Colony Capital Is Kicking Grubb & Ellis' Tires
Santa Monica-based private equity firm Colony Capital provided Grubb & Ellis an $18 million bridge loan, and received an exclusive sixty-day negotiating and evaluation period to determine whether it will make a larger "strategic investment" in Grubb.  If Colony makes a larger investment, Grubb then has twenty-five days to shop the deal around to try and get a better deal.

Here are two articles regarding the Colony loan, one from GlobeSt and the second from the Orange County Register's real estate blog.  Colony has been involved in multiple transactions over the past several years.  From the GlobeSt article:

The financing deal with Grubb & Ellis is the latest in a series of investments for Colony Capital, which has been involved in some of the largest FDIC deals to date and has been active on a number of other fronts. In 2009, for example, Colony launched a publicly traded REIT, Colony Financial, that focuses primarily on acquiring, originating and managing performing, sub-performing and non-performing commercial mortgage loans.

More recently, Colony led a consortium of investors in acquiring two FDIC loan portfolios with an unpaid balance of $817 million that include 1,505 residential and commercial acquisition, development and construction loans. In Los Angeles recently, funds managed by Colony Capital and R.W. Selby & Co. acquired a portfolio of seven student housing properties adjacent to the University of Southern California comprising 223 units and 836 beds from Westar Associates for $98 million.

In early 2010, investment vehicles managed by Colony paid $90.5 million for a 40% interest in an LLC created by the FDIC to hold assets of 22 failed-bank receiverships and became the managing equity owner of the LLC. Colony was one of 21 bidders who vied for the 40% ownership interest in the LLC, which owned a portfolio of approximately 1,200 distressed commercial real estate loans with an unpaid principal balance of $1.02 billion, of which 70% were delinquent.

Grubb did not waste much time finding a potential suitor, announcing only last week that it had hired an advisor.

Worth Reading... Closely
Healthcare Trust of America filed an 8-K today.  Here is the text of the entire filing:

On March 24, 2011, the board of directors of Healthcare Trust of America, Inc. ("HTA") authorized distributions for the month of April 2011. These distributions will be calculated based on stockholders of record each day during such month at a rate of $0.00198630 per share per day and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.25% annualized rate based on a share price of $10.00. These distributions will be paid in May 2011 in cash or reinvested in stock for those participating in HTA’s distribution reinvestment plan.

The amount of distributions HTA pays to its stockholders is determined by HTA’s board of directors, at its discretion, and is dependent on a number of factors, including funds available for the payment of distributions, HTA’s financial condition, capital expenditure requirements and annual distribution requirements needed to maintain HTA’s status as a REIT under the Internal Revenue Code, as well as any liquidity alternative HTA may pursue in the future. HTA’s board of directors may reduce its distribution rate and HTA cannot guarantee the amount of distributions paid in the future, if any.

Is it me, or is that second paragraph telling us something?

Disclosure v. Non-Disclosure
In my last post I discussed Healthcare Trust of America's failure to disclose restrictive covenants in an 8-K filing announcing a new line of credit.   As a comparison, I direct you to Wells Real Estate Investment Trust II, which recently announced a short-term bridge credit facility in an 8-K filing.  Like the HTA line of credit, the Wells REIT II credit facility has restrictive covenants regarding paying more in distributions than generated in Funds from Operations (FFO).  The restrictions are clearly disclosed in Wells REIT II's 8-K, and here is the language:

The JPMorgan Chase Bridge Facility agreement also stipulates that the Registrant's net distributions, which equal total dividends and other distributions less the amount reinvested through the Registrant's dividend reinvestment plan, may not exceed the greater of (i) 90% of the Registrant's Funds from Operations through the date of payment or 100% of the Registrant's Funds from Operations for the two most recently completed fiscal quarters; or (ii) the minimum amount required in order for the Registrant to maintain its status as a REIT. Funds from Operations, as defined by the agreement, means net income (loss), minus (or plus) gains (or losses) from debt restructuring, mark-to-market adjustments on interest rate swaps, and sales of property during such period, plus depreciation on real estate assets and amortization (other than amortization of deferred financing costs) for such period, all after adjustments for unconsolidated partnerships and joint ventures. With limited exceptions, the Registrant may not make net distributions if a default or an event of default has occurred and is continuing or would result from the payment of net distributions.

