Did size matter when it came to pricing a seniors housing (independent living and assisted living) community? Yes, it did, as the difference in average cap rates from the smallest communities (under 50 units) and the larger communities (90 units and above) grew to its widest gulf ever recorded (back to 2003) at 180 basis points, tying 2015’s difference, according to the 23rd Edition of The Senior Care Acquisition Report. Generally speaking, the smaller the community, the fewer economies of scale and the harder it is to generate significant cash flow, especially since the loss of one or two residents can have a more significant impact on the bottom line.
Larger communities, including most independent living communities, can usually operate at a higher margin. There are obvious exceptions, including small boutique memory care communities which can charge more for their “home-like” atmosphere and more personalized care. However, the smallest seniors housing communities overall averaged an 8.8% cap rate, with both the 50-90-unit and 90-unit+ groupings falling to around 7.0%.
