Assisted living market drags down the average price per unit for seniors housing communities by 9%

NORWALK, CT – April 10, 2019 – The average price per unit for seniors housing communities (which includes assisted living and independent living) dropped 9% year over year to $203,400 per unit in 2018, according to new acquisition data from Irving Levin Associates. Even though the 2018 average is still the fourth-highest per-unit price ever recorded, the median fell by a more alarming 30% to just $150,300 per unit. That suggests the typical seniors housing community sold in 2018 was either older, less occupied or struggling operationally (and usually some combination of the three) than in previous years.

The assisted living market, which typically makes up about four in five of the seniors housing properties sold in the year, dragged the rest of the market down, falling 16% to $186,400 per unit. The impact of overdevelopment rippled through the industry, causing census to drop in many MSAs and labor harder and more expensive to find. In addition, there is a high cost associated with staff poaching, particularly of the Executive Directors and Sales Directors, in markets with a lot of new construction. Stephen Monroe, Editor of The Seniors Housing Acquisition & Investment Report stated, “These issues likely won’t abate in 2019 or 2020, and buyers that need to either pay to renovate their communities to better compete with the new developments and/or raise wages to avoid staff poaching have baked those costs into their bids.” The average assisted living cap rate understandably rose 60 basis points to 8.2%, reflecting the sector’s higher risks.

On the other hand, independent living saw a modest 3% increase in its average price paid per unit to $238,100. That level may not match the previous record-high of $246,800 per unit observed in 2014, but it is still the second-highest average ever. “Because of its fewer staffing and services needs, the independent living market largely avoided many of the headwinds facing the assisted living market,” added Mr. Monroe. In addition, development has been moderate in the sector. The average cap rate for independent living sales in 2018 rose 20 basis points to 7.2%, an historically low average.

Despite the lower prices, M&A activity reached an unprecedented level with senior care deals (of which seniors housing accounted for about 50%) numbering 426 in 2018, about 100 more than in 2017 and more than 60 higher than the previous record set in 2015 of 365 deals. Clearly, many buyers may have identified 2018 as a bottom for the industry. Spending was not as strong in 2018, totaling just $13.6 billion, down from $15.9 billion in 2017 and $25.6 billion in 2014, the record-high. However, it is the number of deals rather than the total dollars that is a better signifier of market health. All of the market statistics will appear in the just-published report from Irving Levin Associates, The Seniors Housing Acquisition & Investment Report, First Edition, 2019.

The Seniors Housing Acquisition & Investment Report, First Edition, 2019, contains statistics on the seniors housing community merger and acquisition markets in more than 30 charts and graphs, including prices per unit, capitalization rates and income multiples, in more than 175 pages. The Report also includes transaction information on each of the 224 publicly announced seniors housing acquisitions in 2018, and industry sources on the active operators, lenders and brokers in the market. The Seniors Housing Acquisition & Investment Report, First Edition, 2019 may be purchased for $595. For more information, or to order the report, call 800-248-1668.  Irving Levin Associates, Inc. was established in 1948 and has headquarters in Norwalk, Connecticut. The company publishes research reports and newsletters, and maintains databases on the health care and senior housing M&A markets.