The SeniorCare Investor: Seniors Housing Valuations--
In Seniors Housing, Size Matters, But Quality Is King
As readers know, for more than 20 years we have been researching and publishing acquisition market data for both the skilled nursing sector as well as the seniors housing sector. Our newest edition of our annual report on the market, The Senior Care Acquisition Report, will be published later in March, and every year we include statistics on the average price per unit and bed, cap rates and every other number you could want that we can deliver. One comment has been that our “average” prices include everything from the 32-unit assisted community in rural North Dakota (yes, a bit redundant) to the 300-unit retirement community overlooking the Pacific Ocean. The number we derive may not be useful to an owner of the former or the latter, because all things being equal, they may be on polar ends of the spectrum and far from the average.
Some people didn’t want the small communities included in the statistics, while others thought the lower quality ones should be excluded and we should have either a minimum price or a minimum price per unit to determine quality. The purpose of the average is partly to show trends over the years, and it does serve that purpose, but also to allow buyers, sellers lenders and appraisers to look at what the average is and determine why is it that their particular property is (or should be) higher or lower than the average. It is not a difficult exercise. Before we started in on the 2011 data, we went back to the previous five years to see what market intelligence could be derived, and we came up with some interesting results.
We decided to focus on the seniors housing side of the business because there is usually a much larger supply of transactions, and the properties sold are much more diverse with a much larger spread in both values and size. Based on some industry conversations, we started by breaking down the sales each year from 2006 to 2010 by those with properties over and under 100 units. It was thought that 100 units and higher might be a more “institutional” market with all that implies for quality and values. While that sounded reasonable, the results were a bit surprising.
In every year except 2007, the difference in the average price per unit for all assisted and independent living sales, based on over and under 100 units, was unexpectedly small, although the larger ones always came with a higher average price. The range in four of the years was a difference of $8,000 per unit in 2009 to $18,000 per unit in 2006. The one outlier was 2007, when the difference was about $100,000 per unit, but that was the record year for the average price per unit for seniors housing when there were more than 50 communities that sold for more than $200,000 per unit, which was also a record, with seven property or portfolio sales over $300,000 per unit. Those were the days.
So other than the outlier year of 2007, size did not seem to matter as much as some people thought (it usually doesn’t). As it turns out, 100 units was the wrong number, since there is usually a sizable pool of sales, particularly in the assisted living market, of institutional quality assets between 80 and 100 units in size, and sometimes just a bit lower. But we also decided to add another twist, and this was to cross screen and look at both size and quality, with quality determined as a sales price of $100,000 per unit or more. Comparing those sales with 80 units or more per community and a price of at least $100,000 per unit with those that came with smaller price tags and unit sizes painted a much different picture. The spread between the two categories was a minimum of $55,000 per unit (2009) and a maximum of $97,000 per unit (2010) and an average of $78,000 per unit. Surprisingly, the highest average price for the upper category was $175,500, but in 2008, which was a year that suffered a 25% drop in the average price per unit for the seniors housing market (IL and AL combined)...Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today