The covenants like those in the Wells REIT II and HTA credit agreements are not uncommon.  My point is not the restrictions, it is that HTA should have disclosed the restrictions in its 8-K.

HTA's 10-K
Healthcare Trust of America filed its 10-K annual report sometime on Friday.  It is nearly 200 pages long, and there is a substantial amount of data to read and analyze.  I recommend reading it carefully if you have an interest in the REIT.  It is going to take me several days to get through it and write coherent posts on the items I feel are important.   I could not get past the section in the 10-K that discussed the credit agreement (Note 9 of the 10-K, starting on page 138) HTA entered into in November 2010 with JP Morgan and other banks.  This section appears very important to me, especially as it pertains to HTA's ability to maintain its current distribution rate.

Before you read the 10-K, I recommend you read the 8-K HTA filed on November 23, 2010.   This 8-K announced a $275 million line of credit with JP Morgan and others, and talks about basic terms of the line such as term, interest rate calculations and fees. The 8-K did not disclose the credit line's restrictive covenants, which include the language below: 

Pursuant to the credit agreement, beginning with the quarter ending September 30, 2011, our operating partnership may not make distribution payments to us in excess of the greater of: (i) 100% of its normalized adjusted FFO (as defined in the credit agreement) for the period of four quarters ending September 30, 2011 and December 31, 2011, (ii) 95% of normalized adjusted FFO for the period of four quarters ending March 31, 2012 and (iii) 90% of normalized adjusted FFO for the period of four quarters ending June 30, 2012 and thereafter.

This language was in the credit line agreement that was an exhibit to the 8-K, so I guess the restriction was technically disclosed.  The way I read the credit agreement, the restrictive covenants are effective on HTA whether or not the credit line is drawn.  At year-end the credit line had $7 million outstanding and in a subsequent event (after December 31), HTA repaid the $7 million.

As stated in the 10-K, in 2010 HTA generated $69.4 million in FFO and paid out $116.8 in distributions, or stated another way, distributions were 168% of FFO.  This is well above the 100% covenant listed above.  In 2010's fourth quarter, HTA generated $13.5 million of FFO and paid $33.3 million in distributions, or 246% of FFO.  HTA, as disclosed in the 10-K, has maintained its current distribution rate of 7.25% through April.  My understanding of the dividend covenant above, leads me to believe that at some point before the end of September 2011, HTA is going to have to cut its distribution so that for the four quarters ending September 30, 2011, the combined distributions will not have exceed 100% of FFO.  The only way to avoid a distribution cut is for HTA's FFO to substantially to exceed its current distribution rate for the next two quarters, or if the credit line is canceled.

This restriction on distributions should have been disclosed to investors and broker / dealers in the November 23, 2010 8-K, rather than been buried in the actual credit agreement.  HTA's shareholders are mostly small investors looking for income, not institutions with staff and attorneys to review each document. 

There are other issues in the 10-K that I will address, including the possible elimination of the share repurchase plan, which was sharply restricted last fall, compensation to HTA's executives and directors, including discuss of HTA's CEO Scott Peters taking partial stock awards in cash, rather than shares, at $10 per share (while limiting investor share redemptions), along with presenting financial data.  If you see any gems in the document, post them in the comment section.

Washington DC Stays Strong
Tishman Speyer Properties is buying a suburban Washington DC office building for approximately $500 a square foot, one of the highest prices ever paid for a suburban Washington DC property.  The seller was Beacon Properties, which just sold a downtown Washington DC property to Wells Real Estate Investment Trust II.  I could not find any cap rate disclosure on the Tishman Speyer transaction.  The acquisition helps confirm that the Washington DC commercial real estate market is one of the strongest in the country.

Cole Bets On Phoenix
Cole Properties made news last year when it paid $310 million for a Seattle-area property subject to long-term lease to Microsoft.  I was told today to expect another large Cole acquisition that was big enough for inclusion in tomorrow's Wall Street Journal.   I am guessing Cole's $170 million sale-leaseback of for-profit college Apollo Group's headquarters in Phoenix is the news.  Here is an excerpt from a Wall Street Journal / Dow Jones article:

According to a securities filing, Apollo agreed to sell its headquarters to a unit of Cole Real Estate Investments, a non-traded real estate investment trust based in Phoenix. Apollo then will lease the properties back at an annual rental rate of $12 million, with 2% increases each subsequent year. Apollo expects $28 million in gains on the sale, to be realized throughout the life of the lease. The lease, with an initial term of 20 years, has four five-year renewal options. 

