It’s amazing the difference that one deal can make. We are talking about Welltower’s $1.76 billion sale of its entire Benchmark Senior Living portfolio to KKR and its impact on the average private per assisted living unit sold in the most recent four quarters. That sale, which came in at $425,400 per unit across the 48 properties, pushed the sector’s weighted average up to $252,900 per unit, a 23% increase from the most recent four-quarter period ($205,900 per unit) and 36% from calendar year 2018 ($186,400 per unit), according to The Seniors Housing Acquisition & Investment Report. We should note that this average is likely to change as more deals from 2019 float to the surface, and without the Benchmark sale, the average assisted living price would be nearly identical to the previous four-quarter period. But nonetheless, our average is a representation of the sales that closed, so it is what it is.
Even for the average price to stay level is impressive given the operational headwinds facing the sector. You’ve heard them all, but clearly overdevelopment, decreasing census, rising labor costs and the persistence of discounting is affecting some operators out there. Just look at Ventas’ third quarter earnings report. Plus, for the communities that are currently fully occupied, there is no guarantee that will continue abated in the next couple of years as demographics turn unfavorable for assisted living. Plus, we still don’t know how communities built even in the last five years will fair when the Boomers begin to age into them in what could be 10 years.
The average assisted living cap rate fell accordingly to 8.0%, down 30 basis points from the previous four-quarter period and 20 basis points from 2018. The sheer abundance of cheap capital is probably a big reason for that, as buyers in search of yield pour into the sector, pushing up prices and depressing cap rates. For more granular statistics on the assisted living M&A market, check out The Seniors Housing Acquisition & Investment Report or our most recent webinar, Assisted Living: Acquiring and Selling in Today’s Turbulent Market.