Senior Housing Poses Opportunities for Investors

In spite of a sluggish national economy and skittish capital markets, the outlook is extremely bright for the senior housing industry.  While other asset sectors continue to suffer from a lack of liquidity, recent data suggest that high demand and a return of capital to the senior housing market will make for a rich deal making environment in the months ahead. 

According to several recent reports issued by NIC, senior housing has weathered the economic downturn better than other asset types and offers a higher rate of return to investors. As of Q4 2009, the senior housing sector generated a cumulative return of 2.7 times its mid 2003 value, compared to the entire CRE sector, which posted a cumulative gain of just 1.5 times its mid-2003 value, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). 

Occupancy rates have stabilized while rents continue to grow, albeit slowly.  Demand for senior housing will continue to rise substantially over the next few years, as the first wave of the 79 million members of the baby boomer generation have already passed the age of 60. The fact that Americans are living longer has created longer-term tenants and an increased need for facilities that accommodate the expanding needs of seniors. While demand flattened during the downturn, it has rebounded quickly and is growing at a faster rate than it was prior to the recession. 

Meanwhile, construction starts for senior housing properties have dwindled over the past 12 months, which means leasing at existing properties will increase as demand from consumers continues to rise. In fact, the NIC reports that new construction for senior housing is down 32% from the same time period last year, while demand is outpacing pre-recession growth rates.  Above average returns and the potential for significant growth are attracting a wide base of potential investors, including TICs, private equity groups, national banks and foreign investors.   

Of course, not every senior housing project can succeed in today’s economy.  Successful senior housing projects require a combination of strong balance sheets and extensive operating experience to be attractive to lenders. Debt capital is readily available for projects that can prove long term value with experienced owner/operators that have a track record of success.   

Savvy brokers are taking advantage of these market opportunities and are reaping the benefits.  For example, NAI Bluestone recently secured $14.3M in debt and equity financing for the development of the Arbors at Buck Run, an 85-unit assisted living and memory care facility located in Feasterville, PA.  The financing was secured on behalf of Capital Health Group, LLC, one of the nation’s premiere senior housing and healthcare private investment companies, and Orens Brothers, an experienced developer and construction management firm with a long track record of successful projects throughout Greater Philadelphia. Despite the fact that the project required re-development capital in today’s challenging construction financing market, NAI Bluestone was able to identify the right debt and equity capital providers who shared its conviction that the sponsorship, project and its market represented a terrific risk/reward opportunity.  Our ability to secure debt and equity re-development capital in today’s market proves that capital is available for strong projects, but it requires strong relationships with lenders, experience and a track record of success. 

Looking ahead at 2011, we are going to see more and more activity in the senior housing sector.  Brokers with strong lending relationships and experienced development partners will be poised to take advantage of this growing market, which will continue to outperform other asset types in the upcoming year. 

-Matthew McManus

Matthew McManus is Chairman of Philadelphia-based NAI Bluestone Real Estate Capital, LLC.

Midterm Elections to Impact Real Estate Recovery

The midterm elections may have a big impact on the real estate recovery.   At the American Bankers Association meeting in Boston a member on the right leaning CATO institute stated that if the Republicans take Congress in November the Republicans will pass a resolution in short order to force both Freddie and Fanny into receivership.  The potential for significant change in the residential and multifamily financing structure of the United States is very possible.  For over 30 years these quasi governmental organizations have been a core feature of the American financing landscape for single family and multifamily homes in the U S.
The current situation of poor balance sheets for both organizations has resulted in the loss of Republican confidence in both organization and if either are forced into receivership the only sure bet will be disruption to the marketplace.

-Rhyne Brown

Rhyne Brown is Executive Vice President of Client Development and leads NAI Global’s Special Asset Solutions group, a professional real estate practice that is focused on meeting the needs of banks and special servicers active in managing distressed assets and REO.

A Market Segmentation is Essential to the Success of a Retailer!

An accurate understanding of the market area where a new retail location will be based is key to the success of the venture. Traditionally retailers would collect a core set of demographic variables as criteria for understanding a particular market or site.  The key variables are: income, age, population, traffic counts and depending on the market area ethnicity.  Retailers set minimum thresholds for each variable in order to filter through potential opportunities. In fact, a number of retailers and developers still use this approach today to validate markets.

To better understand a more complete picture of a market area, i.e., who lives in a particular city or trade area, a market segmentation system brings a more robust understanding by combining a suite of variables together to categorize people into distinct groups.  People would generally be categorized under 10 main groupings, with Most Affluent being the first group and Least Affluent the 10^th group.  Within each group there would be sub-groups which could see the U.S. population broken down into some 70+ distinct classifications.  The power of the market segmentation  system is that it measures, quantifies and assigns people to a geographic point of reference on a map that describes not only how many people can be found in a group but more importantly the buying patterns or behaviors of people.  “Melting” a series of demographic variables together to create a classification allows retailers to more precisely measure a market’s size, and target specific potential customers.

