Ryan Saul Handles $63,000,000 Indiana/Iowa Transaction

Ryan Saul recently sold 19 Skilled Nursing Facilities of which 17 were in Indiana and 2 were in Iowa. The total portfolio consisted of 1,159 beds with an overall occupancy of 80% with approximately 12% Medicare and 10% Private Pay. A couple of the communities included assisted living but were higher acuity than normal. The Seller began accumulating his portfolio in 2000 adding a couple of buildings each year through acquisitions. He specialized in smaller, middle market properties that deliver quality care in addition to providing quality Rehab/Medicare services. The owner decided to sell the portfolio to start the transition out of seniors housing. As part of the transaction, the Seller granted the Buyer the option to assume/purchase an additional 12 facilities (prior to 2020) that are currently leased from a public REIT. The Buyer is a Midwest owner/operator that purchased the portfolio using a 1031 exchange related to the sale of a portion of their existing portfolio. The Buyer will absorb the operations into their existing Midwest portfolio of nursing homes. For additional information, please contact Ryan Saul at ryansaul@slibinc.com or 630/858-2501.

Patrick Byrne and Bradley Clousing Sell Alabama Assisted Living and Skilled Nursing Community

Brad Clousing and Patrick Byrne recently sold a 125 bed skilled nursing facility and a 30 unit assisted living facility in Northwest Alabama. The property has been family owned and operated since it opened and was currently being operated by the owner's second generation. This is the only skilled nursing asset in the family's portfolio. The community was built in stages beginning in 1976 with additions in 1991, 1993 and 1998. A majority of the 74,140 square foot property(s) was renovated in 2013. The community is a CMS 5-Star rated facility with over 30% Medicare mix. In the Fall of 2013, the city experienced a Legionella event which impacted the nursing/assisted living facility. Management implemented a self imposed admissions ban affecting the census and expenses. Despite these challenges, Senior Living Investment Brokerage, Inc. was able to procure five qualified offers on the property in two weeks. The buyer is a New York based investment group and has entered into a lease with a national operator. The financing was provided by CapitalSource. For additional information, please contact Pat Byrne at byrne@slibinc.com or Brad Clousing at clousing@slibinc.com

Brad Clousing Sells Florida Hotel Conversion

Brad Clousing recently sold a hotel located in Deland, Florida, that was purchased by a partnership consisting of a private equity group and a local operator with plans to convert the asset to an assisted living community. The hotel was originally constructed as a Hilton Hotel and Conference Center and is currently operating under the Clarion flag. The large resident room floor plans, common area amenities and restaurant style dining facilities will provide for an easy transition/conversion. The hotel was built in 1986 and consists of 148 resident rooms and 140,000 square feet. For additional information, please contact Brad Clousing at 630/858-2501 or clousing@slibinc.com

Nick Cacciabando and Patrick Byrne Sell Oklahoma Portfolio

Patrick Byrne and Nick Cacciabando have sold two seniors housing campuses in Tulsa and Bristow, OK, for a local family. The Tulsa campus comprised of a 116 unit senior independent living facility, a 90 unit assisted living and residential care facility and a 117 bed skilled nursing facility. The Bristow campus comprised of a 106 bed skilled nursing facility and a 16 unit assisted living facility. The Seller was a local family that had been in the business for 50 years. They were the original owners/developers of these communities. These were their only LTC/Seniors Housing assets. The Buyer is a regional owner/operator with an existing presence in Oklahoma. For additional information on this transaction or how Nick or Pat can assist you with the sale of your family owned/operated seniors housing community, please call 314/961-0070 or contact Nick at nbando@slibinc.com or Pat at byrne@slibinc.com

Different types of buyers in the Senior Housing Market

There are many types of buyers in the senior housing market and sometimes it can get confusing for sellers to know who they are really dealing with.  While it is great to get a high-price offer for your community, if the buyer doesn't have the ability to close, it is doesn't matter how good the offer is.

