Recession won’t hurt nursing home profits

Here is an article from Long Term Living online editor John Oberlin that indicates that the economic slowdown will not affect the profits by the nursing home industry.  Cambridge Chairman Jeffrey A. Davis points out that all components of the senior housing sector appear to be in good shape, with nursing homes, assisted living, and independent living facilities all at their highest occupancy levels in years

Although the economy apparently is at a tipping point, the outlook for the senior housing/healthcare industry remains remarkably upbeat, one industry expert maintains.

“While no industry is completely recession-proof, owners and operators of senior housing/healthcare properties are better positioned to deal with an economic downturn than they’ve been at other periods in the past,” believes Jeffrey A. Davis, chairman of Cambridge Realty Capital Companies, a senior/healthcare debt and equity financing firm.

“Historically, the pattern has been for the industry to go through debilitating boom/bust cycles. However, at this time, there’s no over-building and occupancy levels for all product types are high,” he observes.

Davis points out that all components of the senior housing sector appear to be in good shape, with nursing homes, assisted living, and independent living facilities all at their highest occupancy levels in years.

“This time around, there has been significant restraint regarding new construction. Generally speaking, management appears to be more enlightened in this regard and consumers more aware of the expanding range of products available to them. Even if the economy tanks, the industry will not be as vulnerable as some other segments of the commercial real estate market because there hasn’t been an artificial demand component working against sound economic judgment,” he said.

“Going forward, capital will continue to be available but more constrained in 2008. The crisis in confidence has impacted various lenders in different ways, and underwriting criteria has become more stringent across-the-board.

“But credit will be available from sources attracted to the industry by its long-term outlook. Investors and commercial lenders notice that demographics for the industry continue to move in a positive direction, and that the product that has emerged in the marketplace today has a much broader appeal to users than it did 25 years ago,” he said.

HUD has emerged as the preeminent lender of choice for qualified borrowers in the skilled nursing home and assisted living segments and continues to solidify its role as a capital provider to under-served markets. But capital will also be coming from a variety of other sources, including Fannie Mae, Freddie Mac, commercial banks, insurance companies, private equity firms, and credit companies, he noted.