Prices And Quality Are Looking Like The Banner Year 2007

We have all been watching the volatility in the stock market, with prices plummeting one day on Greek debt bailout news, and then jumping the next day on Greek debt bailout news, and then plunging the next day with nothing really changed from two days before.  For investors, it is very tiring and burdensome, because the price fluctuations tend to have little to do with “value” and more to do with emotion and fear. 
Not that fear has no role in valuation, for both the short term and long term, but when it overwhelms the decision-making process, it results in opportunities for others.  Nothing makes this point clearer than looking at the October 4 lows for pretty much all of the publicly traded provider stocks (and some of the REITs), and you will understand what we are talking about.  These lows had no relationship to value, or to current and future performance, and within weeks the rebound was unprecedented but expected (at least by us, see the October issue).
So when we see all these market gyrations, we are heartened by the fact that in the “property” acquisition market, the environment is much more stable, with investors understanding value and paying up for quality, even with the difficult housing market and lifeless economy.  One need look no further than the assisted living acquisition market, where according to our statistics, the average price per unit for the 12 months ended September 30, 2011 jumped by more than 56% to $161,700 per unit compared with the calendar year 2010 price per unit of $103,300.  At the peak of the market in 2007, the average price per unit for assisted living hit $159,100, a 20% increase from 2006, before dropping 21% in 2008 to $124,900 per unit, and it kept on dropping through 2010. 
Obviously, in the 2008 to 2010 period the market was dominated by sales of distressed and otherwise underperforming properties, with a few high-end ones thrown in the mix.  As it did in 2007, an increase in the higher quality, stabilized and high cash-flowing properties this year is pushing the average price per unit to record levels.  There are still plenty of transactions being completed below $100,000 per unit, but of those, most are above $75,000 per unit, unlike in 2009.  By the end of the year we may not have a record average price per unit, but barring an influx of lower quality sales, it should at least be the second highest average on record…Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today