There are four main types of buyers:

1.       Real Estate Investment Trusts (REITs) – REITs are publicly or privately traded real estate companies that typically have ample cash available to acquire properties.  Most of the time REITs buy a community and at closing, sign a long term NNN lease with a local or regional operator to operate the community.  REITs typically buy with cash. 

2.       Private Equity Companies – They come in all different sizes from multi-billion dollar companies like the Carlyle Group to much smaller companies.  Private Equity companies typically buy properties and use a management company to operate them.   Private Equity companies typically buy with cash or with a large line of credit.

3.       Local and Regional Operators – Local and Regional operators may own/lease 5-50+ communities.  They may use a REIT or Private Equity company as a partner or may buy a community on their own.  If they are buying a community on their own, they typically use bank debt and raise equity internally with high net worth individuals, and through friends and family.

4.       “Mom and Pop” Operators – They typically own from 0-5 properties.  Most REITs and Private Equity companies will not partner with Mom and Pop operators because they are too small and the communities they operate are not large enough.  They typically buy with personal equity or friends and family’s equity, and bank debt.

As a seller, it is important to understand what type of buyer is making an offer to buy your community and how they plan to financing the purchase.  Far too many buyers try to put communities under contract to buy, and THEN try to find the equity and debt.   This often times lead to delays in closing, cancelling the offer to purchase, or retrading at a lower price.

At Senior Living Investment Brokerage, Inc. we have relationships with over 1,700 of different types of buyers and can help you understand what type of buyer is making an offer, their track record in closing deals and how they plan to finance it.

For more information on selling your community, contact Jason Punzel at 630-858-2501 x 233 or punzel@slibinc.com.

Tom Rusthoven and Jeff Binder Sell Michigan Assisted Living Community

Jeff Binder and Tom Rusthoven recently sold an assisted living facility in Eastern Michigan. The facility was less than 50 units. Due to the confidential manner of the sale, additional information cannot be released. For additional information on how Senior Living Investment Brokerage, Inc. can assist you or your company in a confidential sale, please contact Tom at rusthoven@slibinc.com or Jeff at binder@slibinc.com

Ryan Saul and Jeff Binder Sell Two Skilled Nursing Facilities

Jeff Binder and Ryan Saul of Senior Living Investment Brokerage, Inc. were selected to represent a REIT in the sale of two skilled nursing facilities in Wisconsin. Located approximately 5 miles from each other in the northeast region of the state, the two facilities offer a combined total of 155 beds. At the time of the sale, the combined occupancy had been stable at 70.5%. Built in 1965 and 1969, the operations had a negative EBITDA of over $300,000. The Seller is a national REIT divesting non-performing assets. The Buyer is a national long-term care operator expanding their presence in Wisconsin. For additional information, please contact Jeff Binder at binder@slibinc.com 314/961-0070 or Ryan Saul at ryansaul@slibinc.com 630/858-2501.

Toby Siefert and Patrick Burke Sell Virginia Assisted Living Community

Patrick Burke and Toby Siefert represented the Seller of a 48 unit Assisted Living Community I Virginia located about 20 miles outside of Richmond. The Seller had struggled with occupancy and profitability for several years. The Buyer is a joint venture including a national operator and a private equity group. The new ownership group plans to invest upwards of $1,000,000 renovating the facility and converting it to all memory care. For additional information, contact Toby or Patrick at 630/858-2501.

