Last week, we looked at the price REITs paid on average for skilled nursing facilities in 2016, according to the 22nd Edition of The Senior Care Acquisition Report, compared with other buyers in the industry. But what about in seniors housing? REITs have been far more active buyers in the space, with many of the private REITs getting involved in a sector with less stroke-of-the-pen risk (in fact, they bought five seniors housing properties to every one skilled nursing facility in 2016). Also, most of the revenue collected by assisted living or independent living communities comes from private payers, and REITs tend not to purchase those assisted living communities with significant, if any, Medicaid revenues.

After the buying frenzy of 2014, REITs surprised some with a public pull-back from buying seniors housing assets in 2015, and that continued throughout 2016. In fact, 63% of the REITs’ seniors housing acquisitions (and 69% of the properties acquired) occurred in the first five months of the year, with activity cooling after then. More concerns have been voiced in the assisted living market (rather than independent living), which has seen a boom in construction starts in the last several years, leading many to wonder whether there is sufficient demand for the new supply. There are also cost concerns, for most what is being built is on the higher end of the market, which further limits the number of potential residents. Couple that with the upward pressure on the minimum wage in many states, and the headwinds for the assisted living market grow stronger.

With that, REITs primarily purchased well-performing assets that were relatively recently built. This limits the risk they face, always a priority for a REIT as a long-term investor. As a result, REITs paid on average $29,700 per unit higher for seniors housing properties than the market overall: $236,400 per unit versus $206,700 per unit. No surprise there.