With plenty of money flowing into senior housing assets, investors expect little to no change in cap rates in the coming year.
Of all those who responded to the 21st annual Senior Housing Investment Survey from Senior Living Valuation Services, 62% said they don’t expect senior housing cap rates to significantly change in the next 12 months.
Respondents to the 2015 survey included senior housing owners, operators, financial institutions, investors, brokers, mortgage bankers, appraisers and industry consultants.
Only 17% of respondents expect cap rates to decrease up to 100 points in the next year—slightly above the 11% of last year—while 21% said they expect rates to increase up to 100 basis points in the next year, which SLVS noted was the same percentage from last year.
The sentiment that there will not be a significant change in senior housing cap rates over the next year is similar to what recent surveys have indicated this year already.
One highlight of the 2015 SLVS survey was the continuation of a five-year downward trend in overall cap rates for all categories of senior housing.
For all senior housing types, cap rate expectations fell in 2015 when comparing to SLVS survey responses from 2014, by 20 to 70 basis points—the rate averages ranging the lowest for age-restricted apartments, to the highest for licensed subacute skilled nursing facilities.
“These results are not surprising given the higher degree of licensing as one moves up the continuum,” SLVS noted in the survey.
For licensed assisted living, the adjusted range expected for cap rates was 6.5% – 8%, with an average of 7.4%—60 basis points below their 2014 SLVS survey numbers. Meanwhile, for licensed memory care properties, the adjusted expected range was 7% – 9%, with an average of 7.9%—a 50 basis point decline compared to last year’s survey. `
Licensed skilled nursing-long term care properties came in with an adjusted cap rate range of 11% – 13%, with an average rate of 11.8%—30 basis points lower than 2014’s survey.
Several factors have contributed to the recent declining trend in cap rates, including the increased availability of financing, competition from real estate investment trusts (REITs), as well as a growing number of investors and developers entering the senior housing space.
The past year has also seen active and healthy markets across the spectrum of senior housing and care, especially as interest rates have increased only slightly from 2014 to 2015 and remain historically low, SLVS noted.
“Overall prospects for continued industry strength and escalating new construction are good, supported by the industry’s undeniable favorable long-term demographics and still low interest rates,” SLVS said.
Written by Jason Oliva