Assisted Living And Memory Care Sector Making Strides In 2024
The assisted living and memory care sector continues to struggle with elevated financing costs and compressed margins despite progress in occupancy and labor stability, according to Cambridge Realty Capital’s senior housing capital markets report.
That said, the senior housing market overall posted a year of operational and financial strides while contending with ongoing challenges.
“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.”
On the positive side, occupancy has grown steadily throughout 2024, which indicates a modest but consistent recovery, according to the report. Workforce dynamics have also stabilized, giving operators more predictable and manageable labor — with average rents growing by 5% year-over-year. However, a disparity exists with market leaders commanding significantly higher rents while others struggle to meet financial benchmarks.
Meanwhile, operating margins remain compressed and many communities are posting margins well below the nearly 30% benchmark that was typical during the past two decades. This trend predates the pandemic and is a long-term adjustment, according to Cambridge.
“Labor costs continue to consume a significant share of each rent dollar,” Marino said. “And now, rising insurance costs are taking another bite. The good news is that inflation-driven rent increases are helping communities regain absolute dollar levels that can better support debt service.”
The elevated cost of debt capital also remains a challenge and there are few signs of relief, said Cambridge. Banks are focused on extending maturities on existing loans and have little appetite for new deals, the report said. Private lenders are increasingly selective in their underwriting. HUD financing remains reliable but closing timelines are lengthening due to demand, and agencies are returning to the market but at lower loan-to-value ratios, the firm said.
Difficulties in the sector have spurred a surge in distressed sales with record transaction volumes, but prices per unit often fell below expectations. Marino said this activity is bringing dynamism into the market as buyers are in a better position to innovate operating models that balance rent allocation between services and real estate.
“While we’ve made meaningful progress in some areas, the industry still faces significant headwinds,” Marino said. “As we move into 2025, we’re cautiously optimistic that the groundwork laid this year will yield more stable margins and improved access to capital.”
Source: GlobeSt
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