Operators are buying assisted-living facilities at premium prices, and developers are building them more often than any other type of senior housing, according to two reports recently released by the American Seniors Housing Association.
But assisted-living acquisition prices are likely to slide this year, as will the rate of construction of most types of senior housing, according to ASHA Executive Director David Schless.
Tighter capital markets will slow construction, and the lack of high-end facilities on the market will push down prices, Schless says.
Operators of senior housing, particularly publicly held companies, will focus on strengthening operations of existing properties rather than acquiring or developing new ones, according to ASHA's 1999 investment trends in the senior housing industry report.
The Washington-based trade group tracks construction, investment and policy that affect the senior housing industry.
The investment-trends report showed prices paid for the acquisition of existing housing for seniors have continued to grow rapidly. For both assisted-living and congregate housing with assisted living, the median price per unit rose 118% from 1994 to 1998. The median per-unit acquisition price for assisted-living facilities in 1998 was $86,667, a 37% increase over the 1997 price. Congregate housing with assisted living remained the priciest type of senior housing, rising 29% from 1997 to $103,940 per unit in 1998.
That price reflects high demand for housing that can accommodate both independent seniors and those with moderate needs for daily assistance.
Combination housing also had the lowest overall capitalization rate, at 8.9% in 1998, compared with 9.8% for congregate housing with no healthcare component and 11% for assisted living.
Calculated as the first year's projected net operating income divided by the acquisition price, capitalization rates are an indicator of perceived risk. By this measure, senior housing that offers both healthcare services and independent living is seen as less risky an investment than either type alone.
Prices for congregate housing with no healthcare component rose more slowly than other senior housing, growing 88% from 1994 to 1998, and 20% from 1997 to a $73,529 per-unit price in 1998.
The study, prepared by Gulf/Atlantic Valuation Services, analyzed 286 transactions from 1994 to March 1999.
The second report, which focused on building trends in senior housing, showed a slight drop in properties under construction in 1999 from 1998, but a 30% increase in number of units under construction. The increase in number of units to 65,879 in 1999 reflects a trend toward building continuing-care retirement communities. The number of continuing-care retirement communities under construction rose 63% to 44 in 1999.
Continuing-care retirement communities include independent-living, assisted-living and skilled-nursing care for seniors.
The number of assisted-living construction projects tracked by the survey fell 12% to 403 in 1999, but remained the most popular segment of the senior housing construction market, the survey showed.
About 44% of new properties were freestanding assisted-living facilities; an additional 43% of new properties combined assisted living with other types of housing or healthcare.
Only 13% of new housing properties for seniors lacked a healthcare component.
The survey identified a total of 591 properties under construction by 115 regional or national developers of senior housing.
By region, California, Florida and Texas remained the fastest-growing states for senior housing, with Texas dropping to third from first last year and California taking the lead.
The three states accounted for 28% of construction in 1999.