Contact Us

Skilled Nursing Facilities Are Becoming A Tougher Sell For Investors

Senior housing facilities remain attractive to investors at large, but as skilled nursing costs rise, capital providers are showing a preference for facilities that offer less intensive care and more active-living components.


“Skilled nursing is more complex from an operational standpoint, so that creates a challenge for developers as well as investors,” said Colliers International Vice President Elena Bakina, who will be speaking at Bisnow's upcoming DFW Senior Housing Boom event. “That’s why we don’t see the growth in that sector as much as we see in independent living.”

Skilled nursing facilities were rated as less attractive than independent living centers and assisted living continuing care facilities by investors in JLL’s mid-2019 senior housing investor survey. 

Of the more than 1,000 professionals interviewed for JLL’s senior housing survey, roughly 90% said independent and assisted living facilities are desirable investments overall, while 40% ranked nursing care investments as unattractive options. That is actually an improvement. In 2018, 56% of respondents said they didn't see sufficient value in skilled care facilities.  

Even though occupancy rates for existing skilled nursing centers rose in late 2018, JLL found no direct correlation between tenant demand for skilled nursing outlets and the asset's perceived value among investors. 

Instead, investors and developers remain relatively wary of skilled nursing assets, citing a range of fears from nursing shortages to the cost of keeping staff and reimbursement challenges. 

CBRE reported similar results in its own mid-2019 survey of senior housing investors, with respondents reporting a declining preference for some senior housing facilities in the face of rising healthcare costs and overhead expenses.

About 28% of investors interviewed by CBRE called independent living the biggest opportunity for investors, while another 28% named assisted living as their preferred asset.

Only 4% of investors cited memory care as a strong asset class in 2019, while 22% were confident in the active-adult segment and another 12% and 6%, respectively, reported opportunities in nursing care and continuing care retirement communities, CBRE data shows.  

Forty-four percent of investors surveyed by CBRE last year cited property-level operating costs and development expenses as their top concerns, compared to 36% a year earlier. 

The monthly median cost to rent a private room in a nursing facility reached more than $8K in 2019, according to a recent Genworth cost of care report. Comparatively, the median cost per month for an assisted care facility hovered around $4K. 


Bakina said demographics play a role in whether investors and developers warm to the idea of taking on additional operational risk.

Even though U.S. census data shows 77 million baby boomers will be over the age of 65 in 2034, Bakina said this coveted population has yet to reach an age where higher levels of care are warranted across the board. 

“The baby boomers are just entering that market,” Bakina said. “That’s why there is more interest and demand in independent living. Assisted living we usually see in that cohort in the 83-plus [age category].”

As a result, boomers are considered early stage seniors who are not overly reliant on deeper levels of care. 

But as these boomers age, longer-term care and skilled nursing facilities may reach a point where increased demand makes investors and developers more confident in this asset type. 

“The increase in that cohort is going to be in the next 10 to 15 years,” Bakina said. “That's why we see right now interest from the developers and investors in independent living because that demographic growth is happening now, versus down the road when we are going to need more dependent living.”

Learn more about the appeal of various types of senior housing at Bisnow's upcoming DFW Senior Housing Boom event March 11.