One of the most insightful sessions of the 2016 NIC Fall Conference was a discussion on how investors can identify the best, most investable operators.
It’s a key discussion because, as panelist Mercedes Kerr of Welltower Inc. said, choosing an operator is “probably the most important aspect of our underwriting”.
We’d already heard that some institutional investors want operators to own at least a 20 percent stake in the property. The quote, from an SVP at the $130 billion PSP Investments:
As an investor, [Neil] Cunningham at PSP wants the operator to have at least a 20% investment in the property. With a stake in the project, the operator will have a solid knowledge of the market and submarkets, he said.
But what else should factor in? The panelists weighed in:
A key aspect of choosing an operator is evaluating the people who run the property. “The performance of your asset,” said [Kevin] McMeen, [president of Real Estate at MidCap Financial Services, LLC] “can entirely hinge upon that director in your facility.”
He asked the three panelists what they look for when choosing an operator and that operator’s methods for procuring and training staff. “Selecting the operator is, for us, probably the most important aspect of our underwriting, and it has to do with the team that is going to execute,” said Kerr. Yet there is a shortage of good operators, [Lisa] Widmier [executive vice president of National Senior Housing Investment Sales Practice at CBRE] added. “The industry needs to start fostering and encouraging new operating companies and new operators.” Investors have significant assets to invest but lack operator partnerships. She explained that some of her clients decide to start their own operating company.
An aging workforce is also a growing problem. While the industry focuses on the coming Baby Boomers, said Levy, “we forget that the staff is getting older too.” Increasingly, [Noah] Levy [managing director of PGIM Real Estate] said, he visits buildings run by older Millennials who are doing business with adult children who are the same age as their parents, placing residents the same age as their grandparents, and managing staff older than they are. Diversity of the workforce also increasingly plays a part. Work by groups such as NIC to reach out to academia and encourage students to work in seniors housing and care is essential, Levy said.
