At what age is a Senior Living Facility Obsolete?

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At a certain age, virtually any type property will become obsolete.  Thus, at what age is it for Senior Living and Skilled Nursing Facilities?   I believe it is more a matter of functionality than age.

In today’s competitive world, Assisted Living Communities that are older converted Skilled Nursing Facilities tend to have challenges in keeping stabilized occupancy.   Often times they have shared bathrooms, small one-room units and limited common areas.  With lower acuity residents, private bathrooms are a must when marketing a facility.   Larger units with multiple rooms that can function as an Independent or Assisted Living unit have great appeal to allow residents to age in a place as additional care becomes necessary.

Skilled Nursing Facilities that have 3 and 4 bed wards (rooms) are very difficult to fill and often times the total bed count needs to be reduced to allow for mostly private or 2 bed rooms.   Even if the facility is accepting mostly Medicaid residents, two residents per room tends to be the maximum that is acceptable.

Other facility challenges include long narrow hallways, low ceilings, lack of elevators, and poor lighting.  Depending on the structure, these challenges can be very difficult to rectify.   While it tends to be the older Skilled Nursing Facilities that were built in the 1960s and 1970s, some Assisted Living Communities built in the 1980s and 1990s can also have a functionally obsolete design and layout.

If lack of private bathrooms and small rooms are the challenge, sometimes a solution is to focus on higher acuity Assisted Living and/or Memory Care where residents have higher acuity needs and can use a bathroom or kitchen on their own.  Unfortunately, there are some communities that have too many design and layout issues to overcome and possibly the best solution is to build a new facility on the existing ground.

To discuss the age, functionality and sale ability 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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Have Senior Housing prices peaked?

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Recently, I spoke at the Washington Healthcare Association’s (WHCA) annual conference.  I have spoken there three times on the general state of the senior housing and skilled nursing sales market.   For the first time, I had to say that the data shows that pricing has peaked.   According to the National Investment Center (NIC), prices peaked in mid-2015.   As a firm, Senior Living Investment Brokerage, Inc. sells 90+ facilities each year and we have a very good pulse on the market.  Our data would support this conclusion.  On a facility that we would have received six offers a year ago, we now might receive four.   Prices seem to be down approximately 5%.  However, when analyzing pricing over the past six to eight years, today’s prices are still very good.

The million-dollar question (quite literally!) is, where is pricing going in the future?  Prices are still very good and there are still many buyers with plenty of access to capital.  However, the Federal Reserve has come out recently talking about increasing rates again, which could push up the rate on the ten-year treasury, increasing borrowing costs.   If interest rates continue to rise, we could see a further decline in pricing.   However, we don’t see a dramatic decline in the next 6-12 months.   There are too many good buyers with plenty of capital to invest.   Occupancy is steady and new construction in most markets is not out of line.  Beyond 12 months, it is very difficult to predict and prices could change much more.  For any owner thinking about selling in the next several years, now might be a very good time.

For a market valuation on your senior living or skilled nursing facility, please contact Jason Punzel at [email protected] or Joy Goebbert at [email protected], 630-858-2501.

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

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

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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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