Capital Gains Tax Increases – how does this affect my senior housing facility?

Long-term capital gains, defined by assets held for more than one year, are taxed at a lower rate than short-term gains. Under President George W. Bush, this rate was reduced in 2003 to 15% for individuals outside of the lowest two income tax brackets. These reduced tax rates are effective through 2010. If they are not extended before the end of this year (and the current administration has shown no desire to extend), they will expire and revert to the rates in effect before 2003, which were generally 20%.

What does this mean to the senior housing industry? If the capital gains tax rates are increased as is expected in 2011, we will see an uptick in transaction activity in 2010 as current owners attempt to maximize their after-tax return on investment. Of course, much of the transaction activity will depend on lending community, but I believe that we will see current owners push their transactions through to close by the end of this year. This will cause more quality inventory to come on the market.

How does this impact the potential sale of my facility? As an example, if an owner has a cost basis of $3 million and will be selling his/her facility for $5 million after fees, the owner will be on the hook for $2 million in capital gains. If the 2010 tax rate continues to be 15%, the owner will be obligated to pay $300,000 in taxes if the transaction is completed in 2010. If the 2011 tax rate increases to 20%, the owner will have to pay an additional $100,000 in taxes if the transaction is completed after December 31, 2010.

Since typical senior housing transactions can take 6-8 months or longer to close, now is a great time to explore selling your senior housing facility. Senior Living Investment Brokerage, Inc. had a record year in 2009 in an uncertain economy. SLIBCO provides non-binding marketing proposals, whether you’re interested in selling soon or are just curious of your facility’s value.

Contact me via email at alley@seniorlivingbrokerage.com

Matthew Alley
Senior Vice President

Senior Living Announces Chicago SNF Sale

Ryan Saul and Michael Brundage sold a 313 Bed Skilled Nursing Facility in Chicago. Senior Living was able to procure 10 offers on the facility. In addition, the transaction took 82 days from listing engagement to closing. The Seller was a regional owner/operator and the Buyer, located on the East Coast, was seeking an opportunity to expand into the Midwest. The price per bed was over $71,000 even though the facility had negative cash flow. The 72,432 square foot building on 1.15 acres had a census of 64%. The facility enjoys an excellent reputation and a great location.

Ryan Saul and Jeff Binder Sell Wisconsin SNF

Senior Living Investment Brokerage successfully sold a 161 Bed Skilled Nursing Facility in Northern Wisconsin for the second time in six years. Originally sold in 2005 while in bankruptcy, the Buyer was attracted to the favorable bed price, potential for improving Medicare census and challenge of a turnaround situation. This was the only facility the Seller owned in Wisconsin and they had achieved their goal of turning the facility around. The Buyer is a regional operator and this acquisition will improvew their economies of scale. The Buyer utilized HUD Lean financing.