2013 Seniors Housing Market Outlook

The seniors housing market finished 2012 in robust fashion in part driven by investors looking to harvest profits prior to capital gain rates increasing (15.0% to 20.0%).  The Medicare payroll tax on investment income also began on Jan 1, 2013 which layers another tax (3.8%) on most if not all seniors housing transaction proceeds. 

Despite an increasing tax environment, for a group looking to explore a sale, timing is ideal as pricing has reached historic levels for existing facilities.  Also, with the significant amount of transactions that took place in 2012, buyers are now looking to focus on 2013 acquisitions opportunities and have fewer opportunities to focus on.

Overall we anticipate the continuation of aggressive pricing for skilled nursing assets given the lack of supply available.  However, a number of factors have the potential to curb pricing in the near future.  The primary risks are reimbursement pressure and increased labor costs.

–       Pricing for existing facilities to remain aggressive given the lack of supply of product available in the market.  Most aggressive pricing for states that have a moratorium on new CON’s.

–        Cost of debt remains historically low.  Also, availability of debt for acquisitions readily accessible

–        More equity and capital looking to deploy in the sector.

–        Limited New Construction

–        Likely increase in labor costs due to Affordable Care Act.

–        2012 Report on Shortfalls in Medicaid Funding shows largest deficit since inception of the report.   Link to report:  http://www.ahcancal.org/research_data/funding/Pages/2012-Medicaid-Shortfall-Report.aspx

–        Budget Sequestration could reduce Medicare Payments again in March 2013.

–        Increased regulatory burdens by state survey teams.

Overall we anticipate the continuation of aggressive pricing for assisted as well as independent living assets given the lack of supply available.  However, new construction has started to significantly increase over the past 12 months.  Assets that have once been dominant in the market could find new competition on the horizon.  In addition, the availability of capital has driven capitalization rates to record low levels.

–        Pricing for existing facilities to remain aggressive given the lack of product available in the market. 

–        Cost of debt remains historically low.  Also, availability of debt for acquisitions readily accessible

–        More equity and capital ready to deploy in the sector driving capitalization rates to record lows

–        Likely increasing labor costs due to Affordable Care Act.

–        Increased activity in the construction pipeline could affect the performance and pricing for once dominant facilities in the markets.  This is more of a concern in the major metro markets, not secondary markets.

 –       Increased regulatory burdens by state survey teams – assisted living only.


With these factors in mind, there may never be a better time to explore a sale. Please contact Bradley Clousing at (630) 858-2501 or clousing@slibinc.com for a no cost, no obligation pricing proposal on your facility.