The Covid-19 pandemic took a deleterious toll on the senior living industry last year — and average senior housing values dropped as some owners looked to divest.
The average price per unit for senior housing communities, which includes assisted living and independent living properties, fell to $196,200 per unit in 2020, representing a 20% decrease from prices in 2019, according to the latest Senior Care Acquisition Report from Irving Levin Associates.
Specifically, it was a large number of “lower-quality” assisted living community sales that caused such a large decline. Average assisted living prices fell to $174,700 per unit in 2020, down 30% from a value of $248,400 per unit in 2019, according to Irving Levin Associates. For independent living communities, the average price per unit was $232,500 in 2020, which is close to the $233,600 price per unit those communities had in 2019.
Cap rates for senior housing cap rate rose an average points to 7.8% in 2020, which is an increase of 40 basis points from a record-low of 7.4% in 2019. Assisted living cap rates increased 30 basis points, to an average of 7.9% in 2020, while independent living cap rates increased by 90 basis points to average 7.6% during that time.
By comparison, skilled nursing price per bed dropped to $79,700 in 2020, which is a 14% decrease from the average price per bed of $93,000 in 2019. And average cap rates for the property type rose by 60 basis points to 12.7% in 2020.
Deal volume fell in 2020 dropped to 352 publicly announced transactions in 2020, down 22% from a record-high of 453 deals in 2019. Dollar volume fell to $7.9 billion in 2020, a more than 50% decrease compared to the $16.95 billion dollar volume in 2019.
The data from Irving Levin align with reports from capital providers and deal brokers, who have reported that the pandemic is causing some smaller or struggling operators to sell their businesses, sometimes at a discount.
But recent large transactions — including some related to real estate investment trust Healthpeak (NYSE: PEAK) exiting the sector — have come in at relatively attractive valuations, suggesting that pricing on Class-A product has not dramatically deteriorated, even as more Class-B product may be entering the market and driving down average sales prices.