Aging Housing Market Sees Modest Gains and High Costs

image

Aging Housing Market Sees Modest Gains and High Costs

Cambridge Realty Capital reported key findings from the senior housing capital markets in 2024, highlighting operational improvements despite ongoing financial challenges. The sector is experiencing increased occupancy rates and stability in the labor market; however, these positive trends are being balanced by persistent margin compression and high financing costs.

Operational progress has been made with steady increases in occupancy rates, indicating a gradual recovery. The labor market has also reached a level of stability, providing operators with more predictable workforce management. Rental rates have increased by over 5% compared to last year, but disparities continue as market leaders demand significantly higher rents.

Despite these improvements, operational margins are still under pressure, as many facilities are operating below the approximately 30% margins seen in previous years. This ongoing trend reflects a structural shift in the industry, where rent increasingly covers service costs rather than real estate expenses. Rising labor and insurance costs continue to consume a large portion of revenue, while inflation-driven rent increases help communities maintain adequate levels of cash flow for debt servicing.

Borrowing costs remain high; banks are focusing on existing customers and extending loan terms. Private lenders are active but selective, and while HUD loans are reliable, they require longer closing times due to high demand. Agencies are re-entering the market but are offering lower loan-to-value ratios.

A noteworthy trend in 2024 is a significant increase in distressed sales, which have reached record transaction volumes. These sales often result in lower-than-expected prices per unit, allowing new buyers to enter the market with less financial pressure compared to property costs, potentially paving the way for innovative business models.

Despite the challenges facing the sector, Cambridge Realty Capital exhibits cautious optimism for 2025, based on the foundations laid in 2024, anticipating more stable margins and better access to capital.

Founded in 1983, Cambridge Realty Capital specializes in providing FHA-insured HUD loans and conventional mortgage financing. As an experienced HUD lending institution, the company has completed over 500 transactions with a total value exceeding $6.5 billion.