Average Price Per Bed For Skilled Nursing Facilities Plunges, While Assisted Living Sets New Record Price Per Unit

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According to a new report from Irving Levin Associates, the average skilled nursing facility per bed plunged by 18% 2017, while assisted living average prices set a new record.

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After five straight years of record prices, the average price per bed for skilled nursing facilities plunged by 18% to $81,350 in 2017, according to new acquisition data from Irving Levin Associates. After nearly doubling in price over five years, the bull market was just not sustainable. Cuts in Medicare Advantage reimbursement and lengths of stay, rising labor costs and declines in occupancy all weighed on a market that became overvalued. The average cap rate in 2017 remained at historical norms, coming in at 12.3%, or just 10 basis points higher than in 2016. This kept the average price from falling even further. “Despite all the headwinds facing skilled nursing providers and owners, the average price last year was the third highest on record,” stated Stephen Monroe, Editor of The Senior Care Acquisition Report, 23rd Edition. “But given the problems facing the sector, we do not see an improvement in 2018.”

The assisted living market was a different story. Despite its own problems, including too much new development in certain markets, occupancy declines and rising labor costs, the average price per unit paid increased by 14% to a new record of $221,250 per unit. The average cap rate for assisted living communities declined to 7.6%, which helped push values higher. “The market was definitely dominated by higher-quality properties sold in 2017, as well as an abundance of private equity firms flush with new cash to invest,” commented Mr. Monroe. “The combination of excess liquidity and a relatively low cost of debt has fueled the pricing to new records.”

The market for communities with a majority of independent living units also increased in value, but not to the records achieved in 2014. The average price per unit for independent living communities increased by 1% in 2017, to $230,100 per unit. It is a much smaller market than assisted living, and the average independent living cap rate declined to 7.0%. Most independent living communities now have assisted living units, so the market difference is beginning to blur. Demand remains strong for high-end communities, but not many come on the market for sale.

Most likely because of the headwinds facing the seniors housing and care market, the number of publicly announced transactions dropped for the second year in a row, to 302 from 338 in 2016. That is still the third highest number on record. However, the dollar value of those transactions increased from $14.5 billion in 2016 to $15.9 billion in 2017, the fifth highest ever. All of the market statistics will appear in the just-published report from Irving Levin Associates, The Senior Care Acquisition Report, 23rd Edition, 2018.

The Senior Care Acquisition Report, 23rd Edition, 2018 contains statistics on the skilled nursing facility, assisted living and independent living retirement housing merger and acquisition markets in more than 70 charts and graphs, including prices per bed or unit, capitalization rates and income multiples, in more than 250 pages. The Report also includes transaction information on each of the 302 publicly announced seniors housing and care acquisitions in 2017 (third highest number ever). The Senior Care Acquisition Report, 23rd Edition, 2018 may be purchased for $595. For more information, or to order the report, call 800-248-1668. Irving Levin Associates, Inc. was established in 1948 and has headquarters in Norwalk, Connecticut. The company publishes research reports and newsletters, and maintains databases on the health care and senior housing M&A markets.

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Maggie Mark
Irving Levin Associates
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