NIC Notes

Insights in Seniors Housing & Care


By: Beth Mace  |  December 13, 2019

Seniors Housing Annual Total Returns Equal 7.80% in Q3 2019

Market Trends  |  Senior Housing

The National Council of Real Estate Investment Fiduciaries (NCREIF) recently released investment return performance indicators for the primary commercial real estate sectors, including seniors housing. The results for seniors housing are summarized in this blog post. The performance measurements reflect the returns of 124 seniors housing properties, valued at $6.5 billion in the third quarter. As recently as the second quarter of 2018, the value of seniors housing properties reported into NCREIF was $1 billion less, at $5.4 billion with 110 properties reported. While limited in scope, the data reflects the return performance of investment managers who manage or own institutional real estate with a market value of at least $50 million held in a fiduciary setting.

Seniors Housing Capital Returns Outpace NPI.  The total investment return for institutional investors as measured by the 124 properties that reported data to NCREIF in the third quarter of 2019 was 2.29%, composed of a 1.30% income return and a 0.99% capital (appreciation) return. The positive appreciation return indicates that the seniors housing properties in the NCREIF data set continue to increase in value after deducting for capital expenditures. The total return for this quarter was slightly ahead of the average quarterly return over the past four quarters, which was 1.89%. The quarterly total seniors housing return compared favorably with the 1.18% rate for apartments and 1.41% rate for the total NPI. The quarterly appreciation return for seniors housing was particularly strong compared with the NPI and apartments and was 0.99%, compared with 0.30% and 0.13%, respectively. Note that these figures reflect unleveraged returns. 

The annual total return through the third quarter of 2019 was 7.80%, exceeding the NCREIF Property Index (NPI) result of 6.24% and the apartment return of 5.39%. However, at 13.64%, industrial total returns significantly outpaced seniors housing. Industrial continues to benefit from e-commerce which has increased demand for last-mile warehouse space. Despite the relatively strong showing for seniors housing, the total annual return has been trending down since mid-2014 when it peaked at 20.37%. This pattern can also be seen in the broader index and reflects where we are in the cycle.

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Cap Rate Compression.  Based on NCREIF data, the value-weighted cap rate for seniors housing averaged 5.1% in the third quarter, near the mean for the year, but down from the average 5.4% rate seen in 2018 and 5.8% in 2017. Since 2017, cap rate compression has not been as significant for the overall NPI nor apartments. The risk premium is nearly one percentage point higher than for apartments (4.2% cap rate) and 78 basis points for the NPI (4.3% cap rate).


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See NCREIF Real Estate Performance Report Quarterly Highlight.

About Beth Mace

Beth Burnham Mace is the Chief Economist and Director of Outreach at the National Investment Center for Seniors Housing & Care (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for 7 years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. While at AEW, Ms. Mace provided primary research support to the organization’s core and value-added investment strategies and provided research-related underwriting in acquisition activity and asset and portfolio management decisions. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service with responsibility for developing forecasts of economic, demographic, and industry indicators for 314 major metropolitan areas in the U.S. Prior to working at DRI, she spent three years as a Regional Economist at the Crocker Bank in San Francisco. Ms. Mace has also worked at the National Commission on Air Quality, the Brookings Institution and Boston Edison. Ms. Mace is a member of the National Association of Business Economists (NABE), ULI’s Senior Housing Council, the Urban Land Institute and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ (CBE), which is the certification in business economics and data analytics developed by NABE. The CBE documents a professional’s accomplishment, experience, abilities, and demonstrates mastery of the body of knowledge critical in the field of economics and data analytics.

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