Value of a Senior Housing or Assisted Living Facility
How to assess the value of a senior housing and assisted living business in 2024.
Ascertaining the value of a senior living facilities
At Haven Senior Investments, we acknowledge the inherent complexity involved in ascertaining the true value of Senior Housing Facilities. We approach this task with meticulous consideration, recognizing that a singular methodology cannot be solely relied upon for a comprehensive valuation. Our commitment involves a thorough examination of the nuanced elements within the historical financial performance of each business. To derive a judicious valuation, we deploy multiple methodologies, allowing for a convergence that reflects a comprehensive assessment.
When a Senior Housing Facility is introduced to the market, we broaden our perspective to establish a foundational price with robust support while also exploring a potential market reach price. This nuanced approach serves to delineate a range around the target valuation, recognizing the dynamic influences of external market forces. Further detail of each evaluative approach is provided below.
Income Capitalization Approach
The Income Capitalization Approach encompasses the application of a Capitalization Rate to the Net Operating Income (NOI) of a Senior Housing Facility. In instances where the business exhibits stability, generating a Net Operating Income aligning with industry norms, the formula Value = NOI / Cap Rate serves as an effective means to derive a market valuation. Renowned for its efficacy in valuing businesses as well as investments across diverse asset classes, the Income Capitalization Approach is widely regarded as a principal determinant of market value.
However, potential vulnerabilities inherent in this method include the subjectivity associated with selecting an appropriate Cap Rate, oversimplification of Income and Expense classifications, the intricacies involved in substantiating Net Operating Income, and susceptibility to external market conditions, such as fluctuations in interest rates.
Sales Comparison Approach
The Sales Comparison Approach relies on the scrutiny of historical sales data pertinent to similar Senior Living Facilities, emphasizing a discerning evaluation of both commonalities and deviations between the subject business and comparable sales data. Adjustments are made to standardize considerations including facility size, condition, operating class, and other relevant factors, culminating in a comparable valuation, typically on a per-unit basis.
While integral as an appraisal-related methodology, the Sales Comparison Approach functions primarily as a crucial check on valuations produced by alternative methods. However, its limitation lies in the exclusion of variations in financial performance and the inherent subjectivity in the selection and normalization of comparable data, making it more apt as a validation tool rather than a standalone value determinant.
Need in the Local Market
When evaluating a senior housing purchase it is as important to evaluate the local market place as it is to evaluate the financials of the business. Assisted living is a needs-based industry. People move into assisted living because they are no longer able to live safely at home. Understanding the ratio of available beds in a local area to the demographic of likely residents is an important factor to consider. Today’s data-driven technology allows Haven Senior Investments to specifically mine and analyze this data. It’s important to understand not only the total number of licensed beds in any particular market but also to understand what is in the development pipeline that will be entering and competing in the surrounding market. Haven Senior Investments utilizes both data and metrics when analyzing investment opportunities. Let us help you assess the local market of each opportunity to be considered. Call us for a site-specific market report if you are evaluating a senior housing investment anywhere in the 50 states.
Our Team
Whether you are a seasoned investor or new to the market, it’s always important to be supported by a strong team. The Haven Senior Investments’ team brings a unique combination of finance, real estate, business, development, operations, and healthcare experience to serve our varied senior housing clients. We operate on a team approach, which allows our clients to benefit from the experience and expertise of the whole Haven team.
When you are considering an investment in, dealing with your debt, needing help with operations, or selling your seniors housing we would be honored to serve you and we look forward to hearing from you.
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