Senior Living Investors Get Selective as Industry ‘Remains a Mixed Bag’ 

Senior living investors returned to the industry in 2022 as operator performance and favorable demographic trends drove interest. But many of them are now also more selective in the deals that they undertake.

This is one of the observation in the Senior Housing National Report for the second half of 2022, which was recently published by Marcus & Millichap. The report’s researchers based their findings on data from Moody’s Analytics, NIC Map Vision and the U.S. Bureau of Labor Statistics.

While investors returned to senior living transactions in 2022, that momentum tapered off somewhat in the second half of the year thanks to rising interest rates and cost inflation for senior living operators.


Now, they are approaching deals with caution as the sector “remains a mixed bag, with some investors aggressively pursuing deals, while others take a wait-and-see approach,” according to the report.

“Stabilized properties are very attractive, but a lack of such listings has some buyers pursuing upside, including redevelopment and conversion,” the report’s authors noted. “Rising interest rates have the potential to sustain downward pressure on deal flow in the second half as lenders adjust their criteria, but the strong outlook bolstered by demographic trends should keep buyers active.”

Occupancy across senior living in the second quarter of 2022, signaling that the demand pent up during the Covid-19 pandemic is indeed returning to the market.


All the while, IL, AL and memory care operators pushed their resident fees higher in 2022, with an average annual increase eclipsing 4.5%. While that represents “the fastest annual gain in more than a decade,” resident rate growth didn’t keep up with cost inflation — in particular, labor, the report’s authors wrote.

“Bringing in the necessary staff to restore occupancy will require sizable hikes in labor costs, however, the higher operating expenses are not being met by adequate rent growth,” they wrote.

Annual rent increases exceeded 5% in 20 different major U.S. markets, the report’s authors also noted.

“Robust economic growth, in-migration and population expansion in these metros is translating to demand for senior housing, driving up rents,” they wrote.

Operators have been forced to increase salaries for workers in senior living at a pace significantly higher than that of the general economy just to stay competitive — a market condition that appears to be here to stay for a while.

At the same time, the combination of a labor shortage and nationwide inflation is driving up costs and hampering new development. In fact, the number of units under construction in 2Q2022 is lower than at any point since 2015.

“In the near term, this will mitigate competition between operators trying to restore occupancy,” the report reads. “Longer term, this could be a boon for the sector as an aging baby boomer demographic could push demand past supply.”

The NIC first-quarter lending trends report appeared to back this up, showing that new construction lending is down from its recent post–Covid-19 peak in 3Q2021 and lenders are prioritizing operators with a track record of operational success.

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