Between rising commodity prices, the increasing cost of capital, the re-pricing of risk and a credit market that is thoroughly in disrepair, a survey showing the average prices for different types of senior housing rising should not be a surprise. According to results from an analysis by Irving Levin Associates, the average price paid per bed for skilled nursing facilities rose 6% from 2006 to an average of $55,200. The costs of the average skilled nursing facility rose from 2003 levels by more than 75%. Many investment groups have begun to invest heavily in long-term care properties and the valuations and financing volumes have increased substantially. However, with the recent credit crunch many people are beginning to believe that the cost of capital will increase putting pressure on developers and operators to raise prices to meet operating demands and increases in utilities and natural resources required to build and develop new project or rehabilitate older senior housing projects.
The study also showed that the average sales price for both assisted living units rose by 20% from 2006 to an average of $159,000 and independent living unit prices rose to an average of $174,500 per unit. Twenty percent year over year increases reflect the old “bubble” growth rates of housing as we have seen in recent history. Should a more nominal growth rate for the costs of senior housing be used or will the cost of senior housing units rise to the same or similar levels of traditional housing units? Can we hear another housing bubble beginning to inflate?
For more information on the Irving Levin report, click here.