The cap rate is 7% based on the $170 million price tag and $12 million of rent, assuming the lease is triple net.  The acquisition of the 600,000 square foot complex is Cole's largest property in Phoenix.

The article states that Cole plans to make $3 billion worth of acquisition in 2011, up $500 from 2010.

More Grubb & Ellis
Here is a more comprehensive CoStar article on Grubb & Ellis and how its decision to "explore strategic alternatives" is part of bigger changes in the commercial brokerage industry.  The article does not present any new information on Grubb & Ellis, restating the story from the articles I linked to yesterday.  It does put Grubb's decision into context:

"The Grubb & Ellis announcement is part of a natural evolution in the industry where firms in the middle market with revenues between $100 million and $1 billion will really have to either get much, much bigger, or much smaller," said Dylan Taylor, chief executive officer in the U.S. for Colliers International. "Mid-market firms are strategically challenged. They may not be big enough to be multi-billion-dollar global players that can afford to invest in recruitment of talent and technology."

The article goes on to discuss recent commercial brokerage transactions.  This statement on the global push of commercial real estate stuck out to me:

Some of the expanding firms may be international firms looking to enter or grow their presence in the U.S. For example, London-based Savills recently announced it was reviving its U.S. expansion, opening two new offices and forming an international investment group. In February, CBRE agreed to acquire ING Real Estate Investment Management, a unit of Holland-based ING Group NV.

Any article on Grubb & Ellis always mentions the portfolio of tenant in common transactions and the CoStar article does not disappoint:

Although the company has a wide U.S. footprint for delivering transaction and management services, one of the challenges facing Grubb & Ellis is that it also has a large portfolio of troubled tenant-in-common (TIC) assets acquired when Grubb joined with NNN Realty Advisors Inc. in 2007 near the peak of the real estate boom. The company has faced complicated integration issues during the downturn, including management of the NNN Realty legacy assets.

In February, Grubb launched Daymark Realty Advisors Inc. as a wholly owned and separately managed company to manage those assets. Daymark becomes the fourth Grubb & Ellis reporting segment in addition to its transaction, management and investment management businesses. It also becomes one of the nation's largest asset management companies, overseeing a nationwide portfolio of about 33 million square feet, including more than 8,700 multifamily units.

The TIC assets, which ironically gave NNN Realty Advisors the scale to acquire Grubb & Ellis, are now viewed as an albatross to Grubb & Ellis, which I think is a short-sighted view.   But my opinion on the old TIC assets is a topic for a future post.

Grubb & Ellis Exploring "Strategic Alternatives"
Here is an article from GlobeSt.com discussing Grubb & Ellis' (GBE) decision to explore strategic alternatives, including a sale or merger.  The article is mostly an excerpt from a Grubb & Ellis press release.  Grubb & Ellis, in addition to its commercial brokerage business, sponsors the Grubb & Ellis Healthcare REIT II, a non-traded REIT.

Update:  Here is a better article on Grubb from The Orange County Register's real estate blog.

Why The Deficit Will Never Go Away
Politics.  Politicians of both parties need to repay the special interests that helped elect them, and the special interests don't like losing their government perks paid for by taxpayers.  Here is an example from Econobrowser on the House's refusal to tackle $15 billion in annual farm subsidies, which sums up the dilemma when deficit cutting rhetoric meets political reality:

But the Agriculture Committee is dominated by members of Congress from farm states; Chairman Frank Lucas, R-Okla., has reported $445,714 in political contributions from the agricultural industry during the course of his career, and ranking Democrat Collin Peterson of Minnesota reports $809,097 in career donations.

MFFO - It's Not You, It's Me
Modified Funds From Operations (MFFO) is a performance metric used to measure a real estate investment trust's financial health.  I do not like the metric and discount it when looking at a REIT's financial performance.  To me, MFFO adds back too many one-time items to make it useful for analyzing the long-term financial status of a REIT.  Non-traded REIT sponsors like to use MFFO when discussing a REIT's ability to cover its distribution because MFFO is going to be a higher number than operating cash flow or Fund From Operations, making the REIT's performance appear better.  When analyzing a REIT's ability to fund its distribution from cash flow I prefer the old fashioned method of comparing actual operating cash flow and Funds From Operations to a REIT's distributions, because I believe MFFO may inflate a REIT's coverage ratio. 

