The results of the 2025 Senior Living Outlook Report, a collaboration between Lument and Senior Housing News, indicate cautious optimism for growth in mergers & acquisition (M&A) activity in 2025, as 50% of applicable respondents said their company plans to buy seniors housing assets in the next year. To dig deeper, we spoke with Lument’s Head of M&A Laca Wong-Hammond, who helped put survey results in context as 2025 unfolds.
In the introduction, we highlight that 50% of respondents indicated they plan to buy seniors housing assets in the next year, with independent living (IL), assisted living (AL), and continuing care retirement communities (CCRCs) as the most attractive categories. Do those figures align with your expectations for 2025 based on conversations with clients?
Laca Wong-Hammond:
The last few years have been unique in the prevalence of abundant post-COVID government support that has likely allowed struggling operators a longer window of underperformance. Lument’s M&A team has an active pipeline featuring several underperforming portfolios that are looking for an exit to stem delinquent debt service and/or advance strategic initiatives. Additionally, the M&A team is currently pursuing exit strategy solutions for distressed assets in our U.S. Department of Housing and Urban Development (HUD) portfolio.
Lastly, long-term capital managers such as pension and insurance funds are still flushed with equity and can only invest in optimized Class-A assets, keeping those valuations stable. Clients in this realm have a choice in transaction timing and are differentiated among the ocean of distressed deals. Lument is representing this category of clients too.
In 2025, 58% of respondents predict an increase in construction starts—a significant shift from the stagnancy of 2024. Does this align with your expectations?
Wong-Hammond:
Construction projects, whether deep rehab or ground-up, will depend on the financing appetite and total return. That is more than just a rate issue; loan sizing is a big factor, too (some lenders are lowering loan-to-value levels). Due to higher overall costs, including materials and labor, construction projects will need to be at the higher end of the market to pencil. This will continue to leave a supply hole in the middle market.
When asked how respondents foresee senior living asset valuations changing in 2025, 53% predict valuations will rise, 41% predict they will remain stable, and only 6% predict they will fall. These figures represent a marked improvement from 2024, when 41% predicted valuations will remain stable, 32% predicted they will rise, and 27% predicted they will fall—in line with the previous year’s results. What are your thoughts on the optimism fueling these new and improved numbers?
Wong-Hammond:
In the beginning of 2023, rate cuts were being forecasted starting in early 2024 with the Federal Reserve successfully cutting 100 basis points in late 2024; that view continues to be pushed into the future. Consequently, material changes in valuations also continue to be pushed into the future as cap rates (valuation of hard assets) move inverse of interest rates.
Credit spreads on long-term debt have compressed in recent weeks, helping lower long-term debt costs. This is a function of lenders with distressed portfolios working out bad debt, and increased lending competition as the industry continues to look ahead to more favorable markets.
The predominant factor working against forward value appreciations will likely be a continued tight labor market which negatively impacts profit margins. However, clients with scale will find a way to adapt to the new normal, or the market will adjust to accepting a new standard. As always, those who stay tuned to market developments and collaborate with trusted parties will be well-positioned to find success when the timing is right.
Considering buying or selling seniors housing assets this year? Contact us today.