Tom Rusthoven and Jeff Binder Represent Seller of ILF

Jeff Binder and Tom Rusthoven represented the Seller of an Independent Living Facility located in the Southwest. The selling entity was a non-profit owner/operator and the Buyer was a regional owner/operator. Although confidentiality was a priority for the Seller, Senior Living was able to procure multiple, qualified offers. Due to the confidential nature of the sale, the entities involved requested Senior Living Investment Brokerage not disclose any additional information. To discuss how we can assist you in the sale of your seniors housing property, please contact us at kief@slibinc.com

Brad Clousing and Jeff Binder Sell Alabama 116 Unit Seniors Housing Community

Jeff Binder and Brad Clousing recently sold a seniors housing community in Alabama that consisted 68 independent living units, 32 assisted Living units and 16 memory care (SCALF) units for $20,000,000. The 129,000 square foot building was constructed in 2000/2002. The community's financial performance has been stable over the past 12 months and the census has remained steady at 95% or better. The community is located on approximately 20 acres and offers the new owner the opportunity to expand. The Buyer, an institutional owner/operator, assumed the existing FNMA insured debt(70% LTV/6.47% interest rate). The Buyer elected to assume the debt given the approximate prepayment/yield maintenance penalty of $2.75 million. The loan matures June 2018. The Seller is a local partnership exiting the seniors housing industry. The Buyer is a national operator expanding their footprint within Alabama. For additional information contact Brad Clousing at clousing@slibinc.com or Jeff Binder at binder@slibinc.com

Ryan Saul Sells $23,000,000 Seniors Housing Communtiy in Illinois

Ryan Saul sold a 171 bed/unit seniors housing community in the south suburbs of Chicago. The 87,105 square foot community consisted of 37 Assisted Living/24 Memory Care and 110 Skilled Nursing Beds/Units on 11.78 acres. The SNF was built in 1989, ALF in 1999 and the MC in 2009. The skilled nursing portion had a 38% quality mix at the time of sale. The Seller purchased the community in 2009 as part of a portfolio of properties in Indiana, Kentucky and Illinois. The Seller had holdings in all of these states except Illinois. The intent was to look for other opportunities to grow in Illinois, but that strategy did not materialize. Because the Illinois community was an outlier, the decision was made to sell and deploy the capital to their core growth areas. The Buyer is a regional owner/operator with more than 50 properties in Illinois. The property sold at an 11.2% cap rate/2.0 GIM. Ryan was able to generate multiple offers in a very short marketing period while maintaining confidentiality throughout the process. For additional information, please contact Ryan Saul at ryansaul@slibinc.com or 630/858-2501.

Brad Clousing Notches Another Florida Sale

Brad Clousing sold a 58 unit Assisted Living Community in Tampa, Florida. The building was constructed in 1984 and 1986 and is approximately 26,840 square feet.. It features 40 units with shared bathrooms and 18 resident units with private bathrooms. All of the 58 units have capacity for two residents. Although many of the residents are private pay, a significant percentage of residents are reimbursed through the Med Waiver/Diversion program. The Seller is primarily a skilled nursing operator and is planning on focusing on core operations in the skilled nursing sector. The Buyer is a regional owner/operator that is expanding their footprint in Florida. For additional information, please contact Brad at clousing@slibinc.com or 630/858-2501.

How many months of consistent cash flow do I need to maximize the price in selling my Senior Living Community?

When determining the price a buyer is willing to pay for a Senior Living Community, they look at many things.  Ultimately, though, every operating asset is worth the future cash flow it will produce and future sale price, discounted back to today’s value.   One of the best ways to predict future cash flow is by analyzing what the community is currently producing and what it has produced in the past.   The more consistent a community has produced cash flow over the past several years, the more confident a buyer will be that it will continue to do so and willing to pay more for the community.  

However, often times a community, or any business, will go through some struggles.   If an owner fixes the problems and increases cash flow over an extended period of time, most buyers will give the owner credit for its current higher cash flow and base the purchase price on the new amount.  However, when there is not a long track record of consistent cash flow, the potential buyer is going to try to determine if it is realistic that the new, higher cash flow will continue.  There are several key questions they will ask and analyze:

1.  Is the community’s new rents and occupancy similar to the market?      

2.  Does the physical structure warrant market rate rents and occupancy?  

3.  Did the community increase occupancy via Medicaid or by offering steep incentives/temporary discounts?

Typically, a minimum of three months of consistent cash flow is needed to maximize the price.  12-24 months is ideal.  However, if a seller can clearly demonstrate what they did to fix the problem, sometimes even a shorter amount of time is needed.  Though, the new cash flow will HAVE to continue through the marketing, due diligence and closing timeline, which could take 3-6 months.

