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Senior Living M&A Steady in 2024 as Interest Rates Present Challenges

Despite issues with lending and questions about interest rates, 2024 is shaping up to be a relatively steady year for new senior living transactions.  

Multiple brokers have reported an increasing amount of transaction volume so far in 2024, in line with expectations that the frozen landscape for senior living mergers and acquisitions would thaw in 2024.

The senior housing and care industry is currently on track to execute on a record number of transactions this year, with more than 250 such deals tracked so far in 2024, according to financial news publication Irving Levin. Many of those deals are smaller in nature.

Senior Living Investment Brokerage (SLIB) has also been seeing an increase in the number of transactions in 2024. SLIB Managing Director Ryan Saul noted that 2024 is looking to be a record-breaking year for the firm, with 85 anticipated closes before the end of the year compared to the 72 it did in 2023. The company’s previous record for the number of transactions in a year was 82.

But Saul said there is still a barrier to new deals in the form of stubborn interest rates.

“That’s going to be the catalyst to really see the surge in transaction volume,” he said

Marked transaction improvement

Overall, brokers are seeing an active year for new senior living M&A, and 2024 is unfolding about as they had expected.

Jay Wagner, senior managing director of the senior housing group for JLL, said the year is progressing more or less as his team anticipated it would, albeit without interest rate cuts from the Fed.

“We were expecting the slow burn … that would get bigger and bigger,” Wagner said. “That’s what we’re seeing. Overall transaction volumes are up from where they were a year ago … there has been a good amount of volume.”

According to Wagner, JLL is “extraordinarily busy” right now with deals, and is poised to close on a “significantly greater volume” than the $1.2 billion it saw in sales last year.

Overall volume is anticipated to increase in the latter half of the year as well, and bigger deals are anticipated to close, Wagner said. But interest rates are still a big question mark, especially as the Fed has signaled it doesn’t plan to move quickly on rate hikes given the current state of the U.S. economy.

Still, the lack of interest rates dropping, there are a few major factors that have been playing into the increased momentum for deals and transactions this year. Part of that tailwind is the fact that the industry’s existing strongest performing assets are being sold, according to Aron Will, vice chairman of capital markets at CBRE.

“Some of those larger deals that are in the market now are very high quality and stabilized,” Will said. “That’s a new kind of product that is being exposed to the market today.”

Some of the M&A taking place isn’t caused due to financial distress, but more by funds reaching the ends of their lives, along with funds that have been raised capital and have to deploy it, according to Zach Bowyer, executive managing director for Cushman and Wakefield.

“They’ve been holding on and looking for certainty in the market,” Bowyer said. “On the buy side, everyone’s trying to get more confidence in where pricing is and where the market is going. Now, you’re seeing a little bit more of that come together … some of them are willing to exit and you’ve got the capital out there that needs to be deployed.”

The lending environment has become a bit more flexible, as well, with Saul saying that rates are no longer expected to continue to rise, allowing lenders and buyers to have more visibility on pricing and move forward. There is still hope that interest rates will be cut in either the fourth quarter of 2024 or early 2025, allowing for an even greater jumpstart of transactions to move, he said.

There is also more availability of debt funds in the market compared to 2023, Will said, and the banking market is “slightly better as a whole.”

Another thing to note, Saul said, is the amount of bad distressed loans being sold off.

“Once you’ve cleaned up your balance sheet in your portfolio with distressed loans, you can start to look at placing other loans,” he said.

‘Volume is going to continue to increase’

While there has been a largely notable uptick in the number of deals being made, there is a question on the overall volume of those deals. Recently, the Polsinelli-TrBK Distress Indices Report noted distress in the healthcare sector is reaching an all time high, and because of that distress, some of the deals being made have lower dollar volumes.

“We talked to funds that are almost fully focused on buying those properties where there’s distress in the capital stack and they’re able to get at a discount,” Bowyer said. “There’s a lot of opportunistic strategies that impact valuations. But I think as those deals continue to pick up momentum, we’ll at least see more volume start to take place.”

From Wagner’s experience, there has been a pulling back from the smaller deals available in order to wait for a wave of larger deals in order to be better positioned from a human capital standpoint. Because of this, the remainder of the year is looking more optimistic from a volume standpoint.

“I think our volume is going to continue to increase,” he said. “Our broker opinions and values, which are the leading indicator, have not slowed down in any way. We continue to churn them out.”

The main factor that could impact a potential wave of transactions is potential pricing shifts from the treasury.

Looking ahead, there continues to be a sense of optimism in transactions, both in terms of volume and the number of deals being made, with a high likelihood of the outlook only improving if the Fed cuts rates. However, for the time being there are still challenges caused by the current capital market that will continue on for the time being.

“I think you could start to see a flurry of deals come out, generally speaking, in real estate when that first rate cut happens for people that are kind of getting off the sidelines and going to sell or try to test the market,” Will said. “I think that otherwise, it’ll be more or less the same until that catalysts, whether it’s an interest rate … or something political or geopolitical that changes the landscape.”

The post Senior Living M&A Steady in 2024 as Interest Rates Present Challenges appeared first on Senior Housing News.

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