The effects of the COVID-19 pandemic have been uneven across markets and care/service segments within long-term care, which will lead to an uneven recovery for the industry over the coming years. That’s according to a report released Thursday by Marcus & Millichap. Long-term prospects for the sector remain positive, however, driven by the growing care needs of an aging population.
The report also suggests that additional mergers and acquisitions are likely on the horizon for the industry, as increased expenses and a hit to revenue streams have shrunk margins for many providers. Seasoned operators likely will have opportunities to acquire troubled assets over the coming months and drive management efficiencies to boost occupancy.
“As the health crisis continues to weigh on the seniors housing industry, consolidation will remove the weakest providers and replace them with seasoned, well capitalized operators,” said Todd Lindblom, a regional manager at Marcus & Millichap, who helped author the report.
On a per-unit basis, assisted living and independent living assets have been trading in the mid-$100,000 range, whereas skilled nursing properties have recorded an average price of approximately $80,000 per bed, according to the report. Findings also showed that assisted living and independent living cap rates are flattening as the pandemic continues to affect sales activity. Rates have averaged in the 6% to 7% band over the past 12 months.
Overall, the report concludes, the stability and long term demand of the senior housing and care sectors should keep buyer-seller expectations better aligned. Assumptions surrounding operating expenses and occupancy, however, likely will weigh on net operating income for more challenged properties.
“Despite existing short term challenges, the long term drivers remain positive creating significant investment interest in the sector,” Lindblom said.