Valuation for rest homes: quality first

Since the 1980s, residences for elderly persons (rest homes) have been subject to an alternative regime of joint ownership. All expenses were shared and assimilated into joint ownership, weighing heavily on occupiers and owners alike. Since 2009, the arrival of “second type residences” has made it possible to distinguish between services consumed and joint ownership charges. This improves the profitability profile of such residences for investors. But in a context of high demand and supply shortages, however, there is downward pressure on rates of return. In this context, the quality of services is a fundamental element in the valuation of this asset.

While unit sales continue to dominate, the market has seen an increasing number of institutional investors buying in bulk and therefore opting for a secure product due to a very high occupancy rate and a strong demand linked to the growth of the elderly population.

Our expert's point of view

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SOLENNE LOIZEAU

Expert valuer specialised in service residences

What are the special features of the nursing home asset?

With longer life expectancies, rest homes have a future, as do nursing homes. These homes for elderly people aged between 75-80 (on average) offer services reserved for residents (excluding medical care). They represent 1.3% of the non-medical nursing homes in France, compared to 4% in the United Kingdom and 7% in Quebec. Demand will increase gradually by 2050. In addition to first-generation residences that pooled all charges, “second type residences” offer a better profitability profile. Since 2015, a "quality" accreditation of personal service has made it possible to assess the adaptation of services to the needs of residents.

What are investors' expectations of rest homes for the elderly?

With this type of asset, investors rely on a secure product: the supply of rest homes is below demand and their occupancy rate is around 98%. Not to mention that residents benefit from many types of assistance: Independence Social Allowance, Personal Housing Allowance or Social Houisng Allowance. Commercial leases with operating companies guarantee buyers visibility for at least 9 years. Investors prefer to look for nursing homes located in urban areas within large and medium-sized towns, easily accessible by public transport, with a high quality of service.

What are the main valuation criteria for nursing homes?

The following criteria that must be carefully considered when valuing rest homes for the elderly: Operator quality (which includes its references and financial resources), diversity and quality of services offered (well-being area, swimming pool, sauna, tea room, library), compliance with safety standards, accessibility, hygiene, etc.

“Hotel” services of the establishment

Breakfast, cleaning, linen supply, guest reception

Quality accreditation of personal service

(required since 2015) or Afnor certification

Type of accommodation

Studios, T1 bis, T2

Critical size of 80-100 beds

Provides recreational facilities and full-time staff

Total common space surface area

Between 150 and 1,000 sq m depending on the size of the residence

When our valuers are confronted with the valuation of rest homes that are unclassified, positioned on secondary sites and disconnected from a growing competitive market, they can advise clients to consider a repositioning within the traditional rental market.

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