Funds from Operations (FFO) takes a REIT's net operating income and adds back non-cash accounting entries like depreciation.  It also includes an adjustment for property sales.  This leaves you with a pretty good estimation of a REIT's cash available for distribution.  Modified Funds From Operations takes FFO and then adds or subtracts other one time items, in particular acquisition expenses.  A REIT in its capital raising stage will have significant acquisition expense additions, skewing MFFO upward.  Neither FFO or MFFO are GAAP (Generally Accepted Accounting Principals) figures, only operating cash flow is a GAAP figure.  Because MFFO is a non-GAAP calculation, I always check the footnotes to see what items were added back to MFFO.

If a REIT purchases a significant number of properites late in the year the MFFO to actual cash will be even greater, as all acquisition expenses are added to MFFO while actual cash received is small.  Here is a simple example of a property acquired for $50 million.  I assumed the acquisition expenses are 3.50%, and a cap rate of 7%, which all goes to cash flow.  If the purchase closed on December 1, here is what the flow of funds would be:

Purchase Price	$50,000,000
Acq Cost %	3.50%
Acq Cost	$1,750,000
Addition to MFFO	$1,750,000
Cap Rate	7%
Annualized NOI	$3,500,000
One Month NOI	$291,667
Actual Cash	$291,667

The REIT would receive $291,667 in cash from the property, but would be able to add an additional $1,750,000 to its MFFO.  Even though the MFFO looks great, only the $291,667 is available for distribution.  Bear this in mind as non-traded REITs release their 2010 results in the coming weeks and tout their levels of MFFO. 

If you must look at MFFO, beware of the above and look for an improving trend, i.e. more MFFO covered by actual cash over multiple periods.  The disparity between operating cash flow, FFO and MFFO should narrow over time.  Wide differences in an established REITs operating cash flow, FFO and MFFO, when compared to the REIT's distribution, may signify that the current distribution is not sustainable.  For REITs early in their life cycle the divergence is going to be large but watching the trend is vital.  Chronic overpayment of distributions, while good for marketing, is bad and untenable long-term.  A trend where FFO and operating cash are getting closer to MFFO is positive. 

I have looked at enough financial statements over the years to know that it is not a good sign when distributions exceed operating cash flow for extended periods.  Many people in the broker / dealer and real estate industries have worked hard to make MFFO a more consistent and relevant figure, and I applaud them.  But for me, I will stick to my old fashioned method of comparing operating cash flow and FFO to distributions, it has rarely steered me wrong.

Healthcare Trust of America's $80 Million Non-Internalization Fee
Healthcare Trust of America (HTA) closed its offering period on February 28, 2011.  A mere two days after the offering period closed, on March 2, 2011, HTA filed an 8-K that announced major changes to its original 2006 Incentive Plan for executives and directors.  HTA's board increased by five times the number of shares that can be granted to executives and board members from 2,000,000 shares to 10,000,000 shares.  At $10 per share the increase is worth $80,000,000.  The 8-K states:

The plan is designed to provide maximum flexibility to our Board and Compensation Committee in designing individual awards. 

Cha-Ching!  I take this as HTA's board's intention to pay themselves and HTA's executives as much as possible.  It looks to me like any stock awards under the plan have favorable vesting for HTA's board members and executives, as detailed in the 8-K filing:

Unless otherwise provided in an award certificate or any special plan document governing an award, upon the occurrence of a change in control of the company (as defined in the Amended and Restated 2006 Plan) in which awards are not assumed by the surviving entity or otherwise equitably converted or substituted in connection with the change in control in a manner approved by the Compensation Committee or our Board: (i) all outstanding options and stock appreciation rights will become fully vested and exercisable; (ii) all time-based vesting restrictions on outstanding awards will lapse as of the date of termination; and (iii) the payout level under outstanding performance-based awards will be determined and deemed to have been earned as of the effective date of the change in control based upon an assumed achievement of all relevant performance goals at the "target" level, and the awards will payout on a pro rata basis, based on the time within the performance period that has elapsed prior to the change in control. With respect to awards assumed by the surviving entity or otherwise equitably converted or substituted in connection with a change in control, if within one year after the effective date of the change in control, a participant’s employment is terminated without cause or the participant resigns for good reason (as such terms are defined in the Amended and Restated 2006 Plan), then: (i) all of that participant’s outstanding options and stock appreciation rights will become fully vested and exercisable; (ii) all time-based vesting restrictions on that participant’s outstanding awards will lapse as of the date of termination; and (iii) the payout level under all of that participant’s performance-based awards that were outstanding immediately prior to effective time of the change in control will be determined and deemed to have been earned as of the date of termination based upon an assumed achievement of all relevant performance goals at the "target" level, and the awards will payout on a pro rata basis, based on the time within the performance period that has elapsed prior to the date of termination.

