Senior living investors ‘cautiously optimistic’ about capital markets

Following bumpy headwinds from the pandemic and the years immediately after, senior living investors are “cautiously optimistic” as 2025 begins, according to a recent blog post from the National Investment Center for Seniors Housing & Care.

The tide is turning from the wait-and-see approach of the early 2020s, as the fourth quarter brought declining interest rates and rebounding asset values, “providing some much-needed marginal relief — and hope — across the industry,” wrote Molly Odgers, vice president and relationship manager for BOK Financial’s national senior housing group.

Odgers’ take on the capital markets landscape echoes sentiments previously expressed by Cambridge Realty Capital.

Much policy uncertainty remains with the new presidential administration, Odgers said, adding, however, that reason exists to anticipate interest rate stability. Although the Federal Reserve is unlikely to cut interest rates again this month, such stability “is a welcomed change from the rising rate environment we have all been living in,” she said.

Stable interest rates and “increasingly strong fundamentals of the industry,” are attracting capital markets back to the sector “slowly and selectively,” Odgers said, adding that banks, new equity groups and debt funds are increasing liquidity for new and existing inventory.

The news comes as the industry faces surging demand and dwindling supply, with the lowest level of senior living units under construction since the first quarter of 2014, as McKnight’s Senior Living previously reported.

Cap rates ‘creeping up’ for skilled nursing

In a separate blog post published last week by NIC, Colleen Blumenthal, chief operating officer at long-term care valuation and advisory services firm HealthTrust, noted that cap rate calculation “has never varied so much.”

“There’s a wide spectrum of risk right now,” she said. “We’ve never had a market before where the cap rate is determined by so many different factors.”

Cap rates are “creeping up” for skilled nursing operators, according to Blumenthal.

“For 30 years, skilled nursing cap rates were 12% to 14%,” she said. “Mom and pop operators, exhausted from the pandemic, are cashing out” to “[s]ophisticated operators with cash.”

Meanwhile, in senior living, cap rates are being affected by a surplus of obsolete buildings, Blumenthal said. Many properties built a couple of decades ago had numerous studio apartments, which no longer hold appeal among older adults, she said, adding that in some markets, “people still won’t lease the units even with very low rents.”