Health Care Real Estate Attracting Foreign Capital, Analyst Says

11/30/2016 | By Sarah Borchersen-Keto

Michael Knott, managing director at Green Street Advisors, joined REIT.com for a video interview at REITWorld 2016: NAREIT’s Annual Convention for All Things REIT at the JW Marriott Phoenix Desert Ridge.

After a quiet year for the health care sector for most of 2016, an “explosion of deals” worth in excess of $5 billion has occurred recently, Knott observed. The trend underscores the significant amount of capital available for the sector, especially foreign capital, he noted.

Knott also said the skilled nursing segment is facing continued headwinds due to ongoing changes to payment models, growing expenses and pressure on wages.

“The bottom line is that skilled nursing coverage levels for the REITs are continuing to decline, and you’ll see that for a couple more years,” Knott said.

As for senior housing, Knott pointed out that supply has been an issue in some secondary and tertiary markets. The senior housing portfolios for REITs, however, are in top market locations, he noted.

An influx of new supply of senior housing won’t affect REITs as dramatically as most operators, according to Knott. However, “we think you’ll see stagnating or slightly declining occupancies and potentially some pressure on their pricing power,” he said.  

Meanwhile, Knott said he expects REITs and their operating companies to continue to gravitate toward the REIT Investment Diversification and Empowerment Act (RIDEA) structure.

“It’s a good alignment of interests between owner and manager,” Knott said. As a result, REITs will seek to acquire higher-quality properties because “they are going to be getting all the ups and downs of the entire cash flow stream,” he added.

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