It is safe to say the senior care M&A market in 2020 is quite different from that of 2019, in terms of the number of acquisitions closed, the values for senior care properties and perhaps most importantly, the types of properties actually put up for sale. Value-add and distressed communities have so far dominated the market since the onset of COVID-19, as owners of newer, stabilized communities are largely sitting on the sidelines to wait for a seller’s market again. Who knows when that will happen?
Assisted living communities have been hit hard across the board, census-wise and with cash flow too. As a result, we have seen the sales of many struggling communities, which brought down the average price per unit from $248,000 per unit in 2019 to $214,900 per unit in the four quarters ended September 2020. That still includes two full quarters of deals negotiated and closed before the pandemic put a halt on dealmaking this Spring, so a 13.5% decline from the record-high average price per unit for assisted living properties is significant. If the trend continues, which we expect, then the average price per unit will fall below $200,000, perhaps by a lot.
This is not an apples-to-apples comparison, because of the preponderance of older, struggling communities in the 2020 M&A pool compared with 2019. For that, we will have to wait for the 2021 Senior Care Acquisition Report, in which we will examine trends in more segmented markets, like between the “A,” “B” and “C” properties.
The average cap rate for assisted living communities saw no change from the 7.6% recorded in 2019. But with the heightened conservatism among lenders and increase risk in owning and operating these types of properties in the next several years, we expect that cap rate to rise.