Why Health Care, Senior Living Investors Should be ‘Cautiously Optimistic’ for 2024

While macroeconomic trends have dampened senior living deal activity in 2023, those involved in health services transactions should remain “cautiously optimistic” for 2024, according to PricewaterhouseCoopers International Limited (PwC). 

By mid-November, health service deal volumes dropped 13% compared to last year as interest rates, regulatory concerns, macroeconomic risk and valuation gaps drove headwinds throughout the year, according to a recent PwC report citing LevinPro data.

But deal volumes saw record levels in 2021 and 2022, with the trailing 12-month volumes are “nearly twice the average” of levels reported in 2018 through 2020.

In senior care, transactions have been driven by necessity of distressed assets needing to trade hands and by opportunity with well-capitalized operators and investors jumping on assets at attractive pricing driven by sustained distress as the industry continues to normalize from the Covid-19 pandemic.

Just as operators have “hit the reset button” on resident rental rates, they are also are pushing to “refresh and reset” in 2024.

“Just like how senior housing did coming out of the [great financial crisis], it’s my strong opinion — and I have a lot of conviction in this — that it will outperform the rest of real estate and become a darling child when it was not so much during the Covid era,” CBRE Vice Chair Aron Will, who is also co-head of the company’s senior housing practice, said during an October webinar on senior living M&A.

PwC’s health service transactions forecast noted that private equity and corporations “continue to hold large levels of capital that need to be deployed,” with the “leading way” to drive transactions via M&A growth.

“But the record levels of capital on hand, combined with current investments reaching the end of their target hold period and the recent emergence of non-traditional deal structures should all provide momentum for additional activity in 2024,” the PwC report states.

The report also notes that investors in health services “continue to adapt” to the current headwinds facing the space.In a similar fashion, lenders in senior living have needed to get “more creative than ever before” to close deals.

While current challenges remain, the report notes that “moverall macro indicators” were favorable for the time ahead. Recent reporting shows that venture capital fundraising is on pace to surpass levels seen last year and private equity fundraising “continue to be unencumbered.”

“Even amid lingering concerns of a downturn, there are increased expectations of a soft landing,” the report stated. “The sector’s resilience makes it an attractive sector for increased activity in 2024.”

Additionally, The Urban Land Institute (ULI) and PwC U.S. released its 2024 Emerging Trends in Real Estate report with the overall theme of “The Great Reset” with the authors noting the space must “form new ‘norms’ and can no longer rely on past benchmarks to determine how the market will function in the future.”

Some of the top trends identified in this year’s report centered on the retail sector exceeding expectations; hybrid work formats and flexible scheduling will become commonplace; the Sun Belt continues to be attractive for real estate development and rising debt could “crowd out” private investment.

Other trends cited in the report for 2024 included the influx of artificial intelligence; adapting to climate challenges; downtowns needing to revitalize and housing affordability will continue to dominate real estate conversations in 2024.

The PwC and ULI report lists the top five markets in 2024 for real estate including: Nashville, Tennessee, Phoenix, Arizona, Dallas/Fort Worth, Texas, Atlanta, Georgia and Austin, Texas.

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