prepare to sell assisted living

Is “Price Per Unit” a Good Valuation Metric for Senior Living

May 12, 2016/in assisted living, assisted living price, assisted living sale, cap rate, interest rate, internal rate of return, IRR, Jason Punzel, National Investment Center, prepare to sell assisted living, prepare to sell nursing home, sell assisted living, sell nursing home, sell seniors housing, Senior Living Investment Brokerage, seniors housing, Skilled Nursing, Washington, what is my property worth/by ryanmsaul

According to the Senior Care Acquisition Report 2016, the average price per unit for Assisted Living Facilities in 2015 was $189,200 and for Independent Living Facilities it was $192,900. However, is this really a good metric for valuing a senior living community?

In 2015 the average price per unit for Class A Independent Living Facilities was $248,500 and Class B wa $138,300. We currently have a Class C, 110-unit Independent Living Community under contract in the Pacific Northwest that will sell for less than $40,000/unit. As a company, last year we sold Skilled Nursing Facilities from $10,000-$130,000+/bed and Assisted Living Communities from $20,000-$300,000+. There are some older facilities in rural areas that have negative EBITDA which may not have any interested buyers and thus have little, if any value. Additionally, there are facilities in downtown areas of San Francisco, Seattle and New York for example that would sell for $500,000+/unit if they were actively marketed by Senior Living Investment Brokerage, INC today.

Because of the wide range in prices, we strongly recommend that owners focus more on cap rates and internal rates of return when valuing their properties. Ultimately, buyers are interested in a return on their investment and they will use these metrics to determine the price they will pay. The price per unit then becomes the result of and not the cause of the price.

To discuss the value of your Senior Living or Skilled Nursing Facility please contact Jason Punzel at 630-858-2501 x 233 or [email protected] or Joy Goebbert at 630-858-2501 x 230 or [email protected].

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How Do Rising Interest Rates Impact the Value of my Senior Living Community?

April 11, 2016/in assisted living, cap rate, Capitalization Rate, financing, independent living, interest rate, internal rate of return, IRR, Jason Punzel, operating margin, prepare to sell assisted living, sell assisted living, sell nursing home, sell retirement community, Senior Living Investment Brokerage, Washington/by ryanmsaul

Over the past several years, interest rates have remained extremely low. The 10 year US Treasury rate (a common benchmark for financial instruments) reached an all-time low in July, 2012, at 1.53% and today is around 1.8%, the Federal Funds Rate has been close to 0% for years and the Fed made its first rate increase this past December. The 10 Yr Treasury hit an all-time high in August, 1981, at 15.32% and has averaged 4.64% since 1870. Thus, there is a high likelihood that interest rates will increase as they revert back to the historic mean.

Interest rates are a measure of an investor’s desired rate of return. An interest rate, or a rate of return, is made up of three components, risk, inflation, and time value of money (allowing someone else to use your money). The theoretical risk free investment is a US Treasury or FDIC insured savings account/CD. Thus, all other investments can be benchmarked by these indexes. The greater the perceived risk of an investment, the greater the spread, or “risk premium”, will be for that investment over the US Treasury. Today, average capitalization rates (rates of return/risk premium) for assisted living facilities are around 7.5%, or about 500 basis points above the 10 US Treasury. This is the risk premium investors place on assisted living versus the alternative of investing in a “risk free” US Treasury bond. When the rates increase on US Treasury bonds, typically cap rates increase on senior living communities (or any investment), assuming the risk premium stays the same.

To determine the value of a senior living community, the Net Operating Income (NOI) is divided by the Cap Rate.

Net Operating Income (NOI) /Cap Rate = Value – (the higher the cap rate, the lower the value).

Thus, as interest rates, and cap rates increase, values go down. Below are several examples:

NOI = $600,000, Cap Rate = 7%, Value = $8,571,429

NOI = $600,000, Cap Rate = 8%, Value = $7,500,000

NOI = $600,000, Cap Rate = 9%, Value = $6,667,000

As you can see, for every 1% increase in the cap rate, the value drops by over 11%. Thus, if interest rates continue to rise over the next several years, it could dramatically affect pricing. If an owner has a desire to sell their community anytime in the next several years, now might be an opportune time.

For a complete analysis on how interest rates can affect your community’s value, both now and in the future, contact Jason Punzel, Senior Living Investment Brokerage, INC, at 630-858-2501 x 233 or [email protected]

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What is the best list price for my Seniors Housing Community?

February 12, 2016/in assisted living, assisted living community, assisted living price, assisted living sale, cap rate, Capitalization Rate, independent living, interest rate, internal rate of return, IRR, Jason Punzel, prepare to sell assisted living, sell assisted living, sell long term care, sell memory care, sell nursing home, sell seniors housing, sell skilled nursing, senior housing brokerage, Senior Living Investment Brokerage, what is my property worth/by ryanmsaul

As a company, Senior Housing Investment Brokerage, Inc. represents many different types of buyers; REITS, Private Equity companies, Regional Operators, Non-Profits and small, privately owned operators. When it comes time to sell, typically the most, or one of the most important factors is obtain the best price possible.

