Insatiable Investor Demand for Assisted Living says Report

Investor demand for assisted living properties, which make up nearly half of the seniors housing market, is currently insatiable according to a Marcus & Millichap Seniors Housing Research Report.

An improving housing market is encouraging seniors to sell their homes, but a plethora of development could slow occupancy growth for assisted living communities for the second half of this year.

Over the past year, assisted living experienced a 2.3% rise in inventory as 6,800 units came online, reports NIC MAP data. Another 14,700 units are under construction, which analysts believe will increase pressure on occupancy levels.


Year-over-year, occupancy at properties with mostly assisted living units inched up 20 basis points to 90%, but year-to-date occupancy has trended lower by 30 basis points as new construction outpaced rising demand.

Despite heightened construction activity, favorable lending rates have attracted buyers to invest in the assisted living market

During the 12-month period ending in the second quarter of 2013, buyers increased their presence in the assisted living investment market by 72%, notes the M&M report.


Additionally, during this time period the median sales price soared 20% to $163,000 per unit while cap rates compressed into the low 8% range.

New development will impact occupancy modestly this year, resulting in an annual decrease of 60 basis points to 89.7%. Despite the decline in occupancy, operators should be able to lift asking rents 2.8% in 2013 to $4,180 per month, according to M&M.

As more assisted living developments come onto the market, skilled nursing facilities (SNFs) saw their occupancy levels fall to a new cyclical low in the second quarter as demand for beds was “siphoned away” by AL facilities and hospice care.

Year-over-year, SNF occupancy dipped 50 basis points to 87.8%, including a 40 basis point decline in the first half of this year.

For independent living, an improving national housing market will enable seniors to sell their homes and transition into IL facilities this year, helping drive up the occupancy rate to 90.2%, an annual improvement of 30 basis points.

The recovering housing market also looks to support demand for continuing care retirement communities (CCRCs) in the coming months.

By the end of 2013, occupancy for CCRCs is expected to be 89.8%, an annual increase of 30 basis points, which will also lead to a modest climb in average rents as demand supports higher rates, notes M&M.

Written by Jason Oliva

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