Assisted Living Occupancy Drops But Investor Interest Grows

Undeterred by ongoing occupancy pressures, senior housing investors have been snatching up assisted living properties at an accelerated pace.

In the last year, there has been a 34% increase in assisted living sales activity, according to a newly released report from Marcus & Millichap, a Calabasas, California-based commercial real estate brokerage and research firm.

With the bump in transactions, the average price per unit for assisted living increased 2% to about $158,200, the report states. Cap rates for assisted living now are in the low- to mid-7% range.


This activity has occurred despite occupancy challenges faced by AL providers, caused in part by new supply coming online. Annual inventory expansion hit a peak of 23,228 units in the second quarter of 2017, and AL development still is elevated, according to the report.

However, the number of units under development is down from 2016 levels, and construction is highly concentrated in a few markets. Moreover, absorption of assisted living is strengthening, with nearly 14,000 units filling over the last year, Marcus & Millichap found. However, the company’s outlook for the year is that continued completions of new projects will keep suppressing occupancy, which will decrease 130 basis points to 88.5% for 2017.

Other highlights of the report include:


– Independent living construction also is elevated, but strong absorption should keep occupancy at 91.3%, down 40 basis points year-over-year

– Strong demand is projected to push occupancy up 60 basis points for continuing care retirement communities (CCRCs), to 91.5%

– CCRC inventory growth continues to increase, with 6,846 units underway as of the end of the second quarter—however, this is only about half the development activity that was occurring prior to 2009

– Skilled nursing stock continues to fall, with about 5,000 beds currently being developed, compared with more than 11,000 at the end of 2012

– Skilled nursing rates could hit $311 per bed per day, as operators raise rents in response to rising health care costs

With federal lawmakers continuing to put forward Affordable Care Act repeal-and-replace bills, uncertainty is constraining investment activity to a certain extent, the report states. Still, the long-term outlook remains bullish.

“Rising demand for seniors housing units as the general population ages will not change, however, and operators will manage any healthcare legislation changes in order to maintain favorable returns,” the report authors wrote.

Written by Tim Mullaney

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