Seniors housing values were at (or very close to) a peak by the beginning of March. Then, COVID-19 shut down the country, and those communities were forced to shut their doors, halt move-ins, and deal with the pandemic and their residents as best they could. Keeping those seniors safe and healthy is, of course, the first priority. But the drop in occupancy and cash flow is also a serious matter (how else can these communities stay open to care for seniors if they are not profitable, after all?) and may lead to a correction in values.
Just how large of a correction, we cannot be sure, but we do know where values were right before the pandemic hit. According to statistics from the last four quarters ended March 2020 (from our proprietary M&A database), the average assisted living price per unit rose to its highest level ever, at $255,800 per unit, up 3% from the previous record of $248,400 per unit measured in 2019, according to the 25th Edition of The Senior Care Acquisition Report. That average does include deals that closed as late as March 31, 2020, so in the depths of the crisis, but what we heard from people involved in those deals is that values really were not affected thanks to some cooperative buyers and sellers. There were also few datapoints from the second half of March to materially affect the overall average for the previous 12 months.
The average assisted living cap rate did rise by 10 basis points to 7.7% from 2019’s average of 7.6%, which matched the record-low for the sector. Despite interest rates falling to near historic lows, a tighter lending environment should contribute to some rise in the average AL cap rate, as should the sector’s perceived risk going forward. Some additional cushion to these investments is not a bad thing, especially these days.
Again, we will not know the actual effect COVID-19 will have on assisted living values for a while. But what’s even less certain is when prices may return to these heights again.
