Average IL cap rate falls 80 basis points

The average cap rate largely depends on the properties that sold. Even in a year when valuations rise and cost of capital remains low, cap rates may actually rise because the communities sold were of lesser quality. That factor has played a key role in determining the average cap rate for independent living communities in the last two years. In 2013, there were more low-quality, small properties that sold, which drove the average cap rate for the year up 20 basis points to 8.2%. However, there were more quality independent living communities sold in 2014, which helped decrease the average cap rate by 80 basis points to 7.4%. What most likely happened is that owners of these prime properties, who may not have been looking to sell before, were wooed by the valuations seen in today’s market.