Private Investment, Demographics Driving Skilled Nursing Deals Despite Stress

Private investors continue to drive interest in the skilled nursing industry despite knowing full well the pressures that operators face, according to a new analysis from real estate brokerage and advisory firm Marcus & Millichap.

Over the last year, nursing homes have accounted for about half of the deal volume in the senior living space and more than 53% of SNFs have gone to private investors, with the per-bed price reaching $92,500 — a 75% increase from the beginning of the decade.

“Skilled nursing facilities remain a viable option for select buyers,” Marcus & Millichap observed in its second-half 2018 analysis of the long-term care and senior housing landscape. “Those who understand the operational structure of this asset class, or who have partnered with a successful operator, will find a number of quality opportunities for investment.”

Before the economic downturn in 2009, skilled nursing beds were selling for about $40,000 to $55,000 each, the company noted, but the positive demographic trends of an aging America have driven those prices up significantly over the last decade. Those gains come alongside the well-known issues plaguing the industry, including record-low occupancy rates and staffing pressures that weigh heavily on growth.

“Staffing shortages for nursing aides and assistants are already posing a problem in some areas of the country,” Marcus & Millichap wrote. “These employees have realized a slower pace of wage growth when compared with other industry segments, leading to many workers choosing employment in other economic sectors.”

Scarcity could also be playing a role in the significant per-bed price gains: Three-quarters of all the beds on the marketplace are associated with properties that are at least 25 years old, Marcus & Millichap wrote, with 3,600 beds pulled from the available stock during the year ended September — and only about 5,500 nursing care beds in the construction pipeline.

“The majority of beds coming out of service are in freestanding campuses, while nursing care beds in combined communities increased by approximately 750 beds,” the company observed in the report. “Nearly 90 percent of nursing care beds are in freestanding facilities.”

The report also emphasized the significant geographic variances in the skilled nursing industry, with nationwide numbers masking success and even deeper pain in certain areas. While Marcus & Millichap pegged national occupancy for the third quarter of 2018 at 85.6%, that number was as high as 90% in the Northeast and as low as 74.9% in the Southwest region.

Similarly, the national average daily skilled nursing rate sat at $318 in the company’s analysis, but was $408 for Northeastern operators — and just $215 for those in the Southwest.

In general, the company blamed the rise of assisted living options for some of the industry’s woes — as well as changes to Medicare and Medicaid policy that place an emphasis on shorter lengths of stay and cost savings.

“Both have placed downward pressure on stabilized occupancy rates, forcing operators to consider other factors, such as the number of patients cared for, when looking at the health of nursing care properties,” Marcus & Millichap noted.

Written by Alex Spanko

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Alex Spanko
Alex covers the long-term health care industry for Aging Media Network, with a specific interest in the intersection of finance and policy. Outside of work, he reads nonfiction, experiments in the kitchen, yells at Mets games, and enjoys pretty much any type of whiskey or scotch — often all at the same time.

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