As brokers, owners rely on us to provide them with an accurate assessment of the value of their Seniors Housing Community and suggest a list price to help them obtain the best terms possible in the market place. As a company, over 95% of the time the final sales price is within the price range from our original market analysis. After determining a market value range, the next step is deciding on a list price. Typically, we suggest a list price of about 10% above the market value range. Thus, if we expect a property to sell between $9,500,000-$10,000,000, an appropriate list price would be between $10,500,000-$11,000,000.

Often times, sellers believe that by listing the property at a much higher list price, that it will result in a higher final sales price because buyers will “meet them in the middle.” From our experience, this is rarely the case and a high list price usually results in a much longer process and sometimes even a lower final sales price.

Buyers who have the capital available to purchase a $5, $10, $20+ million property, are very experienced and tend to have tight underwriting guidelines to achieve the returns their investors require. Buyers are not going to be “tricked” into paying more for a property because of a high list price, pride of ownership, or because it is a nice, new building.

A high list price usually results in many buyers quickly passing over the deal because they don’t think the seller is realistic and they don’t want to pursue a property that they think there is very little chance of buying at a market price. When there is little activity at first, and sellers reduce their price to a market price, buyers start to wonder if the seller will continue to reduce their price or if the property has something wrong with it. Both which can cause more delays and decreased interest in the market place.

It is much more effective to have a list price that is realistic and creates a lot of activity from buyers quickly. This creates competition among buyers by getting several offers at once and has a much greater chance of driving the up the price than having a high list price that slowly gets reduced because of inactivity.

If would you like to get an accurate market price analysis, please contact Jason Punzel at [email protected] or 630-858-2501.

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Matthew Alley Speaks at InterFace Seniors Housing Texas Conference

November 20, 2015/in Alzheimer's, assisted living community, assisted living price, assisted living sale, buy assisted living, buy nursing home, cap rate, Capitalization Rate, CCRC, development, due diligence, exclusive listing, financing, independent living facility, internal rate of return, long term care, market, Matthew Alley, memory care, new construction, nursing home price, prepare to sell assisted living, prepare to sell nursing home, private equity, proposal, REIT, risk, sell assisted living, sell CCRC, sell long term care, sell memory care, sell nursing home, sell portfolio, sell retirement community, sell seniors housing, sell skilled nursing, sell to REIT, senior housing brokerage, senior housing sales, Senior Living Investment Brokerage, seniors housing brokerage, SLIB, Texas, valuation, what is my assisting living worth, what is my nursing home worth/by ryanmsaul

On November 19th, I participated in a panel entitled “Investment Market Update: Who’s Buying, Who’s Selling & Will Velocity Keep Going Up and Cap Rates Keep Going Down”. We had a lively discussion on the current market, and I wanted to share a few takeaways.

1. Who are the active buyers and sellers in today’s market? There is more variety in buyers now than in the past decade. REITs, private equity, owner-operators and even some “mom and pops” have been interested in purchasing properties and growing their portfolio. The sellers have been more diverse than normal as well. “Mom and pops” are still very active sellers, but we have seen more regional and national owners look to take advantage of the strong market and either sell their entire portfolio or divest of a couple of properties that don’t match their strategic vision.

2. Are there different buyers for different seniors housing asset classes? Yes, absolutely. Institutional groups typically chase larger, higher quality assets with consistent cash flow. Their low cost of funds has driven owner-operators down the acquisition spectrum to the smaller assets that may be underperforming.

3. What are the most important metrics that buyers are using in today’s market? Cap rates are the most important metric when valuing a cash flowing property. The difficulty comes in valuing a property that is underperforming. In those cases, a potential new operator will put together a pro forma and land on a rate of return that they’re comfortable with. Those deals typically see a wide range in offer prices.

4. What is the optimal size for acquisitions? Typically, the larger the offering, the better. Institutional groups have a lot of equity to deploy and if they can deploy it in 10 $30 million transactions as opposed to 25 $10 million transactions, groups will typically prefer fewer transactions. One-off or small portfolio transactions have a different pool of buyers, which tends to be less institutional and requires a broker to have a greater knowledge of the individual market and its individual buyers.

5. With pricing so strong in today’s market, why are some owners making a decision to hold? The current market conditions have hastened the timeframe for owners that had a planned exit strategy in the next 12-24 months. That being said, some owners are trying to increase their portfolio’s profitability and increase value in that way. Even if cap rates see a modest increase, a major increase in profitability will still see the owner come out ahead by waiting to sell.

6. Should we be concerned about overdevelopment in the seniors housing space? I think it is the biggest risk to the acquisition market moving forward. This is obviously a market-to-market (and sometimes, submarket-to-submarket) risk. If the area that an owner has a seniors housing facility becomes overdeveloped in the future, census levels will obviously suffer and valuations will go down.

7. What does the increase in development do to cap rates moving forward? It adds a level of risk moving forward. Anything that adds risk – whether it be development, reimbursement or labor risk among others – will naturally push cap rates up.

8. Where do you see the market headed over the next 12-24 months? In the near-term, it should be strong – cap rates are still higher than most other asset classes, interest rates are low and institutional equity needs to be placed. Further into the future, overdevelopment, government reimbursement changes, interest rate increases, increased regulation, increased tax rates and the housing market could cause a bit of a pullback in pricing. That being said, I still think the seniors housing space is better equipped to handle this uncertainty than other asset classes.

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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Ryan M Saul