Interest rate hikes kept the markets volatile and created investment uncertainty, in turn pressuring deal activity to a minimum during the 2022 to 2024 period. Skilled nursing owners and operators planned their next financing move cautiously, hoping rates would drop and allow their transaction to underwrite more favorably.
Although we have not returned to the low rates of the 2010 decade, we do seem to have reached a point where the cycle of rate hikes has ceased. In fact, modest rate cuts are expected going forward, which could provide a subtle but effective boost to our collective psyche.
With that backdrop in place, investor optimism appears to be accelerating at a rapid pace not seen in years. That optimism is manifesting itself in the form of more transactions, which we started to see signs of last year, especially during the second half of 2024 as well as anecdotally in Q1’25.
Deal Activity Accelerates
The seniors housing and care mergers and acquisitions (M&A) market hit an annual record in 2024 with over 700 publicly announced transactions, as reported by Levin Associates, fueling investor optimism. That is a 26% increase over the previous high of 560 transactions in 2022.
For skilled nursing specifically, there were 109 deals closed in the second half of 2024, with 221 transactions closed in 2024 overall. The strong volume is 36% higher than 2023’s total. Owner-operators acquired 75% of the transactions in the second half of 2024, with real estate investment firms and real estate investment trusts (REITs) acquiring nearly 21%.
For transactions with reported metrics from the second half of 2024, the median cap rate reached approximately 12%. The average price was $88,000 per bed, but over $110,000 when distressed transactions are excluded. We continue to see a wide disparity in operating environments between large and small operators, which is driving increased consolidation
Upside Opportunities
In terms of opportunities in 2025, we expect an increase in strategic acquisitions that drive consolidation activity, with investors converting distressed or underutilized assets and deliver operating efficiencies. Additionally, there should be opportunities to target the strong demand for memory care (MC) units with strategies that included repurposing underperforming skilled nursing facilities (SNFs).
The anticipated softening rate environment, coupled with moderating inflation and improving operating dynamics, should lead to strong deal volume in 2025. The Lument M&A team has the depth of expertise to effectively and seamlessly help clients identify upside opportunities, expertly position the opportunity, and maximize purchase price. As you consider your goals, we welcome you to give us a call so we can provide you with a customized and confidential analysis to inform your decision.
