Going-in cap rates for independent living and assisted living properties are currently in the 5.75% to 7% range.
That’s according to a new valuation and advisory report from commercial real estate firm Newmark.
The report states the sentiment comes from a combination of the industry’s “robust” recovery in 2024 across occupancy, rental rates and operations returning to or exceeding pre-pandemic levels. This is combined with the anticipated demand in the coming years with the oldest baby boomers turning 80 in 2025, leading to further increased occupancy trends.
The report also notes new communities that opened during the pandemic experienced “generally strong lease ups.” Current new construction trends have slowed to some of the lowest levels seen in years, which has led to “more senior living units occupied than at any point in history.”
Additionally, rental rates have continued to grow and expenses appear to have leveled off across all asset classes. Information from the report states both the market rent growth rates and expense growth rates are consistent at 3%.
Going-in cap rates vary depending on the senior living type and class. Independent living ranges from 5.75% to 6% for Class A and Class B respectively, and assisted living with memory care options range from 6.75% to 7% between Class A and Class B. CCRCs, however, were up to 9.5% for Class A and 9.75% for Class B.
Discounts also range depending on unit type and class. Independent living has the lowest, ranging from 8.5% to 8.75% from Class A to Class B, followed by assisted living and memory care at 9.5% to 9.75% from Class A to Class B. CCRCs have the highest discount rates, seen at 12% to 12.25% from Class A to Class B.
“Overall, most market participants expect to see continued growth from 2024 to 2025 and beyond,” the report’s authors wrote. “The demographics within the United States are highly favorable; however, the operators must continue to improve their efficiency and skill and deliver the best care at competitive prices to continue to see positive results to bottom line profitability.”
