As 2025 deal volume rockets past previous records, we are seeing more portfolio deals coming to market. This common question always arises – what is the portfolio premium? This is a hard question to answer, nonetheless to quantify. And then there are the buyers who ask about the opposite – is there a portfolio discount and potential wholesale to retail strategy? SLIB has been involved in several portfolio sales in 2025 including this 3 facility portfolio in Tennessee and Georgia.
So what is a portfolio premium? What forces cause portfolio premiums? And when are there no premiums at all, but rather, wholesale discounts?
“Portfolio Premium” is defined as the extra value buyers pay for a collection (portfolio) of assets, over buying each asset individually. In theory it scales infinitely with price but with marginal returns.
Forces that cause Portfolio Premiums:
- Unlocking all buyers: Most institutional groups have “minimum check sizes” and have a threshold for the size of deals they will look at. At $100m you “unlock” most institutional buyers in a market. More buyers means more competition and better pricing. As you move from $500m to $1bn you are likely not unlocking any more buyers but rather shrinking your buyer pool.
- Unique Costs of Capital: Buyers that source capital from LP’s acquiring $100m+ asset deals frequently have cheaper costs of capital. These LP’s could be international players with unique return expectations, different than traditional, private, regional buyers. LP’s cost of capital will slightly improve when moving from a $500m to a $1bn asset acquisition which will marginally improve larger portfolio pricing.
- Administrative Savings: There is significant value created for buyers in replacing forty separate deals with one portfolio deal. Entertaining forty separate deals could mean forty brokers, forty data rooms, forty PSA’s, etc. Thus one large portfolio process reduces administrative burden and cost and is more attractive for institutional buyers. As you move from $100m to $1bn you are saving the buyer (and seller) valuable time which translates to dollars.
- Operational Synergies: Arguably one of the largest drivers of portfolio premiums comes from the perceived economies of scale that come from operating a portfolio with many locations in one basic geographic location. Exactly what these synergies are vary widely based on the strategy of the buyer/ operator but can include things like: designating one regional manager, sharing flexible facility-level labor forces, negotiating better pricing on supply contracts, simplifying ownership travel and oversight, etc. These cost savings will be baked into buyers proforma models, reducing total expenses, increasing future cash flows, and potentially increasing what a buyer is willing to pay.
- Qualitative aspects
- Geographic Barriers: With especially concentrated portfolios, buyers may value having a strong hold on a market making it difficult for competition to enter.
- Turning Heads: From a publicity standpoint, there is some value to a buyer in putting their name on large, headline driving deals. This typically improves their market credibility and potentially leads to future opportunities.
In most cases, when the quality of the underlying assets are sound, there is a portfolio premium – for all the reasons listed above.
Portfolio discounts are harder to come by and will typically stem from a distressed source, whether that be a foreclosure, lender driven process, etc. There could also be discounts when the portfolio is small and the geography is scattered without offering synergies. Other factors that could drive a portfolio discounts include assets the are vastly different; including Class A communities with a small Class C communities, etc, including stabilized communities with value-add communities, or including standalone memory care communities with IL/AL/MC. This forces groups to buy assets outside of their standard criteria and they will typically discount those assets. In these instances, buyers will value the assets individually concluding a value as a one-off purchase value vs. a portfolio value.
In conclusion, no two portfolios are built the same. And every buyer and seller will have their own thoughts on perceived value justification. The above provides some guidance on how premiums are considered. For more information, contact SLIB!
