For the first time since the Great Recession, average seniors housing cap rates increased year-over-year from 7.6% in 2015 to 8.2% in 2016. While that only approaches the high of the previous bull market (8.3% in 2007) it is a sharp break from this current bull market. But if there are a number of other signs that the market is still strong in 2016, why did average cap rates go up 60 basis points? First, as unprecedented high prices forced a number of buyers out of the market for high-quality “A” properties, investors pounced on more value-add opportunities to get their returns. Those riskier deals obviously featured higher cap rates.
Second, the cost of borrowing went up in 2016, triggered by the 25-basis point raise of the federal funds rate in December 2015. While by many accounts we are still in a bull market, buyers are showing increased caution. This is especially true on the assisted living side of the market, which saw an 80 basis point increase year-over-year, compared with just a 20 basis point increase for independent living.
Those details (and much more) are available in the 2017 Senior Care Acquisition Report, which will be published next month.
