Senior living providers continue to weigh core-plus asset deals and distress-driven transactions favorably, as senior living deal activity showed signs of rebounding slightly this year.

That’s according to a recent survey and capital markets analysis by Cushman and Wakefield published this week.

Of the 90 senior living executives surveyed, nearly half (49%) said they would target core-plus investment strategies with assisted living being the most attractive transaction type at 33% followed by active adult being sought by 23% of respondents.

This comes as the senior living transactions market is “at or near the bottom” from a property valuations standpoint and in the years ahead, yet “renewed interest” from investor and lender groups shows the promising future prospects of senior housing investment, the report notes.

Over one-third of respondents said they would continue to focus on “opportunistic or distressed” asset acquisition strategies, the survey found.

It’s no surprise that distress-driven deals continue to transpire in the space, with the industry seeking interest rate and debt financing relief in 2024. That hope was answered earlier this month when the U.S. Federal Reserve announced a 50-basis point interest rate reduction, with senior living transaction experts excited for the cut and its potential to bring “welcome relief” to weary owners and organizations seeking quicker growth.

The report added that the recent Fed action “should help destress near-term valuations and bring dry powder off the sidelines” as buyer-seller expectations normalize.

Fifty-six percent of respondents said they expect little to no change in capitalization rates in the next 12 months as debt liquidity is a top concern of 51% of respondents, followed by the current interest rate environment.

Transaction volume for senior living dropped to levels seen last during the 2008 financial crisis to start the year, but rebounded 65% in the second quarter with $1.43 billion in transactions tracked, the report states. But long-term transaction data shows a 10-quarter period of decline with a rolling, four-quarter volume of $5.87 billion. That’s down from $16.78 billion in rolling, four-quarter volume seen in 2021.

In the past three years, private capital investment has grown in the industry, representing 50% to 60% of investment activity over the last three years. As reported by SHN earlier this year, real estate investment trusts (REIT) continue to invest capital heavily into the space at a quick pace. The report notes that REITs’ ability to have a low cost of capital and the ability to target “stabilized, well operated properties” has helped large entities to continue to invest more heavily during this cycle.

National Investment Center for Seniors Housing and Care (NIC) data cited in the analysis notes an average transaction price per unit increased on a quarterly and rolling, four-quarter basis to $130,000 and $117,980, respectively—a potential signal that valuations are beginning to improve.

Distress-driven deals could continue to drive transactions in the short-term, with $19 billion in debt maturities coming due in the next 24 months that will spur investment from “those who are well-capitalized and less reliant on leverage,” the report states.

Long-term fundamentals for the senior living industry continue to fuel tailwinds, spurred on by 12-consecutive quarters of census growth as occupancy surpassed 87% this year and active adult communities reported 93% occupancy—and the number of occupied units is at an all-time high for the seventh-straight quarter, the report said.

On rent, the report found that senior living rental rate growth remained “intact,” at an average of 4.4% through the first-half of this year in primary markets and 4.8% in secondary markets. Rent growth and occupancy tailwinds have also helped serve as a needed “counterbalance” to the industry’s headwinds on staffing.

Slowing residential housing market activity “does raise some concern” for “lifestyle focused properties” in the near-term.

When looking at occupancy and rate growth by geography, the Northeast was the top performer with nearly 90% occupancy and annual rent growth of just below 5% followed by the Mid-Atlantic—with both areas showing elevated construction levels versus available supply in those regions, the report said.

Within those regions, cities with the highest and lowest construction rates including: Baltimore, Maryland, Boston, Massachusetts, Minneapolis, Minnesota, Orlando, Florida and Portland, Oregon as some Midwestern cities like Chicago, Illinois, Cleveland, Ohio and Kansas City, Missouri could be primed for positive occupancy and rent growth gains.

But cities like Denver Colorado, Detroit, Michigan, San Jose California and the Washington, D.C. markets could face rent pressure as new units come online with increased construction rates compared to available supply. But overall, cost pressures tied with the lack of construction debt liquidity and the cost of capital will dampen new unit supply “for the foreseeable future,” the report states.