Seniors housing prices saw significant rises in average prices in the 12 months ended March 31, 2019. Assisted living itself jumped 10% from $186,400 per unit in 2018 (according to our Seniors Housing Acquisition & Investment Report) to $204,000 per unit in the latest four-quarter period. Meanwhile, independent living rose a more moderate 6% from $238,100 per unit to $251,800 per unit, the highest level ever recorded for the sector.
The small size of the IL market means that a few transactions can have an outsized impact on the average, but given the healthier occupancy and lower labor costs of the IL industry today, it makes sense that these communities have become more desirable. Skilled nursing, on the other hand, continues to drop in price, falling another 2% to rest at an average $75,600 per bed, its lowest four-quarter level since the first quarter of 2014. According to our Skilled Nursing Acquisition & Investment Report, published in March, the 2018 average price was $77,500 per bed. The REITs’ shedding of non-core, operationally-struggling facilities is largely to blame for this decline in value.
Turning to cap rates, assisted living accordingly dropped by 10 basis points to reflect the higher-perceived value of the last four quarters of deals, on average. Independent living fell much more sharply, by 55 basis points, to an average of 6.65%, an all-time low. Again, this sector with its steadier occupancy, fewer services, smaller labor need and being at the front edge of the Boomer wave, is perceived as much less risky than any other senior living property type, perhaps with the exception of the growing active adult market.
Then, we come to skilled nursing, which despite a drop in average price per bed, fell 100 basis points to an average cap rate of 11.9%, near a historic low. However, there may be more than meets the eye with this contradictory result. It may, in fact, be an indicator of the market’s weakness. Many of the lower priced deals that continue to bring the sector’s average down from a recent peak of $99,200 per bed in 2016, come with little, to no, to negative cash flow, meaning that while their low price is recorded, there is no market cap rate to include in the average.