Is now the right time to sell assisted living and nursing home assets?

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Senior Living Investment Brokerage, Inc. is frequently asked if now is the right time to sell assisted living and nursing home assets. Most owners are aware the market is favorable for Sellers, but few actually know their current value. Senior Living Investment Brokerage’s biggest challenge is not convincing owners that the time is right to sell, rather it is getting an audience with them to put together a confidential proposal that determines the value of their assisted living community or nursing home . The M&A market and market indicators make a strong case.

The assisted living market is very aggressive right now. Pricing and deal volume is at an all-time high.  Early indication is that July could be another record month.  When looking at Seniors Housing, characterized as assisted living/memory care and independent living, pricing has increased significantly over the past few years. According to the Senior Care Acquisition Report, 20th Edition, published by Irving Levin Associates, the average price per unit increased from just over $100,000 per unit to around $200,000 per unit in the last five years. Low cost of capital and significant demand for Seniors Housing, in addition to aging demographics, has caused pricing to skyrocket in a short period of time.  Institutional capital is turning to Seniors Housing as a resilient segment to put their money to work. In addition, many regional companies are well capitalized with multiple debt and equity sources to make strategic acquisitions.

How long will it last?  Will overbuilding hurt occupancy and the market/values?  Will an increase in interest rates hurt values and activity?  Please contact Ryan Saul to discuss the current market and how Senior Living Investment Brokerage, Inc. can help.

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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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Seniors Housing – Small buildings vs. Large buildings

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As a company, Senior Living Investment Brokerage Inc, sells all types of senior living and long term care communities.   One type of senior living community type we are seeing more of is the “pod” style of smaller buildings grouped together on a single parcel of land.   Thus, instead of having one 80 unit facility, there might be five, sixteen unit facilities with one of the facilities being a bit larger where more of the community activities take place.  There are some advantages and disadvantages to them.   We find that often times residents like the feel of the smaller facilities because they feel more like a home and it is easy for them to get to know the other residents.   From a marketing/occupancy standpoint, these types of facilities also seem to be attractive and often times enjoy very high occupancy.

The biggest disadvantage is staffing and efficiency.  Depending on the state and acuity level, often times these smaller facilities require a staff person to be in each facility 24 hours a day.   For only 12-16 residents, this can be very inefficient and costly.  Also, while each facility usually has its own kitchen, it can be very inefficient to have a cook in each facility or to cook in one facility and have to transport to the other facilities.   We often find that this type of community set up operates at an operating margin around 25% while a similar age/acuity level facility that has all of the residents under one roof might operate at a 32-35% margin.  Thus, it limits that maximum amount of cash flow a community can create, decreasing its value.   However, smaller facilities can be more attractive to residents and thus have great occupancy, some of the cash flow deficit may be eliminated.  While we see more buyers prefer the larger facility communities, both styles can be very effective in delivering great resident care and producing profitable returns for the owner.

To have Senior Living Investment Brokerage, Inc. help you analyze the value of your senior living community, contact Jason Punzel at 630-858-2501 x 233 or [email protected].

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