Outlook solid for ALFs, CCRCs but not nursing homes.

Let the good times roll--finally--for the skilled nursing and assisted living industries, which saw a surge in market prices in 2004 after five years of erratic times, according to a new market study.

Similarly, another market study painted a positive outlook for Continuing Care Retirement Communities (CCRCs)in 2005. Nonprofit nursing homes, on the other hand, aren't in for happy times.

According to the latest version of The Senior Care Acquisition Report from New Canaan, Conn.-based Irving Levin Associates Inc., the average price paid for SNFs in 2004 reached a 10-year high of $44,600 per bed. It's a far cry from the 40 percent lower prices obtained in 2003, a 10-year low, according to Irving Levin. The median per-bed price increased to $34,000 in 2004, a 34 percent gain.

Stephen Monroe, editor of the Senior Care Report, said the sharp jump in prices in both markets reflected an increase in higher quality, more profitable nursing facilities coming on to the market in the past year.

"This class of real estate is becoming more acceptable to institutional investors, who are snatching up the better quality properties in search of higher yields than other real estate types," Monroe said.

Higher Medicare rates also raised the value of most nursing facilities, Monroe said. Excluding the low 2003 rates, the market has shown recent resiliency, with the average price per bed rising by 16 percent and the median price increasing 1 percent since 2002.

In the AL market, the average price per unit of quality communities for sale, according to the report. "Many of the sellers of high-end properties remained on the sidelines last year," Monroe said.

But not for long. The heavy demand for IL units should help the market, as well as CCRCs in general, experience a strong year in 2005, according to a new report from New York City-based Fitch Ratings.

According to "2005 Industry Outlook for Continuing Care Retirement Communities and Nursing Homes," stronger demand for independent living and an improving economy will mean continued strong cash flows, solid debt service coverage and improved liquidity for CCRCs. If so, it will mark the second straight year of improvements since the market hit an all-time low in 2003.

The report notes that the CCRC industry is "headed for a period of consolidation, as regional systems are likely to form." The long-term prognosis for the industry is positive, except for access to capital, which may be tight "as the senior consumer will demand more services, bigger living units and nicer amenities."

On the other hand, the outlook for free-standing nonprofit nursing homes is negative, due to reimbursement pressures, rising insurance, labor and benefit expenses, expected reductions in Medicare and Medicaid funding, and subsequent reduced profitability, according to Fitch.

Fitch predicted "long-term stability in the nursing home sector will not occur without a significant reform of the current reimbursement environment."

Liability insurance costs will continue to be a thorn in the nursing home industry's side, with premiums increasing "at an accelerated rate," Fitch said. "Relief may only occur when states pass legislation to limit lawsuits and establish meaningful caps on settlements," the report noted.