Is Assisted Living the Land of Opportunity for Investors?

Despite declining capital rates in assisted living and skilled nursing facilities, many senior housing and care executives see promise in the industry, especially when it comes to the assisted living sector.

During an online conference of senior care investors hosted by Irving Levin Associates earlier in September, a group of panelists weighed in on M&A activity and what the future holds for the senior housing and health care industry.

“It’s a need-driven business. People ultimately need to have our services,” said Pat Mulloy, the president and CEO of Elmcroft Senior Living, about assisted living facilities. Case in point, ALFs are experiencing a significantly higher average price per unit in 2011, at more than $122,000 at the end of the third quarter, compared to a annual average of $97,780 in 2010, according to Real Capital Analytics data.



Source: Irving Levin Associates, Inc. 2011

Even though independent living facilities and continuing care retirement communities are having some difficulty attracting residents, assisted living facilities have the advantage of being need-based.


“We provide a level of care that you can’t replace by bringing care into the home or going someplace else. If someone needs a high level of care, there aren’t a whole lot of choices out there,” said Mulloy.

And while the current housing recession is a realtor’s nightmare, Stephanie Anderson, Health Care REIT’s chief acquisitions officer, says it presents buying opportunities to REITs.

“We are in a market that’s constrained on new development, and constrained by a lack of good operators,” she said. “We haven’t seen assisted living be impacted. We do believe that with the right operator, you can continue to grow your earnings and revenue stream.”

She also mentioned the nation’s demographic shift, as a large portion of the population will be in the market for seniors housing in the next 10 to 15 years; U.S. Census data predicts that nearly 20% of Americans will be aged 65 or older by 2030.

The shift will, she said, “continue to drive a larger population to be available for us to service. I think all in all it’s going to be a pretty positive environment no matter what happens with the economy.”

Although cap rates for assisted living have declined to 8.5% in the third quarter of 2011 from their 2009 peak of 9.2%, Real Capital Analytics data shows, with skilled nursing cap rates also on a downward trend since last year, the consensus was that it’s still very much a buyer’s market.

However, while the M&A market is promising for acquisitions, Patrick Hurst,  the national director of Health Care Group Houlihan Lokey, advised sellers to offload properties early in 2012, before the elections, saying the year would pose a series of questions.

“It’s going to be a difficult market,” he said.

The panel had a fairly consistent consensus that capital rates for assisted living facilities would remain the same, while a majority thought skilled nursing facility cap rates would go up.

Written by Alyssa Gerace