In analyzing thousands of communities each year, we find a very wide range in operating margins. Newer, larger communities have higher operating margins than older, smaller facilities. Communities with high occupancy rates, have higher operating margins than facilities with lower occupancy rates.
However, stabilized assisted living communities typically have operating margins (EBITDA margin) between 25-40%, and independent living communities between 30-40%+. Stabilized apartment buildings that are similar in age and size have operating margins between 40-55%. This is due to the fact that apartment buildings do not have all of the extra services, medical, food, activities and staffing that independent and assisted living communities have. Additionally, apartment buildings typically have less common areas; kitchens, dining rooms, etc, allowing for more rentable square feet, than senior living facilities.
Because of the higher operating margins and lower variable expenses, investors perceive apartment buildings to be lower risk than senior living facilities resulting in lower cap rates (higher prices). Apartment buildings can have cap rates 150-250 basis points lower than a similar age and size senior living facility. However, as senior living facilities continue to become more main stream with investors, the perceived risk decrease resulting in a smaller spread in cap rates.
For more information on what your Seniors Housing Community may be worth, please contact Jason Punzel at punzel@slibinc.comor 630-858-2501.
