What Is The Value of Newly Developed Senior Housing Facilities? – by Matthew Alley
Clients will often ask us, “What is the value of newly developed Senior Housing / Long Term Care facilities?”
The value of newly developed senior housing depends on specific market factors and the asset class. Specific market factors can include a lot of things. For example, is a hospital in town, or 20 miles away? Are there many adult children in town who can pay for senior care? Is there low or high local unemployment? What is the local unmet demand for senior care? The brokers of SLIB know their specific local markets and how these factors affect facility value.
While local market factors are important, the lease-up rate of each asset class also plays a role in the value of newly developed senior housing.
This week, the National Investment Center for Seniors Housing & Care (NIC) released a study on how quickly each asset class achieves lease-up.
Lana Peck, senior principal; Anne Standish, research statistician and Beth Mace, chief economist shared that after the first four years from opening, median occupancy is 95% for Assisted Living, 94% for Memory Care, 93% for Independent Living and 92% for Nursing Care. Conversely, after the first two years from opening, median occupancy is 89% for Assisted, 89% for Memory Care, 88% for Nursing Care and 84% for Independent Living.
As the article states, “A well-located and rapidly leased-up project can build forward momentum for steady demand, high occupancy and solid revenue growth, and build a strong reputation in the trade area among potential residents and their adult child influencers.”
The article continues listing factors that might affect lease-up, such as property age and size, the condition of the residential real estate market, quality of and proximity to competition, consumer familiarity and acceptance and operator quality.
It is important to keep these lease-up statistics in mind when settling on pro forma financials, as well as equity and debt needed at the start of new construction. If an operator projects to achieve 95% occupancy within 12 months, they should ask why their facility will achieve a much stronger lease-up than the median.
Also, if a facility is planned to open in your market area, it will take a period of time for the facility to lease-up, especially if it is an Independent Living or Nursing facility.
If you own a Senior Living / Long Term Care community and want to better understand what buyers are looking for, and potentially how they would evaluate your community, please contact Matthew Alley at 630.858.2501 or alley@slibinc.com.