If a potential buyer determines that the new, higher cash flow will realistically continue, a higher price is warranted.  However, if the new cash flow is just a cyclical event or was achieved by using Medicaid or steep discounts, it will be difficult to achieve the higher sales price and a longer track record may be required. 

For more information on what your Senior Living Community might be worth, contact Jason Punzel at 630-858-2501 x 233 or punzel@slibinc.com.

Is Now a Good Time to Sell?

This is the question that I am asked most often in my conversations with owners and operators of senior housing communities.  The answer is never simple and depends on several factors.  What are some of these factors?

 

1. Is it a strong market?  The answer is a resounding yes.  There is more debt and equity to be placed now than in recent memory and not enough inventory on the market to keep up.  Simple supply and demand theory leads to higher pricing.  

2. How is my facility performing?  While that answer is different for every community, it is likely that as the summer is almost over and the fall is beginning, your community is operating at its peak levels for the year. 

3. When do I want to close?  Many potential sellers want to sell before the beginning of a new year in order to reduce partial year paperwork, i.e. cost report, prorations, capital gains tax treatment.  It typically takes 3-4 months to close, so if you want to close by year end, now is an ideal time to list your facility.

4. Is the cost of capital low?  When the cost of debt (interest rates) and equity (internal rates of return) is low, buyers can afford to pay a higher price for obvious reasons.  Interest rates are near historical lows and with the economy improving, there is risk in those rates increasing.  Equity internal rates of return are also very competitive right now.  All of this leads to low costs of funds for buyers and lower cap rates for sellers!

Although I don't have a crystal ball, there may never be a better time to consider a sale of your long-term care or senior housing community.  For a complete analysis of what your community is worth, contact Matthew Alley – alley@slibinc.com or (630) 858-2501

Pennsylvania Personal Care Home Sold by Ryan Saul and Toby Siefert

Toby Siefert and Ryan Saul recently sold a 38 unit Personal Care Facility in Pennsylvania. The 28,277 square foot building built in 1965 consists of 38 units/60 beds on 11.4 acres. It is a well maintained community that was renovated in the late 1990's. The facility had a consistent track record of high census (98% at closing) and is 100% private pay even though the building has mostly semi-private rooms. Rents average $2,200/unit. The Seller was a regional seniors housing owner/operator that sold to focus on their 10 other/larger communities and to develop CCRC's. The Buyer was a Pennsylvania-based operator growing their portfolio. This was a strategic acquisition that fit well with their smaller, profitable communities. The property sold at a 1.3x GIM/11.6% capitalization rate. For more information, please contact Ryan at ryansaul@slibinc.com or Toby at siefert@slibinc.com 630/858-2501

Matthew Alley Sells Another Texas SNF

Matt Alley has sold another Skilled Nursing Facility in Texas. The property consists of 199 licensed beds/165 usable beds. The facility was built in 1963 with an addition in 1973 and most recently remodeled/upgraded in 2011. The facility enjoys a strong census (84%) but is reliant upon Medicaid residents(80%). The single story building consists of 47,250 square feet and is located approximately 90 miles east of Houston. The property sold for a 13.3% capitalization rate/1.03 EGIM. The Seller was a regional owner/operator. The Buyer is an owner/operator from the Dallas/Ft. Worth area with several facilities throughout Texas. For more information, please contact Matthew Alley at alley@slibinc.com or 630/858-2501.

Are you going to NIC?

In our industry, the annual NIC National Conference (www.nic.org) is the "go to" conference that everyone attends.  Whether you are an owner, lender, broker or just want to learn about the seniors housing space, it is a must attend.  I have been attending this conference for the last fourteen years and plan to do so again this year.  I can usually tell how our space is doing by the number of lenders attending.  After scanning the preliminary attendee list, it is obvious, based on the number of individuals attending from the various lenders and REITs, that the market is stronger than ever. 

