When comparing the independent living and assisted living markets, one would expect IL communities to operate at a higher margin than AL, given its lower services and thus, costs. And while that remained true in 2016, independent living and assisted living expense ratios came as close to equal as any time in the past, at 69.5% and 72.5%, respectively, according to the 22nd Edition of The Senior Care Acquisition Report. Only in 2011, when independent living had a higher expense ratio than assisted living, by just 10 basis points, did the two sectors operate more similarly. The shift has been steady, with the spread between IL and AL expense ratios of properties sold sharply decreasing from 1,220 basis points in 2014 and 770 basis points in 2015 to 310 basis points in 2016.

What accounted for this? Surprisingly, most of the movement in the expense ratio was in the independent living sector and not assisted living, which has seen more obvious increases in levels of care (and costs) through higher acuity and memory care residents. This increase in IL’s average expense ratio also comes in the same year that its average price per unit rose by $35,300. That increased care may be built into the average price. However, we have heard from a number of people that this may be the new normal for independent living, as the sector looks to provide more in-home (or in-unit) care services as needed. After all, residents who are moving into independent living are older and frailer than ever, and IL operators still need to think of length of stay.