The results are in for our rolling four-quarter averages for assisted living, independent living and skilled nursing sales, and they may surprise you. Assisted living prices, on average, dropped 15% to just $177,600 per unit for the four quarters ended September 30, 2018. That follows six straight quarters with an average price above $208,000 per unit for the sector and represents the lowest level since the second quarter of 2014, when we recorded an average of $162,000 per unit.
What happened to the assisted living sector, which has so far seen record levels of M&A activity? In the last 12 months, there not only have been a lower number of very high-priced deals (above $300,000 per unit) but far more low-priced deals (under $80,000 per unit). Perhaps the issues of labor and census have already started to rear their ugly heads and affected both performance and valuations. We imagine that would affect the older properties more, as residents and staff, if given the option, would more often than not choose the shinier, new building that usually comes with larger rooms and better amenities.
What had us scratching our heads more was that the average cap rate fell by 10 basis points to 7.7%, our second-lowest ever recorded average (the lowest was 7.6% in 2017). One possible reason is the higher number of value-add sales, which do not always provide market cap rates that we can include in our averages. But with interest rates rising, cap rates should rise in turn to maintain a healthy spread. And we don’t see the riskiness in buying an assisted living property going down any time soon.
Next week, we’ll take a look at the average independent living price and cap rate.