 

If you have thought about selling, rather that speak to the REITs or owners direct, it would be a good idea to speak with Senior Living Investment Brokerage, Inc. to find out what your community is worth.  We have access to all the REITs and buyers with strong relationships with aggressive lenders.

Based on the number of capital providers attending NIC, contact Ryan Saul today to hear more about the market and to discuss the current value of your community.

Will the New Owner Keep My Employees?

Will the New Owner Keep My Employees? 

One of the most common questions we get asked by potential sellers is, “Will the new owner keep my current employees?”  Of course the answer depends on the situation; who is the new owner, how well is the current facility operating, etc. 

Typically, if a facility is being ran well, there is a high probability that the new owner will keep the current employees.  To operate effectively, the community needs to have employees, and it is in the new owner’s best interest to not “rock the boat” if the current employees are doing their job well and have good relationships with the residents.

If a facility is not being operated well or is losing money, there is a greater probability that a new owner may change some employees.  However, this is not always the case.  Often times a community needs capital improvements, better management, or upgraded IT systems to improve and the current employees are doing a good job with what they have to work with.  In this case, the new owner will probably keep the current employees and work with them on improving the facility.

There is no guarantee on what the new owner will do.  When selling a facility, the current owner has to realize that changes will happen after the sale and sometimes the changes will effect employees.  However, most new owners have a strong desire to keep good employees that care for the residents and treat the facility as if it were their own.  Thus, new owners typically ask who the key employees are and wait to evaluate them for a few months before making any personal decisions. 

To discuss this question or other questions about selling your Seniors Housing Community, please contact Jason Punzel at 608-858-2501 x 233 or punzel@slibinc.com.

Patrick Byrne of Senior Living Investment Brokerage Sells Illinois Assisted Living Community

Patrick Byrne has sold a 65 unit assisted living community in Illinois located approximately 40 miles outside St. Louis. The facility opened in 2004 with much success. In 2008 the addition opened in the height of the recession and struggled before ultimately filling by offering "life contracts" to new residents. The facility census stabilized but the margins suffered due to below market rents. In recent years the margins began to improve as units leased at below market rates turned over. The Seller was a local group of investors. The Buyer was American Realty Capital who retained Meridian Senior Living as the operator. The census at the time of sale was 95.4% and the cap rate was 8.18%/3.67 GIM on annualized financials. For additional information contact Pat Byrne at 314-961-0070 or byrne@slibinc.com

Patrick Byrne, Nick Cacciabando and Matt Alley Team up to Sell Missouri ALF

Senior Living Investment Brokerage, Inc. sold a 23 unit, 46 licensed bed assisted Living community in Missouri. The building is approximately 11,600 square feet constructed in 1996 on approximately 4 acres of land. The community is located just outside of Branson, Missouri. The building has historically ran close to 100% census with stable financials. The sales price $2,300,000 ($100,000/bed) produced a cap rate of 10.5%/3.02 EGIM. The Seller was is an independent owner/operator exiting the business. The Buyer is a regional owner/operator based in Idaho with other operations in Missouri. For additional information, please contact Pat or Nick at 314/961-0070 or Matt at 630/858-2501

Brad Clousing Sells Another Florida Assisted Living Community: $26,600,000

Brad Clousing has sold an 89 unit Assisted Living Community in Florida for $26,600,000/$298,876 per bed. The property is adjacent to The Villages, Florida. The purpose built community was constructed in 2010 and has land available for expansion with plans in place for an additional 59 units. The current configuration of the building provides for 69 assisted living units and 20 memory care units. The 74,112 square foot community boasts many high-end finishes such as granite countertops in the units, expansive common areas and well appointed courtyards. The floor plan consists of studio and one bedroom units ranging from 345 to 619 square feet. Within 3 weeks of commencing marketing, Senior Living Investment Brokerage was able to procure 5 offers to purchase this community from "top tier" institutional buyers. The asset was encumbered by approximately $11 million HUD insured financing, which was paid in full at closing. The buyer and seller split the pre-payment penalty which was approximately 7% of the loan balance. The census at the time of sale was 96% and the property sold for a 7.5% cap rate. For additional information, please contact Brad Clousing at 630/858-2501 or clousing@slibinc.com

