Should I sell or lease my Senior Living Facility?

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When considering to exit the senior living industry, there are two main alternatives to consider, selling the facility fee simple, or leasing it to an operator.  There are advantages and disadvantages of each option.

The biggest advantage of selling an assisted living facility (or independent living facility) is an owner receives all of their cash up front and has no future financial liabilities or risk.  The owner no longer has the risk of the market going down in the future, new government regulations, overbuilding, etc.   The biggest disadvantage of selling is paying the capital gains tax, which can be substantial for those owners who have owned their facilities for a number of years.

Leasing, on the other hand, has the advantage of not having to pay a large sum of capital gains tax and the advantage of receiving monthly rent.  For those owners who do not need a large amount of cash upfront, leasing can provide a great residual income for years.    However, the disadvantages of leasing are many.  To begin with, an owner must find a quality tenant that has the operational and financial ability to run the facility for the length of the lease.   If the operator defaults on the lease, the owner could be in the position to have to take over the operations of the facility, which could be in poor condition.  Additionally, at the end of the lease, the owner still has to make a decision on what to do with the facility.  If the market is worse, and/or if there are new competitors in the area, the facility could be worth substantially less than at the beginning of the lease.

When the market to sell a senior living facility is good, like it is today, it typically makes more sense to sell and eliminate the risk of an operator defaulting and/or the facility being worth a lot less at the end of the lease.    However, when the market to sell is not as good (like it was in 2009-2010) it might make more sense to lease the facility to a quality operator.

For more information on different exit strategies, contact Jason Punzel at [email protected] or (630) 858-2501 x 233.

The post Should I sell or lease my Senior Living Facility? appeared first on Senior Living Investment Brokerage.

When is the best time to list a seniors housing or nursing home community?

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I’m often asked when is the best time of year to list a seniors housing or nursing home asset?  We are all used to residential real estate agents telling us to list in the Spring while the weather is starting to change (at least for us Northerners).

Does it matter for seniors housing communities?

Yes and no.  While there is not the seasonality in the seniors housing market as there is in the residential market, there are good and less optimal times for getting buyers’ (even institutional buyers’) attention.

I would argue that we are entering into one of those sweet spots as we get into the middle of September.  Typically, Senior Living Investment Brokerage, Inc. has its highest volume of listings in September and early October.

Why is that?

During the Labor Day / beginning of October time frame, Buyers have made it through the Summer and are looking to deploy capital before the end of the year.  They are hoping to make one last push to meet their aggressive beginning of the year expansion goals.

With a typical 3-4 month closing period, now is as good of a time as any to consider listing your property with Senior Living Investment Brokerage, Inc.  We can help you procure the right Buyer, who can close the transaction prior to year-end.  Many Buyers are looking to “get money out the door” by December 31st and this may give you an advantage in coercing those groups into making a more aggressive bid than they would in the middle of the year.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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How to Sell Assisted Living Facilities Faster (part 1 of 2)

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Deciding when to sell your assisted living facility (Independent Living Community or skilled nursing facility) can be a daunting task and there are many factors to consider.   However, once an owner decides to sell, typically they want to close as quick as possible.   As a company, Senior Living Investment Brokerage, Inc has sold more senior living and skilled nursing facilities than any other brokerage company over the past seven years.  Over the years, we have found a number of things an owner can do to help sell their senior housing community faster, below is a list of the top six (3 will be in this blog and 3 will be in a future blog post):

  1. Price the community reasonably – Of all the things an owner can do to sell their senior housing community quickly, pricing it reasonably is the most important. Overpriced properties do not sell.   They tend to sit on the market for months as buyers do a quick analysis and pass.  Eventually, the seller drops their price to a reasonable market price.   Unfortunately, many buyers will not go back and re-look at the property or they wonder if the sell will have additional price drops.  Effectively the property becomes a stigmatized property.  Financially qualified buyers tend to be smart and know the market well.  They purchase properties that make financial sense and don’t get persuaded emotionally.  Over pricing a property in hopes to “get lucky” and find a buyer that will pay the higher price rarely works and usually ends up wasting time and often times can result in a lower price than if the seller priced the property reasonably from the beginning.
  2. Hire an experienced brokerage company – An experienced broker can help a seller price the property reasonably. It is important to make sure the brokerage company has a team of brokers that work together as a team to contact hundreds of potential buyers across the country quickly.  Additionally, most owners want a confidential sale of the seniors housing community and many brokers do not do a good job of this.
  3. Talk to an attorney and accountant ahead of time – Owners should talk to their accountant before the marketing process starts to make sure they understand the tax implications of the sale and decide if they want to consider a 1031 Exchange. Additionally, it is very important for a buyer to be working with an attorney who has specific experience in health care real estate sales.  Most brokers can recommend a good attorney if an owner does not already know one.  If an owner waits until offers start to come in to talk to their accountant and retain an attorney, it can slow down the process and make the seller look very inexperienced.

For more information on selling your seniors housing property, please contact Jason Punzel at 630-858-2501 x 233 or [email protected].

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How additional sources of funds are impacting the seniors housing market

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Over the past couple of years, we have seen capitalization rates (defined as Net Operating Income divided by Purchase Price) drop steadily to historically low levels, which in turn has led to purchase prices being driven upwards.

Now is the time to take advantage of this market and either exit the business through a sale entirely or divest of a few properties from your portfolio that do not fit with your current strategy.

Why is the market so strong right now?  More so than any other factor, the market has been impacted by the increased availability of capital (both debt and equity) and the low cost nature of said capital.  Interest rates are still at historically low levels, and while rates may creep up a bit, most analysts expect a measured increase.

During the Great Recession, transactions were mainly financed by three different methods: (1) all cash; (2) HUD financing; or (3) mostly public REIT financing.  Community banks were only lending to their best clients on the most conservative of terms, and there were not a great deal of smaller, private REITs or private equity firms willing to support the acquisition of seniors housing facilities.

Over the past couple of years, community banks have become more aggressive as they are sitting on a large reserve of cash that they need to deploy and there has been a growth in the private REIT space.  According to investment banking firm , Robert A. Stanger & Co., and reported by Seniors Housing Business, a handful of non-traded REITs devoted to seniors housing have amassed $6.4 billion in equity over the past few years.  The availability of these capital sources has had a huge impact on the seniors housing acquisition market in the form of increased pricing.

The most recent example of this was a $30M nursing home portfolio that Senior Living completed in Texas.  It was purchased by an independent, regional owner-operator and financed by a community bank out of Louisiana.  Until recently, that size of transaction would have been almost certainly REIT financed or purchased by a large, national owner-operator.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or [email protected].

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