Senior Housing Transaction Volume Down in 2017 – What Does it Mean for 2018?

Senior Housing Business recently published an article noting that the volume of transactions in seniors housing in 2017 continues a downward trend from 2016 ($18.4 Billion in 2015; $14.6 billion in 2016 and $11.7 billion in 2017).  The market had been on a steady upward swing from Q1 in 2013 throughQ4 in 2015 before starting a relatively downward trend, which accelerated in 2017.

REITs, in particular, appear to have backed off from their previous pace of acquisitions, with some industry leaders citing a concern with overbuilding and the amount of new product coming on line (with an estimated 50,000 units under construction), challenges the industry is facing with skilled nursing and a general desire to digest and orient the significant amount of new product acquired in prior years.  The downward trend in cap rates over the last year also were an impediment (to a record low 6.5% cap rate at the end of 2017).

Looking ahead to 2018, the market appears poised to perhaps show gains in volume once again based on a few factors.  First, with REITs not acquiring at their previous pace, the market has opened up to more private buyers who are starting to learn the industry and become more comfortable with the senior housing product and thus creating a larger pool of potential buyers.  Second, with the national housing market red-hot, seniors are able to sell their homes and move into seniors housing, thus increasing occupancy rates and making communities more attractive for acquisitions.  Third, cap rates appear to have hit the floor and as they rise, so will the interest in acquiring seniors housing.

Based on our analysis, the recent downturn likely is more of a pause on sales growth than a long-term trend.

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