Operating Margins of Senior Living Communities compared with Apartment Buildings

In analyzing thousands of communities each year, we find a very wide range in operating margins.  Newer, larger communities have higher operating margins than older, smaller facilities.  Communities with high occupancy rates, have higher operating margins than facilities with lower occupancy rates. 

However, stabilized assisted living communities typically have operating margins (EBITDA margin) between 25-40%, and independent living communities between 30-40%+.   Stabilized apartment buildings that are similar in age and size have operating margins between 40-55%.  This is due to the fact that apartment buildings do not have all of the extra services, medical, food, activities and staffing that independent and assisted living communities have.  Additionally, apartment buildings typically have less common areas; kitchens, dining rooms, etc, allowing for more rentable square feet, than senior living facilities. 

Because of the higher operating margins and lower variable expenses, investors perceive apartment buildings to be lower risk than senior living facilities resulting in lower cap rates (higher prices).  Apartment buildings can have cap rates 150-250 basis points lower than a similar age and size senior living facility.   However, as senior living facilities continue to become more main stream with investors, the perceived risk decrease resulting in a smaller spread in cap rates.

For more information on what your Seniors Housing Community may be worth, please contact Jason Punzel at punzel@slibinc.com or 630-858-2501.

Selling..Keep calm..Where to start?

So, you have thought about selling your seniors housing or long-term care community.  Now what? 

For most of our clients the stress and anxiety immediately sets in.  Put that fear to rest by working with a professional that handles hundreds of transactions.  Senior Living Investment Brokerage, Inc. is there to help you.  

Here is one tip.  As part of the process, take inventory of your community and what might need to be fixed or improved.  One of the biggest stresses is when someone points out the things wrong with your community.  Beat them to the punch and it will avoid a lot of unnecessary stress.  Make sure floors/carpets are clean, paint is touched up and it is a pleasant experience to walk the halls.  If you make a good first impression with the condition of the community, it will alleviate a lot of the tedious investigation.  What they see first will give them the impression of how the rest of the community is taken care of.

Contact Ryan Saul to discuss our sales process and other things you can do to alleviate stress.

Tom Rusthoven and Brad Clousing Sell Three Assisted Living Communities in Michigan

The three Assisted Living Communities are located within a mile of each other in Southeast Michigan. The buildings, constructed in 1985 and 1992, have a total of 78 units. One of the buildings is dedicated to memory care services. The transaction sold at an 11.9% capitalization rate for over $68,000 per unit. The Buyer is a regional owner operator planning to implement additional marketing resources to neighboring Ohio residents as a means to increase census from the current 65%. For additional information, please contact Tom Rusthoven at rusthoven@slibinc.com or Brad at clousing@slibinc.com or 630/858-2501.

Ryan Saul and Patrick Burke Sell Virginia Certificate of Need

Patrick Burke and Ryan Saul sold a 120 Bed Skilled Nursing CON in Virginia. The nursing home was to be closed and the CON was sold to a developer headquartered in the Southeast. The Buyer plans on relocating the CON to a neighboring county and building a new community/building. For additional information, please contact Ryan at ryansaul@slibinc.com or Patrick at burke@slibinc.com 630/858-2501

