7. IV. The GFC (“Great Recession”) Crushed Investments  US Stockholders suffered losses of approx. $8 TRILLION during 2008  June 2007 - Sept 2008:  Bear Stearns subprime hedge funds collapsed  Bank of America took over Countrywide due to widespread losses in subprime loans  IndyMac failed and was seized by FDIC  Federal gov’t took over Fannie and Freddie  Lehman Bros. declared bankruptcy  Merrill Lynch forced to be acquired by BoA and sale announced  Fed offered AIG an $85 billion credit line  WaMu failed, seized by the FDIC and sold to JP Morgan Chase  Federal Gov’t used hastily enacted emergency legislation (TARP)7 1/2/2013
  8. 8. IV. Global Financial Crisis Brought Dramatically Lower Transaction Volume 2007 – 2009  88% drop in transaction volume  $359 billion in sales down to $60 billion CRE property values fell by about one third  EQUAL to the decline of the 1990’s CRE recession BUT in a fraction of the time 8 1/2/2013
  9. 9. IV. The GFC: CMBS Nearly Extinct Source: Commercial Real Estate Finance Council (DC Trade Association) CMBS issuances of approx. $235 billion in 2007 fell to approx. $12 Billion in 2008 Borrowers needing to re-finance were in a very difficult position Lenders: “extend & pretend” Very slow improvement over past 3 years - standards have tightened making debt unavailable to many commercial borrowers. 9 1/2/2013
  10. 10. IV. The GFC: Maturing CMBS Slowing CRE Market Revival  Brake on CRE market:  restructuring distressed debt delays lending on new projects  Estimate: 60% of CRE maturitiesLenders need to deal with problem loans before they can advance additional debt to CRE markets. through 2015 in distress 10 1/2/2013
  11. 11. V. Seniors Housing Cyclical Resilience, Unique Demand Growing Market Demand  Healthcare expenditures are approximately 17% of U.S. GDP and are expected to reach 20% by 2017.(1)  Seniors housing is a highly fragmented market. There are approximately 22,000 seniors housing and nursing care facilities in the U.S. valued between $250Bn and $270Bn.(2)  Seniors population rises as the baby boom ages Attractive Risk-Adjusted Returns Relative to General Commercial Real Estate Sectors  Conventional real estate assets recently traded at historically low cap rates and many are currently under stress.  Barriers to entry - specific skill set required, regulatory approvals restrict supply, historical lack of institutional capital. Distinct Performance and Pricing Characteristics  Higher current returns should reduce reliance on terminal values to achieve favorable risk-adjusted total returns.  Financing market for seniors housing has become attractive despiteSources: ongoing stress in the credit markets.1) Centers for Medicare and Medicaid Services2) NIC Investment Guide 2012: Investing in Seniors Housing & Care Properties 11 1/2/2013
  12. 12. V. Seniors Housing Real Estate Spectrum – Mid-Acuity = Steady Demand Mid-Acuity High Acuity (Sustained Need) Low Acuity (Acute Need) (Lifestyle Choice) Reimbursemen Cyclicality t Risk High Risk High Acute Care Skilled Assisted Age Hospitals Nursing Living Restricted Memory Housing Care Rehabilitation Independent Facilities LivingImage Source: Wakefield Capital Management, Inc. Communities  Throughout market cycles, need-driven, mid-acuity healthcare real estate provides superior risk-adjusted returns  Demand for mid-acuity assets is driven by sustained needs  Mid-acuity real estate assets are less sensitive to economic pressures faced by lower acuity, lifestyle-driven properties (independent living and age-restricted housing) that are subject to consumer tastes and financial capacity or by higher acuity properties (hospitals) with substantial exposure to government reimbursement risk. 12 1/2/2013
  13. 13. V. Sector Resilience – New Units Supply ConstrainedThe number of new seniors housing units added to the market has declinedsubstantially since 1998 due to regulatory constraints in existence nationwide and otherbarriers to entry, absorption of over-built stock from the late 1990s and recent lack ofavailable construction financing.13 1/2/2013
  14. 14. V. Sector Resilience - Occupancy Rates Steady Over TimeFavorable supply and demand dynamics have allowed Assisted Living Facilities to historically maintain a steady level of occupancy. 89 Historical Occupancy Rates for Assisted Living Facilities in U.S. Assisted Living Facility Occupancy Rates 88 87 86 85 84 83 82 Source: National Investment Center for Seniors Housing14 1/2/2013
  15. 15. V. Sector Resilience - Senior Housing Rents Less Volatile  Seniors housing Apartment Office Retail Hotels Seniors Housing 12 is the only major real estate asset 8 type that did not 4 experience a 0 decline in asking -4 rents during the -8 recent economic recession.-12 2007 2008 2009 2010 2011Source: NIC MAP® Data & Analysis Service; MBAA; REIS; STR 15 1/2/2013
