The sector managed to make some gains during 2008, however--the average revenue per available room rose 470 basis points to $2,502 a month--but the fourth quarter only saw an increase of 60 basis points. The good news is the construction levels are down by 30% over the year to 8,300 units under way.

Investment in the independent living segment has deteriorated the most of any senior housing subtype—median prices have dropped 6% over the past 12 months to $137,500 per unit, while average cap rates went up by 50 basis points to the mid-8% range. These trends are expected to continue this year.

The story is slightly better for assisted living properties, where children of seniors who have been laid off are increasingly choosing to take care of their parents themselves rather than pay for their care. That's led occupancy to dip 170 basis points to 93.8%, while average revenue per occupied unit has risen 5.2% to $3,612 per month, though the fourth quarter's increase was just 1%. An almost 3% increase in inventory in the Pacific region has brought occupancy there down 300 basis points to 91.1%. Around the rest of the country, development activity has fallen 13% from mid-2008 and that pace is expected to slow even more.

There was some investment activity involving assisted living assets, but the pool of properties to choose from is sparse. According to Marcus & Millichap, "most investors were seeking top-tier assets for long-term hold strategies, though owners of these properties are waiting out the downturn."

Due to this, more lower-grade properties changed hands, bringing the median price per unit down 30% to $98,400. Cap rates also ticked up 80 basis points to the low-9% range. Or the foreseeable future, the firm believes more investors will be attracted to the assisted living communities since they're not as impacted by government regulations as skilled nursing facilities, and they're less susceptible to changes in demand like other subsectors. "In fact, the cohort of retirees that needs assistance with no more than two activities of daily living is growing, which should support long-term operations," the firm notes.

The skilled nursing segment, considered by many to be recession proof, has held up relatively better. Occupancy only saw a 90-basis-point dip last year to 92.9%, while average daily revenue went up 470 basis points to $229 per bed. Since seniors housing construction peaked in mid-2008, skilled nursing development has fallen 13%, with almost half of the new stock concentrated in the Pacific and Southwest—the go-to regions for retirees.

Investment, however, hasn't fared too well. The median price per bed for skilled nursing properties has declined 17% over the year to $45,500, and average cap rates have shot up nearly a full percentage point to the high-12% range. Some of that increase is because a greater number of lower-quality properties have changed hands—owners of well-performing assets are opting to hold onto them a bit longer until the market turns around—skewing the numbers. Accordingly, most of the deals have involved investors with existing relationships with local banks that are looking for value-add plays. This trend should continue over the next several months.

Dementia care, a small subsegment of seniors housing, saw occupancy fall 260 basis points over the year to 93.8%, representing the largest decline among all subtypes. Revenues gains were the lowest, too, at a 370-basis-point increase to $5,409 per occupied unit.

As in the assisted living segment, Marcus & Millichap reports, "As families seek to cut costs and the nation's unemployment rate rises, some memory-impaired seniors are being cared for by their children rather than moving into DC facilities." The deterioration in fundamentals will eventually cause sellers of dementia care properties--which currently trade at a mid-10% cap rate--to lower their price expectations. Yet with ownership of 80% of these assets in the hands of chains, it's unlikely that any will hit the market until the economy begins to recover. Consequently, most of the dementia care properties that do trade will likely involve some level of distress.