Cambridge Realty Capital has reported key findings from the senior housing capital markets in 2024, noting operational improvements despite enduring financial challenges. The industry has experienced growth in occupancy and labor market stability, but these positive trends are offset by persistent margin compression and high financing costs.
Operational advancements have been achieved with steady increases in occupancy rates, suggesting a gradual recovery. The labor market has also reached a level of stability, providing operators with more predictable workforce management. Rental rates have risen by over 5% compared to the previous year, yet disparities remain, with market leaders commanding significantly higher rents.
Despite these improvements, operating margins are still under pressure, with many facilities operating below the nearly 30% margins seen in earlier years. This ongoing trend reflects a structural shift in the industry, with rent increasingly covering service costs rather than real estate expenses. Rising labor and insurance costs continue to consume a large portion of revenue, although inflation-driven rent hikes are aiding communities in maintaining dollar levels sufficient for debt service.
The cost of debt remains high, with banks focusing on existing customers and extending loan maturities. Private lenders are active but selective, and while HUD loans are reliable, they come with longer closing timelines due to high demand. Agencies are re-entering the market but offering lower loan-to-value ratios.
A significant increase in distressed sales has been a notable trend in 2024, with record-breaking transaction volumes. These sales often result in lower-than-expected prices per unit, allowing new buyers to enter the market with less financial pressure from real estate costs, potentially leading to innovative operating models.
Looking forward, Cambridge Realty Capital remains cautiously optimistic for 2025, anticipating more stable margins and improved access to capital. This outlook is based on the groundwork laid in 2024, despite the headwinds the industry continues to face.
Cambridge Realty Capital, established in 1983, specializes in providing FHA-insured HUD loans and conventional mortgage financing. As a seasoned HUD lender, the company has completed over 500 transactions totaling more than $6.5 billion.
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