Senior Market

Senior Market

COMMERCIAL REAL ESTATE by Dave Szymanski | Tampa Bay Editor

Allen McMurtry sells senior housing developments across the country and says demographic changes favor this industry.

In 1984, Allen McMurtry was a land broker in the Tampa Bay area, selling commercial real estate. A Tampa native who went to Jefferson High School, he was putting together a significant deal: a senior housing development in Largo, near the Belleview Biltmore Hotel.

Concerns about traffic, ambulance noise and other issues killed the project, which needed a rezoning. But out of it came a revelation: The U.S. population was aging. And selling senior housing developments, which were just beginning to blossom, made sense.

So that's what McMurtry did. Today, amid dozens of office and industrial brokers, he is a niche specialist in developments for seniors as director of the health care services group at CLW Real Estate Services in Tampa.

He admits he struggled his first two years. But now, looking back after doing this for more than 20 years, he's one of the most successful people in his industry.

"This first started happening in the middle 1980s," McMurtry, 49, says. "The graying of America. I like knowing one thing well, than a little about a lot. I wanted to know what it was like to be a big fish in a smaller pond."

Senior housing can range from apartment communities, to assisted living facilities to skilled nursing facilities.

There are 67 people at CLW, but only three in health care. The main reasons for their success? McMurtry says there are four: They do what they say. They have an attention to detail. They manage expectations. And they have a client-service philosophy.

Some numbers

McMurtry's average deal size since 2005 has been $37.2 million. He has concluded transactions in 24 states from Washington to New York.

Among his largest transactions was a three-property portfolio sale in New York ($160.8 million).

This deal resulted in the highest price per unit paid to date in the Senior Housing industry at $405,038 per unit.

Another big deal was a portfolio sale of eight-properties (Arizona, Colorado, Nevada, Kansas, Minnesota, Texas and Georgia) for $138 million. It took more than three and half months to close the deal. The cap rate was 6.2%.

The health care group is currently under agreement on two properties in Alabama and Georgia (for $84.8 million) scheduled to close in the next 30 days. It is also marketing four properties in Florida, Alabama, Georgia and Texas with a combined value of about $50 million.

"The team we have put together is a very big factor in our success and is a big change from the days when I was a solo broker," McMurtry says.

Broker Megan Fetter has been with McMurtry almost nine years. Broker Dave Kliewer, who the company hired out of college, has been with CLW for more than seven years. Kliewer is a financial analyst, responsible for the underwriting and preparation of the company's offering documents.

Diversifying industry

Many senior housing owners are institutional investors. They have a fixed timeline to hold an asset. So they are motivated to sell.

Some of the major trends in the industry, McMurty says:

The slowdown in housing has affected certain segments of the senior housing market, but not all of it.

Residents make their decisions on senior housing, assisted-living facilities and nursing homes based on needs as well as lifestyles. And the industry is diverse. There's a big difference between skilled nursing homes and senior housing.

"This first started happening in the middle 1980s," McMurtry says. "The graying of America. I like knowing one thing well, than a little about a lot. I wanted to know what it was like to be a big fish in a smaller pond."

As Americans live longer and healthier, the senior housing industry is changing to meet their needs. People who lived in a nursing home 10 years ago, now may like a more independent life in an assisted-living facility.

"One of the biggest changes in the industry, is that it's become an accepted institution asset class," he says. "We are where apartments were 20 years ago. It's a much more legitimized asset class. That's a big factor with growth and changes in the industry."

The senior housing industry's operators and developers are more professional and have grown from the pioneer companies.

In 1997, 13 of those companies went public. Development expanded. "Things were crazy then," McMurtry says.

Then came the tough years from the late 1980s to the early 1990s. The Resolution Trust Corp. was active. Banks were in trouble. From 1997 to 1998 it was a huge sellers market.

"Developments were trading on projected earnings," McMurtry says. "It was frenzied."

By 1999, after most of the senior housing companies were building 30 to 35 communities a year, some markets, such as Atlanta and Charlotte, became flooded. Public companies missed earnings projections.

From 2000 to 2004, owners were selling properties. That picked up momentum all the way into 2007.

"I bet we did, of our 20-year volume, more than half of it in the last three or four years," McMurty says.

Looking ahead

There are developers looking to build new senior housing developments in Hillsborough and Pinellas counties and they may likely break ground in the next year, but it will be three to four years before the industry regains is full healthiness, McMurtry says.

"I'm a big believer in real estate cycles," he says. "If we peaked in '98, we picked up in 2004. If I'm advising sellers, with interest rates, there's still strong buyer demand, if net operating income is staying the same."

The new senior housing being built is larger high-rises in urban areas and three- to four-building developments in suburban areas.

Social Security is edging closer to a showdown as the number of retired grow and the number of wage earners, as a percentage, decline in America. Baby Boomers have about 70% of the net worth in America. That should mean more demand for senior housing, he says.

In 2030, one of five Americans will be 65 or older.

"That's why you see some politics in the reform movement for social security," McMurtry says. "We can't go on like the way it is."

The nursing home industry has suffered from many challenges, including lawsuits, bankruptcy court filings and insurance problems. But those are subsiding, McMurtry says.

"There's really not any big issues facing the industry now," he says. "The labor pool is more available. The unions are looking at this industry."

McMurtry returns to demographics. There is an increasing number of people aging, looking to leave their homes, which no longer have children, and move into senior communities, which are closer to health care facilities, or have some health care services in them.

Even though people are taking care of themselves, they still need health care services and don't want to be a burden on their children to care for them. In some cases, senior housing is their ticket to an independent lifestyle.

"All of the fundamentals in the industry are pretty strong," McMurtry says.

REVIEW SUMMARY

Company: CLW Real Estate Services

Industry: Commercial real estate

Key: Focus on the senior health care sector of commercial real estate.