  16. 16. Advising the Senior Housing Community Biographies CensusUp Team16 1/2/2013
  17. 17. CensusUp Management Team Sean P. Murphy, Esq. – Executive Chairman  A Partner and COO at Wakefield Capital Management, Sean also served as a principal in a joint venture with NorthStar Realty Finance (NYSE: NRF) which acquired, managed and sold (in part) over $750 million in seniors housing and healthcare-related real estate. Sean has particular expertise in seniors housing real estate transactions and he serves on the Board of Directors of the Teresian House Center for the Elderly, a seniors housing facility in New York operated by the Carmelite Order. Sean also serves as an executive with Fidelity National Financial (Chicago Title Insurance Company) and he received his law degree and Masters in Real Estate from Georgetown University. James Guidera, Jr. – Founder and COO  With over 25 years of experience in marketing and sales, Jim understands how to formulate a compelling message and deliver that message to the right audience. Jim has spent the last 4 years focusing on new technology-based marketing methodologies. Jim understands the needs and trends of senior housing, and how to apply modern marketing and sales techniques to the senior housing market. 17 1/2/2013
  18. 18. CensusUp Management Team, continued Gary Hughes, MAgS, ALFA – Executive Vice President  Gary has more than 20 years experience working with vulnerable populations, especially older adults. His expertise in senior housing is in sales/marketing, operations and regulatory compliance. He has served as an Executive Director and Director of Community Relations of several Assisted Living and Memory Care Facilities on behalf of Sunrise Senior Living. He has also been an Assisted Living Executive Director . He has a Master’s degree from the UMBC Erickson School of Aging and holds an Assisted Living Facility Administrator license. E. Brian Alexander, Esq. – Vice President Energy and Construction Services and General Counsel  Brian has close to 20 years of experience in the construction and energy efficiency fields. Brian has more than 10 years in healthcare construction projects, with particular expertise in project management, building mechanical and electrical systems. Brian currently works with developers and building owners and operators seeking to construct and operate sustainable buildings that use energy in an economically optimal manner. 18 1/2/2013
  19. 19. CensusUp Management Team, continued Nicholas Park – Vice President Technology Implementation and Integration  Nick has over 25 years of experience working with senior living facilities, health care facilities and hotels. He is focused on the seamless integration of communication systems and information technology for the health and safety of residents and efficiency improvements by staff. Some examples of products that he has integrated into senior housing during his extensive career include distribution cabling, portable and stationary audio/video systems, communication systems, TV systems, and security and card access systems (a critical issue in Memory Care Facilities for Seniors). Nick is a registered architect with AIA and NCARB. He received his MBA from the University of Houston and his Bachelor of Architecture from Boston Architectural Center. 19 1/2/2013
  20. 20. Advisory Board Steve Gurney – Founder of Guide to Retirement Living Sourcebook  The Guide to Retirement Living SourceBook is the most comprehensive database of all senior housing, assisted living, nursing homes, home health care services, and professional resources in the Mid-Atlantic. Steve specializes in working with organizations to develop innovative concepts and products to help elders and families understand resources. He is also frequently called upon to help organizations better communicate their offerings to seniors, families and professionals. Steve has his Masters of Management in Aging Services (MAgS), The Erickson School – Management, Policy, Aging. 20 1/2/2013
  21. 21. Advisory Board Nick Lantuh – Former President of NetWitness Corporation  While at NetWitness, Nick led the sale and merger with EMC Corporation in 2011. Prior to this role, Nick was Vice President of the NetWitness Product Group, a Division of ManTech International. Nick conveys 18 years of I/T leadership, fund raising & start up experience, ranging from pre-revenue start-ups to Fortune 100. Mr. Lantuh has held leadership roles at organizations such as Cisco Systems, as well as pre-revenue start-ups in the security, software, wireless and networking spaces leading to three acquisitions and an IPO and the recent cash sale to EMC. Nick presently advises Census Up and government and business leaders in cyber security issues and spoke recently about “Entrepreneurship in Disruptive Technologies and Finding the Winning Formula”. 21 1/2/2013