HTA's board has not yet awarded the $80 million in new stock, it has just increased the amount of stock it can award.  In reading the above legalese, HTA's board has seen all the recent health care mergers and has positioned the board and executives for a big payday in the event of an HTA merger or acquisition.

The HTA message board at ReitWrecks has a serious take-down of the increase in shares available under the Incentive Plan.  I agree with ReitWrecks that the large increase of stock in the Incentive Plan is HTA's attempt to pay itself the internalization fee it waived in 2009 when it became self managed.  Here is what HTA said one year ago in its 2009 annual report stressing the benefits to investors of its plan to become self-managed:

No Internalization Fees.  Unlike many other non-listed REITs that internalize or pay to acquire various management functions and personnel, such as advisory and asset management functions, from their sponsor or advisor prior to listing on a national securities exchange for substantial fees, we will not be required to pay such fees under self-management.  We believe that by not paying such fees, as well as by operating more cost-effectively under self-management, we will save a substantial amount of money for the benefit of our stockholders.  To the extent that our management and board of directors determine that utilizing third party service providers for certain services is more cost effective that performing such services internally, we will pay for these services based on negotiated terms and conditions consistent with the current marketplace for such services on an as-needed basis.

I guess it seemed like a good (marketing) idea at the time to forego the internalization fees.  HTA's executives seem to have figured a way to recoup the big internalization payday that was waived less than two years ago.  HTA's board conveniently waited until after it finished its capital raising period to disclose the changed Incentive Plan.  An internalization would have required a shareholder approval, and however distasteful the internalization price tag, at least it would have been put to a shareholder vote.  This new, potential $80 million change to the Incentive Plan was not put to an investor vote.  HTA's board unilaterally made the decision to boost the Incentive Plan.  Investors had no say in this enormous potential payday to management.  HTA's ploy is a sucker punch to investors and the broker / dealers that sold HTA.

The 8-K ends ominously for investors:

Based on their ongoing review of our current compensation structure, our Compensation Committee and Board of Directors are actively involved in the process of assessing various changes to our compensation programs, which include without limitation, the review of key employment agreements and the discussion and negotiation of changes to such agreements. It is anticipated that changes to our compensation programs will be implemented in the future, consistent with, among other things (1) our current strategic initiatives and achievements and (2) the actual level of employee performance successfully undertaken to date and the expected level of performance in the future in order to achieve these initiatives.

HTA's board is giving notice that it's set to bestow on HTA's management another big payday - including salary boosts, bonuses and stock awards under the Incentive Plan - just like it did last year.  I noted the egregious increase in HTA management pay here.  Sucker punch number two should be announced in HTA's 10-K, which should be released within the next two weeks.

HTA is owned by the shareholders, not HTA executives or the board.  If HTA has any independent board members they need to earn their outsized pay and look after investors' interests.  Broker / dealers, HTA is mocking you, and you should not stand for it.

Allaying Municipal Bond Fears
Here is an informative post on a Roubini bond research report.  It's a good read and discusses the historical perspective of muni bond defaults and presents the legalities that states face if they try to re-work bonds.

Update:  Roger Lowenstein has an article on municipal problems.  I don't feel as good now.  But this point early in the article makes Meridith Whitney's dire default scenairo seem overstated:

These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.

A Whole Fracking Series
I referenced a New York Times article earlier in the week on natural gas drilling and the process of hydrofracking and its environmental impact.  The article is one in a series of three on the issue.  Here is a link to the entire series.

