Expert ‘cautiously optimistic’ about senior living capital markets heading into new year

Senior living capital markets are still in flux, with significant gains in some areas as well as ongoing challenges, according to year-end observations from Cambridge Realty Capital.

The assisted living and memory care areas are facing compressed margins and elevated financing costs, according to the capital provider.

“2024 has been a year of catching our breath and laying the groundwork for good things to come,” said Tony Marino, managing director at Cambridge. “We’ve seen some positives in rental rate increases, labor market stability and occupancy growth, but we’re still waiting to turn the corner on interest rates and financing costs.”

Providers have seen a slow, but steady, uptick in occupancy this year, and labor challenges have begun to ease, according to Cambridge, which noted that average rents are up over 5% year-over-year, “though a discrepancy persists.”

“We’re seeing a clear divide between the ‘haves and have-nots’ in this sector,” Marino said. “Market leaders can command significantly higher rents, while others struggle to meet financial benchmarks.”

Higher interest rates have not necessarily hampered senior living investments, Cambridge Realty Capital Senior Vice President Brent Holman-Gomez said previously.

Operating margins have been declining since before the pandemic, according to a recent report from Cambridge. Many communities are seeing margins well below the almost 30% benchmark common in the early 2000s. The decline “is a longer-term adjustment in the sector with major implications rebalancing rent for services versus real estate,” Cambridge noted. 

The cost of debt capital is showing little sign of coming down, according to the most recent report. Banks are tending to focus on existing customers rather than entering relationships with untested clients. The banks are largely using their capital to extend maturities on existing loans.

“We’re navigating a challenging debt landscape,” Marino said. “While private lenders and HUD provide options, the cost and complexity of securing capital remain a hurdle for many operators.”

The volume of distressed sales surged in 2024, according to Cambridge. Prices per unit often fell below expectations, the company noted.

“The influx of buyers acquiring properties at a lower basis is injecting some needed dynamism into the market,” Marino said. “These buyers require less of each rent dollar to service real estate costs, potentially enabling innovative operating models that better balance rent allocation between services and real estate.”

Looking ahead to 2025, Marino said, he is “cautiously optimistic that the groundwork laid this year will yield more stable margins and improved access to capital.”