What’s the Portfolio Premium in Senior Living?

Senior Living Investment Overview

Enhance Senior Living is a national senior living broker firm specializing in Senior Living Investment brokerage for investors seeking diversification. These services include active adult brokerage, independent living brokerage, assisted living brokerage, memory care brokerage, and skilled nursing brokerage.

Learn more about our senior living broker and operational improvement solutions. Contact us today to learn how we can help you enhance senior living.

To enhance your senior living knowledge subscribe to the Enhance Senior Living Podcast. The show is on all podcast platforms including Apple Podcasts | Spotify | Amazon Music

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Senior Living Investment

During discussions with senior living owner/operators and smaller investment groups about exit strategies, I hear the phrase ‘portfolio premium’. This reflects a focus within Senior Living Investment on maximizing that premium.

However, I question whether these groups understand the portfolio premium’s methodology. I also question how to maximize it within senior living.

Therefore, in this article, I’ll analyze the premium’s methodology. I will also discuss ways to maximize Senior Living Investment.

The portfolio premium is really based on the economic theory of economies-of-scale, along with the acquisition and investment appetite of the larger, listed healthcare REITs. Each acquisition takes 60-120 days of negotiation, legal documentation, capital sourcing, and due diligence to close. The amount of man hours, energy, and dollars spent on a single-asset acquisition varies very little to a larger 10-asset portfolio acquisition. Therefore, the portfolio premium partially reflects all the time and energy used in developing and/or acquiring single assets to ultimately sell in a single transaction to a larger investment group.

Additionally, the acquisition appetite of the larger healthcare and investment groups can alter the premium. Investment groups grow through new acquisitions and development investments. However, when an investment group has $20-30 Billion in assets under management, they need to make larger portfolio acquisitions (hundreds of millions) to really move the needle. And, since the larger healthcare REITs have the lowest cost-of-capital of healthcare real estate investors (can create new equity and bond offerings), they can afford to pay the highest prices and obtain the same return hurdles as investment groups with a higher cost-of-capital.

Senior Living Investment considerations

Both theories are not unique to senior living. They are used in all institutional commercial real estate investment strategies.

However, senior living has unique attributes that can impact the portfolio premium.

Besides physical attributes like size, market, design, and quality, additional premium variables matter. They include geographic clusters, operator selection, and operating or legal structure.

Healthcare REITs and investment groups often have relationships with operators. They also influence Senior Living Investment decisions.

Additionally, it’s not efficient for senior living managers to operate a single-asset outlier. Therefore, clusters of 3–5+ properties in a geographic zone are more appealing.

Additionally, changing management is disruptive and risky. Thus, institutional-quality management in place is always preferred.

Lastly, cross-collateralization of the lease can affect the portfolio premium. The management structure can also influence it.

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Enhance Senior Living is a national senior living broker firm specializing in nationwide senior living investment brokerage solutions including active adult brokerage, independent living brokerage, assisted living brokerage, memory care brokerage, and skilled nursing brokerage. Learn more about our senior living broker and operational improvement solutions and contact us today to learn how we can help you enhance senior living today.

To enhance your senior living knowledge subscribe to the Enhance Senior Living Podcast. The show is on all podcast platforms including Apple Podcasts | Spotify | Amazon Music

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