Full Recovery in Seniors Housing a Few Quarters Out says Report

Despite an improvement in occupancy rates for senior housing during the first quarter of 2011, a full upturn in all areas of the marketplace are still a few quarters away, says a report from real estate investment services company Marcus & Millichap (M&M).

With healthcare-oriented real estate operations stabilizing and a large number of baby boomers currently entering retirement, cash-rich REITs are driving senior housing sales activity. REITs have accounted for more than 90% of the sector’s purchases through the year and continue to bid up the prices for Class A facilities, said M&M.

“Dominance of REIT transactions stems from large portfolio buyouts, not the purchase of single properties,” said the report. “Still, investor demand for single modernized facilities will remain high, and with this year’s building pipeline to remain light, quality assets brought to market will receive multiple offers.”


These trends could push private equity buyers out of the top-tier arena, says M&M, but “overall closings should gain steam in 2011 as more investors, betting on a strong recovery, buy discounted properties ahead of further operational improvements.”

Well-managed assisted living facilities will continue to be in high demand through 2011 says M&M, even after the median price per unit increased 5.5% to $107,800 during 2010.

Independent living occupancy levels are expected to improve 80 basis points to 88.1% during 2011, driving a 1.1% increase in average rent rates from last year, said M&M. Skilled nursing should also see a boost as job growth will lead to more facility visits and an increase in occupancy levels by 50 points, to 88.9% in 2011.



Assisted living operators rebounded before other areas in early 2010 and has since seen occupancy levels at 88.4 during the last three quarters.  Despite this stability, average rents have remained unchanged the last 12 months as supply growth is anticipated to pick up in the coming year.

“The national occupancy rate is likely to slip, decreasing 40 basis points to 88 percent this year,” said the report. “Subsequently, operators will refrain from implementing aggressive rent increases, pushing up rent just 0.8 percent to $3,543 per month this year.”

While the market continues to improve slowly, property groups closely tied to housing face challenges when seniors are unable to sell their homes. Recent data shows the rate of home price decline is slowing, but a full recovery is still a few quarters away, says M&M.

“The speed of a revival will hinge on regulatory actions and an upturn in the housing market. With the pace of supply growth to remain muted, however, the sector will trend toward recovery, supporting across-the-board rent growth.”