What?
This Bloomberg headline is as strange as it is incomprehensible:

Marijuana-Like High Helps Ex-Trashman's Syn Battle Solid Sex

Why Senior Housing
Wednesday's Wall Street Journal article on senior housing was complex.  It was one of those articles that you read quickly, realizing that a second or third more comprehensive reading is required, and one that I usually don't go back to re-read despite my best intentions.  Here is a CoStar article that says many of the same points, but is easier to understand.  The key driver is a 2008 REIT tax law change that allows health care REITs to by senior housing operating companies and not lose their REIT tax status.  Senior housing is as much a business as it is real estate so REITs' ability to buy operating entities is a significant change.  Here are two key paragraphs that summarize my thoughts from earlier in the week and the tax changes:

Senior care facilities suffered more pain than other health-care properties during the recession as older Americans postponed decisions to move into retirement housing. The sector also endured uncertainty in 2008 and 2009 over the future of government health care legislation and reduced Medicare and Medicaid reimbursements. As baby boomers begin to enter retirement and the population of 85+ -year-old Americans grows, cash-flush real estate investment trusts have scrambled to acquire a diminishing supply of available seniors housing, assisted-living and post-acute facilities.

These factors, combined with a change in REIT tax law that allows health care REITs to own third-party operators to manage and collect income from their facilities similar to hotels, have helped fuel a number of large transactions in recent months, including the two huge deals announced on Monday. As CoStar Group reported last week, . industry executives predict more mergers and acquisitions between both public and private companies.

The senior housing decision is an economic decision.  Growth in senior housing demand is a positive sign for the economy, and it will have more impact than the repositioning due to tax law changes.

The Apartment Disconnect
The Wall Street Journal's Development's blog notes the same problem with apartments that I've noticed.  Defaults keep rising on apartment CMBS debt, but apartments still command price premiums due to their perceived safety.  Apartments have the highest CMBS default, at 16.6%, topping even lodging's 14.6%, and the apartment default rate is much higher than the CMBS default rate of 9.4%.  I have seen plenty of large apartment investment funds over the past several years that have ranged from bad to scary.  I have seen two interesting private placement deals that are buying below the radar (i.e. small) multifamily deals.

Wells REIT II - Channeling Joe Biden
To paraphrase the vice president, it's a big freaking deal. Wells REIT II made two filings today, one not unexpected and another that just jumped off the page.  Wells REIT II announced that it was cutting its dividend from 6% to 5%.  The REIT had been telegraphing this for sometime, disclosing in at least its last two 10-Qs that its distribution was not fully covered by operational cash flow and the board was monitoring whether the REIT could maintain the dividend.  Wells REIT II follows the trend of non-traded REITs - Hines REIT, Inland American to name two - that dropped distributions after closing their offering period.  While the drop in distribution is unfortunate, it was not unexpected, and appears prudent. 

Wells REIT II also announced a huge acquisition.  The REIT is paying $615 million for Market Square, a 679,710 square foot, Class A office complex in Washington DC.  This equates to $905 per square foot.  This monster transaction should represent at least 10% of Wells REIT II's portfolio.  I am not sure whether it's comparable, but another downtown DC office property recently sold for $596 per square foot.  If the sale is comparable, REIT II did not get the property on the cheap.  Wells REIT II's purchase of Market Square is not going to tamper the opinion that Washington DC is the hottest commercial real estate market in the country.  It was a big freaking deal.

My Two Cents on Two Health Care Mergers
I noted two health care mergers yesterday.  It appears that both deals were driven by senior housing, which includes skilled nursing facilities.  There are a couple of forces behind the focus on these types of health care properites.  Many senior housing and skilled nursing facilities qualify for government agency debt, which means the leverage can be higher (70% to 80% debt) and the interest rate lower than traditional financing.  Medical office buildings do not qualify for the agency debt and have debt options that require more equity, leaving leverage ratios typically between 45% to 55%.  It appears that health care companies are giving premiums to property types that can utilize attractive financing.

The focus on senior housing is also a bullish sign for the economy.  Much of senior housing is elective.   When seniors and families decide it's better for an elder person to live in an assisted living facility, compared to moving in with families or staying alone, it's an expensive decision and long-term financial commitment.  (Obviously, skilled nursing and memory care facilities are less optional.) Financing aside, the demand by buyers of senior housing tells me these buyers believe that demand for senior housing will increase.