Spread Between High- and Low-End Skilled Nursing Facilities Widens, Bed Prices Decline Overall

The skilled nursing mergers-and-acquisitions world is dominated by the gulf between haves and have nots, and a new survey from real estate giant CBRE shows that gap widening by at least one metric.

Cap rates for the most desirable, Class A nursing facilities in core locations averaged 11.3%, according to CBRE’s Summer 2019 U.S. Seniors Housing & Care Investor Survey — a figure that rose to 12.2% for Class B properties and 13.6% for the most challenged Class C SNFs.

“Nursing care properties had the largest cap rate spread between classes,” CBRE observed in its analysis. “They also had the greatest increases in spreads since the summer 2018 survey, perhaps due to the changing regulatory environment.”

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At the same time, CBRE calculated the most recent four-quarter rolling average bed price in the skilled nursing space at $77,250, a drop of 3.9% from the fourth quarter of 2018 and a year-over-year decline of 7.9%. That’s compared to a 16% boost in per-unit prices at senior living properties from last year, according to CBRE.

As is common in these surveys, SNFs ranked low on investors’ wish lists, with 12% of respondents identifying the space as the “biggest opportunity for investments” — a drop from 17% this time last year. SNFs were only able to beat out the beleaguered continuing care retirement community (CCRC) and memory care industries, with active adult developments seeing a jump in investor sentiment.

That said, the general market conditions for senior housing and care remain favorable from the respondents’ viewpoints, with positive mentions of the overall demographic trends in the United States and data showing record-low construction starts in the nursing care space.

“With new supply beginning to taper, operators will leverage rent growth to help offset rising operating costs and maintain a healthy bottom line,” CBRE concluded.

The summer 2019 version of the survey attracted responses from 107 developers, investors, lenders, and brokers across the United States, according to CBRE.

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