In yesterday’s blog post we discussed how merger and acquisition activity in the senior housing space could set a record by the end of the year. A report that was recently published by the commercial real estate brokerage Marcus & Millichap provides some insight into why the senior housing market is so strong, and why these assets continue to perform so well. Investors who are seeking capital to take advantage of this situation by purchasing senior housing properties should continue to look to the Chicago-based financing firm Cambridge Realty Capitalfor assistance in financing these transactions and a host of others as well.
Senior Housing Projections
Although the nation’s economy is not growing as fast as many would like, it is still growing, and this growth is driving increases in stock and housing values that retirees are tapping into to hasten their transition into senior housing. Seniors are using these funds to finance entrance fees for continuing care retirement communities (CCRCs), admissions fees, and other charges for independent living, assisted living, and skilled nursing communities. This is reflected in the projected occupancy growth for these facilities, which is expected to increase across the board this year. For example, occupancy rates for CCRCs are expected to increase by an average of 80 basis points when compared to 2013, and should reach 90.6 percent by the end of the year.
In addition to occupancy growth in CCRCs, growth is also expected to occur in the other senior housing categories as well. For example, occupancy rates for independent living communities are also projected to increase by 80 basis points to 91.5 percent; occupancy rates for assisted living communities are projected to increase by 50 basis points to 91.3 percent; occupancy rates for assisted living facilities should also increase by 50 basis points to 91.3 percent; and occupancy rates for skilled nursing facilities should increase by 40 basis points and eventually top out at 88.4 percent. In addition to this bit of good news for senior housing owners and investors, rents are projected to increase as well. In mid-2014, the average per-day-rate for a bed in a nursing home was roughly $280. But according to Marcus & Millichap, this figure should reach $284 by the end of the year, which would represent an increase of 3.6 percent over last year’s per-day-rate.
And nursing homes are not the only senior housing communities that should experience rate increases this year. The average monthly rent for independent living communities is expected to increase by 3.1percent to $2,859; assisted living rents are projected to increase by 3.4 percent to $4,218; and the average monthly rent fee for continuing care communities is expected to increase by 1.7 percent to $2,910. The combination of occupancy gains and increased rates will result in additional revenue for senior housing owners and increased valuations as well.
These projections help provide some insight into why the senior housing market remains so strong. In addition to low interest rates and increased demand for senior housing services contributing to growth, the growing economy has also played a large role in the market’s continued robustness by allowing more people to transition into senior housing communities earlier than expected. All of these factors are expected to remain in place at least until the end of the year and, consequently, the market for senior housing assets should continue to remain strong during the coming months as well.