The use and evolution of a market segmentation system is widely endorsed and used extensively across North America, most parts of Western Europe, and portions of Asia-Pacific (Australia, Japan).  In emerging markets of South America and Asia, countries have created a segmentation classification based on an Alpha system.  An “A” category reflects a high degree of affluence while an “E” category reflects a poor segment.  Retailers in North America have had to adapt to understanding their potential client base in emerging markets as the ability to segment a population in comparison to the U.S. or the U.K. is at the present time not comparable.

Use of a segmentation system is not limited to bricks and mortar retailers.  Consumer Goods companies rely heavily on understanding customer buying behaviors, and how much money people have to spend on goods and services.  With the advent of on-line shopping, internet based retailers use the same tools to sell their books, clothes and travel packages.

Segmenting a market based on a suite of variables is much more powerful than the traditional filtering or benchmark approach to analyzing a markets worth.

-George Anderson

Based in Toronto, Ontario, George Anderson is Vice President of Market Analytics for NAI Global, and works closely with retailers and financial institutions using geodemographic analyses to identify and evaluate markets for expansion around the globe.

McAllen-Edinburg-Mission, TX ranked 4th among the Best-Performing Cities in the U.S.

2010 Milken Institute Best-Performing Cities Index 

Leaders in this year’s index, which ranks U.S. metros based on their ability to create and sustain jobs, are all metros that were shielded from losses in the production of capital equipment and consumer durable goods. Diversified technology bases, including high-tech manufacturing; reliance on service industries; having a large military presence and a relatively small presence of financial services were common characteristics in this year’s top performers.

The 2010 top 10 performers (with 2009 rankings) of the 200 largest metros:

1. Killeen-Temple-Fort Hood, TX (2)
2. Austin-Round Rock, TX (1)
3. Huntsville, AL (8)
4. McAllen-Edinburg-Mission, TX (4)
5. Kennewick-Richland-Pasco, WA (n.a.)
6. Washington-Arlington-Alexandria, DC-VA-MD-WV (25)
7. Raleigh-Cary, NC (10)
8. Anchorage, AK (40)
9. El Paso, TX (14)
10. Houston-Sugar Land-Baytown, TX (5)

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New report indicates McAllen’s current employment surpassed 5-year peak

September 22, 2010

McAllen Economic Development Corp.

Garner Economics has released a recent report comparing the 372 metro areas in the United States. Based on employment total from the past five years, the report indicated that McAllen is one of only 16 metros that has surpassed July peak employment totals from the past five years. McAllen increased its job totals by 2-percent, according to the analysis.

Texas was the only state to have more than one metro that surpassed previous employment totals.

To view the full report, click here.

El Paso-based venture capital firm makes first investment in Rio Grande Valley

By Steve Taylor
Rio Grande Guardian

EDINBURG, Sept. 18 - 

Cottonwood Technology Fund, a venture capital firm based in El Paso, has made its first investment in the Rio Grande Valley, pumping an undisclosed sum of money into FibeRio Technology Corporation.

Beto Pallares, Cottonwood’s managing partner, said his firm’s aim is to cultivate the entrepreneurial community along the border region. As such, he said, Cottonwood, which also has offices in Los Alamos and Santa Fe, hopes to make other seed-stage investments in Valley-based technology companies.

“I live on the border. I understand the dynamics that are faced here. I understand the challenges and the preconceived notions but I also understand where the value is. We do not object to hopping on a plane and coming down here. I make frequent visits for that reason,” Pallares said.

Pallares said it was not a difficult decision to partner with FibeRio. At a news conference at the University of Texas-Pan American last Wednesday, Pallares said FibeRio is comprised of good people with a good idea. He said those were two of the three components needed for success. The third, he said, is money.

FibeRio is UTPA’s first regional technology start-up company. It was formed after Karen Lozano and Kamalaksha Sarkar, faculty members of UTPA’s College of Engineering and Computer Science, co-invented an advanced nanofiber manufacturing process that could, experts believe, revolutionize the nanofiber manufacturing industry.

Lozano, chief technology officer for FibeRio, explained what a nanofiber is. “A nanofiber is like a strand of hair, only a strand of hair has 80 microns and a nanofiber is 80,000 times thinner. It is microscopic; you cannot see it with your own eye. A nanofiber is so small that most of the atoms are on the surface. That makes them very active. They have properties you do not find in other systems,” Lozano said.

Lozano said nanofibers are used in ...

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McAllen- Edinburg-Mission, TX Listed in America’s 20 Strongest Cities: 5 Key Factors They Have in Common

September 20, 2010 in Economy, In The Americas

The economic crisis in the US hit most of the country pretty darn hard,.. have you heard? But not all places were hit to the same degree. While most of my home state — Florida — was slammed, some other places did alright.

The Metropolitan Policy Program (MPP) at the Brookings Institution regularly lists the 20 strongest major metro areas – one a quarter. It looks at fundamental economic issues such as economic activity, housing and employment.

Derek Thompson of the Atlantic did  good job recently of picking out some key factors the top 5 cities on the MPP’s most recent list had in common.

