Investors have been less interested in buying skilled nursing properties this year, as they have shifted their attention more toward private-pay assisted living.
Overall transaction velocity in the skilled nursing sector has declined 17% over the past year, according to a new report from Marcus & Millichap, a Calabasas, Calif.-based commercial real estate brokerage and research firm.
At the same time, there has been a 34% increase in assisted living sales activity. This trend might continue into the future, the report notes. That’s because real estate investment trusts, which have been selling off financially troubled skilled nursing assets, might turn their attention to acquiring private-pay senior housing properties as they rebalance their portfolios.
Other skilled nursing trends paint a picture of the continued challenges facing the sector, as the health care system and consumer preferences evolve.
For the fifth straight year, nursing care inventory has fallen, with 330 beds removed from the nation’s stock in the second quarter of 2017. Meanwhile, there are only about 5,000 SNF beds under development at the moment, down from a peak of more than 11,100 beds at the end of 2012.
While consumer demand for traditional SNF care dwindles, the cost of care is rising. This is pushing operators to increase rates, which went up 2.7% over the last 12 months, reaching $308 per bed per day. Marcus & Millichap projects that this rate will reach $311 by the end of 2017.
Occupancy, which has been below 90% for nine years, likely will keep falling, declining 60 basis points to reach 86% this year, the report projects.
However, some industry leaders have argued that occupancy is not the best metric for evaluating SNFs. As more providers shift toward short-stay rehab models, occupancy likely will fall, but revenues might increase at the same time.
One issue hovering over the SNF sector might soon be resolved. Uncertainty about whether Congress will repeal and replace the Affordable Care Act has been constraining investment activity, the report authors noted. As of Tuesday, it appeared that the latest repeal-and-replace bill had failed to garner the needed support to pass the Senate.
Written by Tim Mullaney
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