SNF cap rates fall

The average price paid for skilled nursing facilities has largely leveled off at around $75,000 per bed, coming to rest at $74,100 per bed for the four quarters ending Q2:15, down from $76,600 per unit in 2014. But while prices have stayed largely the same, the average cap rate fell 40 basis points to 12.0%, a new record low. In the past 14 years (looking at calendar years), the previous record-low came at the top of the previous bull market in 2007 at 12.1%. And the rate at which the average cap rate has fallen is also stark, falling 100 basis points from 2013’s average. But if the overall trend this year has been that the market is cooling down from an especially frothy 2014, why are cap rates still declining? Well, as acuity levels continue their rise in the skilled nursing sector (and we don’t see this stopping any time soon), cap rates in theory should be rising. But buyers are sensing opportunities with those higher acuity levels, and debt costs remain stubbornly low.