2025 has been a year that has brought an incredibly strong bull market. On the institutional side, we've seen record breaking volume from Welltower, robust activity from Ventas, a new nursing home market entrant into Texas paying record pricing for 100+ buildings and a likely record year for M&A activity (source: Senior Care Investor).
What is driving this activity?
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Lack of Development - There has been very little development over the past 5 ½ years since the beginning of COVID. The development world has seen supply chain issues, lack of suitable labor, regulatory roadblocks, a dip in the lending market, rising interest rates and overall construction pricing increasing dramatically.
If a group wants to grow its portfolio, it's become very difficult to develop its way into a sizeable increase to its portfolio. This leaves an owner or operator with acquisitions as its main source of growth.
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Ease in the Lending Market - Starting in March 2023, the country dealt with five US bank failures, which led many major banks that lend in the seniors housing space to flee towards liquidity and become very conservative in providing new loans. Before that, we saw dramatic spikes in the 10-year treasury rate from the beginning of 2021 through most of 2023 that made the debt markets uncertain.
Interest rates have remained relatively stable since the beginning of 2024 and the buyer market has adapted to current rates. Banks, after a period of extreme conservativism, have become much more aggressive with their terms. There have been higher LTV's, less stringent recourse requirements and more favorable terms on the loans.
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Higher Quality Listings - According to Ben Swett from Senior Care Investor, "There's been a slight uptick in the number of portfolio deals that have closed. Stabilized Class-A properties are also comprising a greater share in the seniors housing M&A market today."
Higher quality listings bring higher quality buyers willing to pay stronger pricing. Obviously, stronger pricing leads to more quality listings coming on the market as potential sellers take advantage of that pricing. That cycle has led to significant deal volume and an average price increase.
If you are an owner of a Senior Living or Skilled Nursing community and wanted to gain a better understanding of what buyers are looking for, and potentially how they would evaluate your community, please contact Matthew Alley at (314) 961-0070 or [email protected].