Before sharing his thoughts on that, though, here are the 20 strongest metro areas, according to the MPP:

• Albany-Schenectady-Troy, NY
• Augusta-Richmond County, GA-SC
• Austin-Round Rock-San Marcos, TX
• Baton Rouge, LA
• Buffalo-Niagara Falls, NY
• Dallas-Fort Worth-Arlington, TX
• El Paso, TX
• Jackson, MS
• Kansas City, MO-KS
• Little Rock-North Little Rock-Conway, AR
• Madison, WI
• McAllen-Edinburg-Mission, TX
• Oklahoma City, OK
• Omaha-Council Bluffs, NE-IA
• Rochester, NY
• San Antonio-New Braunfels, TX
• Syracuse, NY
• Tulsa, OK
• Virginia Beach-Norfolk-Newport News, VA-NC
• Washington-Arlington-Alexandria, DC-VA-MD-WV

Now, what did Thompson find they have in common? In his own words:

1. Eds and Meds

When the private sector shrinks and the federal government grows, handmaidens of federal spending, like education and health care, stay alive. Many of the cities on this list specialize in health care (McAllen) education (Austin) or both (Albany, Augusta, San Antonio). The eds and meds have outpaced the private sector in growth through the downturn, into the recovery, and they will continue to cast a long shadow over job creation in the next decade. Six of the top eight jobs with the fastest projected growth are in the health care or medical science industries. Three of the top five jobs with the largest projected growth are in health care.

2. Also: Enlisteds

The rock of federal spending has helped military towns stay steady, too. Look at DC, Virginia Beach, San Antonio, and Augusta. Pentagons and forts, galore. Many of the cities on this list have been buoyed by consistent government spending on military bases and tech contracts.

3. Capitals

In the good times, the strongest cities were close to capital that came from rising home prices and exotic financial products. In the iffy times, the strongest cities are close to capitals, to City Halls, the most dependable arteries to government spending. Count the capitals on Brookings list: Albany, Austin, Baton Rouge, Madison, Little Rock, Jackson, and Oklahoma City.

4. Texas (Or at Least Its Time Zone)

As I’ve written, Texas and the Great Plains have run away with the recovery for a few reasons: (1) They avoided the housing bubble; (2) They’re led by local-based businesses like health and insurance that were insulated from the global meltdown; (3) High energy prices both delayed and cushioned the recession; and finally…

5. Cheap labor

Eighteen of Brookings’ 20 “strongest cities” (all except Washington and VA Beach) have average or below average cost-of-living, according to a new Wall Street Journal story. At a time when Washington can’t seem to ...

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Boom in UTPA, STC enrollment continues

September 20, 2010 11:35 PM

Neal Morton

The Monitor

More than 29,000 students enrolled in South Texas College’s fall semester this year, a record high for the institution and a 7 percent gain from last year.

The University of Texas-Pan American also reported a boost in enrollment numbers with nearly 19,000 students flocking to campus this fall. That represents a 2.3 percent increase from 2009’s fall semester.

Rio Grande Valley residents were looking for any chance to increase their employability, STC President Shirley Reed said in a news release.

“We are here to provide opportunities, and it’s more imperative than ever, with the state of the economy, to allow our students every possible venue to learn and earn a college degree,” she said. “No one ever dreamed STC would be at this enrollment level even two years ago.”

Both college campuses have ...

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McAllen hires consultant to lure big fish

September 18, 2010 10:20 PM

Dave Hendricks

The Monitor

McALLEN — City leaders hired a consultant last month to help them attract a top-flight retailer that may occupy the current site of Boeye Reservoir.

While McAllen already boasts numerous big-box stores, the city wants to attract a more select breed for the location near La Plaza Mall and Expressway 83, such as Bass Pro Shops, the big fish Harlingen has been angling to land for years.

The consultant, Retail Attractions of Owasso, Okla., inked the roughly $116,000 contract Aug. 31, according to a copy of the agreement. McAllen will also cover approved travel expenses and pay the company a bonus for each retailer that opens a McAllen location.

While the city already has an economic development corporation and a chamber of commerce working to improve the local economy, it needs someone focused on finding top-flight retailers, Mayor Richard Cortez said.

“Instead of waiting, we wanted to be proactive in contacting those we felt would complement our retail industry here,” Cortez said.

The Boeye Reservoir property, near La Plaza Mall and Expressway 83, might be attractive to a Cabela’s, Costco or Nordstrom, Cortez said. During a speech last month, he also suggested Simon Malls, which owns La Plaza, might be interested in the land.

Sales tax drives city spending, providing the largest share — 41 percent — of McAllen’s general fund. A top-flight retailer would likely attract customers from across the Rio Grande Valley and other businesses, fueling city coffers.

In recent months, the recession and stagnant economy have hurt local tax receipts, leading McAllen to cut its budget 4.3 percent for the upcoming fiscal year, which begins Oct. 1.

But despite the problems, McAllen has fared better than many Texas cities, thanks to spending by Mexican shoppers and steady local growth.

As the national economy improves, McAllen will ...

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Open House Alert: Cimarron Country Club

Open House

Cimarron Country Club

118 Rio Grande Mission, TX

Sunday, September 19 

2:00-7:00 PM