For some years now, we have separated out the assisted living and independent living M&A markets into a couple of quality-based categories, classified as “A,” “B,” and “C” properties. The determination is made by the property’s age, location and size, and there are always going to be some properties that can fit into either category. But they should balance out in the end.

Some owners of “A” properties do not believe it is an apples-to-apples comparison between the quality of their communities and “B” and “C” communities in general, and probably vice versa. That is because the rates that “A” communities can charge and the margins they can operate at often exceed those of “B” and “C” properties, and often by a lot.

So, not surprisingly, there was a big difference between the property types in terms of price, and other metrics, in the independent living market in 2018. “A” properties sold on average for $339,000 per unit, or about $222,000 higher than the price for “B” and “C” properties of $116,900 per unit. That difference far and away beats that of 2017 ($169,700) and 2016 ($151,200). What accounts for such polarization? It wasn’t occupancy, as both property types hovered around 85% on average. Instead, it was operations and cash flow that made the difference for buyers and their bids. “A” properties operated at a 39% margin, on average, versus a 28% margin for “B” and “C” properties. More importantly, for most buyers that is, “A” properties pulled in $24,900 in NOI per unit, significantly higher than the $8,900 in NOI per unit for “B” and “C”.

Cap rates for “A” independent living properties fell by 30 basis points year over year to 6.1%, while “B” and “C” properties understandably rose 30 basis points to 7.9%. As an assessment of risk for those types of properties, this difference makes sense. To find out how the assisted living market fared in 2018, check out the just-published Report.