Adding Value With Memory Care

Over the last two cycles, an interesting trend has occurred in the valuations of assisted living versus assisted living with a memory care component. At the beginning of bull markets, traditional, standalone assisted living communities typically are priced higher than communities with memory care. Then as the bull market strengthens or peaks, the reverse is true, and assisted living/memory care (AL/MC) communities overtake traditional assisted living. This was never more true than in 2016, the sixth year of this bull market. Communities with a memory care component sold on average for $225,400 per unit, according to the 22^nd Edition of The Senior Care Acquisition Report, while AL-only properties were valued at $136,600 per unit. That $88,800 per unit difference easily beat out 2015 ($62,800 per unit), 2014 ($76,600 per unit) and 2013 ($23,100 per unit). While the bull market appeared to be softening in 2015, it charged back in 2016, at least according to this metric. Buyers will pay up for memory care, as those communities tend to fill up faster and stay occupied. Census averaged 300 basis points higher for those communities with memory care (88% versus 85%). Also, most of the newer, high-quality properties being built have a memory care component and typically come with a steeper price tag. In fact, the average age for AL/MC was about 16 years, compared with 20 years for traditional AL. But will overdevelopment bring this bull market to a close?