Bucking the trend

Certainly one of the oddities of the over 70 statistics we provide in The Senior Care Acquisition Report was the relationship between the seniors housing (independent living, assisted living and memory care) cap rate and the 10-year treasury rate. One would expect that in a strong economy, the seniors housing cap rate would fall, while the 10-year treasury rate would rise, making the spread between the two smaller, and vice versa for a weak economy. However, as the seniors housing market has improved and cap rates have accordingly dropped from 7.7% in 2014 to 7.6% in 2015, the average 10-year treasury rate fell 40 basis points to 2.1%. The spread between the two rates thus increased from 520 basis points in 2014 to 550 basis points in 2015. At the peak of the last bull market, we saw spreads of 410 basis points (in 2006) and as low as 370 basis points (in 2006), but so far in this current market, the closest we have come to that was a 520-basis point spread in 2014. However, with capital costs as low as they still are, cap rates are not expected to change much in 2016.