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Skilled nursing bed prices have remained strong throughout the COVID-19 pandemic, with prices reaching $95,800 per bed during the second quarter of 2022. 

Operators can thank multiple reasons for the strong pricing. But experts question whether the good fortune will remain once pandemic-related challenges catch up, said Bill Kauffman, senior principal for the National Investment Center for Seniors Housing & Care.

Kauffman explained that monetary and COVID-related fiscal policies, such as Medicaid rate increases and relief funding, created a large amount of liquidity. That has led to attractive asset prices during the pandemic, Kauffman said in a blog post Wednesday. 

He added that the Patient Driven Payment Model has also compensated for more care, meaning that buyers can “justify paying higher prices per bed if they are estimating higher cash” flows.

There is the yield spread vs. other real estate asset types, he noted.

“If skilled nursing properties are selling for cap rates at, say, 11%, investors still have a significant cushion if they have debt cost of capital in the 5% range and a loan-to-value in the 90% range,” Kauffman pointed out. 

However, there are challenges on the horizon. Higher rates and labor market challenges could send more sellers to market, giving buyers more options.

“In addition, if the cost of capital continues to increase as well, the price-per-bed increases may be limited in the near-term,” Kauffman concluded. 

LevinPro has credited SNF per-bed prices’ steady increase to the combination of a “low supply of facilities for sale coupled with a large supply of interested buyers.” The result “has caused bidding wars and pushed prices up further,” said Ben Swett, the firm’s senior care analyst. 

“[B]uyers in search of higher yields have targeted skilled nursing facilities, which have consistently sold for cap rates between 12% and 13% for much of the last 20 years,” he told McKnight’s Long-Term Care News, citing his firm’s research Wednesday.