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.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.
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.