Ryan Saul Brokers Indiana CCRC

Ryan Saul sold a 157 Unit CCRC in Evansville, Indiana. The 201,435 square foot building consisted of 80 Independent Living Units, 33 Skilled nursing Beds and 9 Villas on 73 acres. It opened in 1985 with an addition in 1999 (AL). In 2009, the first floor was converted to skilled nursing. The Seller was a not-for-profit trust created by a wealthy community member. The Buyer is a not-for-profit as well that hired an Indiana based operator. The operator will be able to leverage their efficiencies and operating model to improve the financial performance of the CCRC. The sales price was $12,500,000. For additional information, please contact Ryan Saul at 630/858-2501 or ryansaul@slibinc.com

The Price is Right....well, hopefully

It is extremely important to position a community at the best, most realistic price during the first market exposure.  In the sales process, once a property has been exposed to the most active, qualified Buyers, activity dramatically decreases to the less active, less qualified "bargain" Buyers.

Drawbacks of an Overpriced Property

Many Sellers feel that an overpriced property can always be reduced if it doesn’t sell.  The danger with this approach is that by the time the property is finally reduced to its market value, it may have been on the market so long that Buyers perceive it to be a “tainted” property.  Buyers then question how long the property has been on the market and why it hasn’t sold.  Their offer to purchase, based on that knowledge, may be below its actual value.  Senior Living Investment Brokerage uses market research and our vast knowledge of the Seniors Housing market to arrive at an ask price that is both realistic and fair to the Seller but also attractive to Buyers.  This pricing process takes into account a number of key factors including property location and condition, upside, financial indicators and sales comparables, as well as current activity.  We present realistic pricing and do not attempt to “buy” our assignments.

We do not over-promise pricing expectations and our marketing proposals do not exceed what the property can support in the open market.  Over the past three years we have sold our offerings for 96% of our initial market valuation.

Contact Ryan Saul to learn more about what your community is worth and how to get top dollar in today's market.

How do Cap Rates for Senior Living compare with Apartment Buildings?

How do Cap Rates for Senior Living compare with Apartment Buildings?

A Cap Rate is the most commonly used method in determining the value of a real estate asset.   A cap rate is derived by dividing the annual net operating income by the purchase price.   The higher the cap rate, the lower the price of the asset.   The greater the perceived risk is in an asset, the higher the cap rate, and thus, the lower the price.

According to Senior Care Investor, in 2013 the average cap rates for an independent living facility was 8.2%, the average cap rate for an assisted living facility was 8.7%, and the average cap rate for a skilled nursing facility was 13%.  According to Freddie Mac’s survey in February, 2014, the national average for apartment buildings in the US was 6.4%.

Why do senior living assets have a higher cap rate than apartment buildings?  Senior living assets are still considered riskier because an investor is buying the real estate and the operating business instead of just the real estate and leases as is the case for apartment buildings and commercial real estate.

However, this also presents an opportunity for those who are good at operating seniors housings communities to make a greater return on their investment than investing in lower cap rate real estate assets.

For more information on what your Seniors Housing Community may be worth, please contact Jason Punzel at punzel@slibinc.com or 630-858-2501.

Matt Alley and Jeff Binder Handle Texas Memory Care Facility Sale

Jeff Binder and Matt Alley recently sold a 36 unit/48 bed Texas Memory Care Facility approximately 65 miles northwest of San Antonio. Built in 1997, the property is approximately 25,000 square feet and is situated on 2.5 acres of land. The community was underperforming due in part to recent turnover in staff. The census at the time of sale was 56%. The Buyer expects to be able to take advantage of increasing the marketing budget and stabilizing the staffing. The Seller is a national REIT divesting non-performing assets. The Buyer is a regional owner/operator based in Texas. For additional information, Please contact Matt Alley at alley@slibinc.com or Jeff Binder at binder@slibinc.com

Brad Clousing and Jeff Binder Sell Two Residential Care Communities in Arkansas

Jeff Binder and Brad Clousing were selected to assist in the disposition of 2 Residential Care Facilities in Arkansas. Located approximately 85 miles from each other in the northern region of the state, the two communities offer a combined total of 102 units. Both buildings were constructed in 1997 and each consist of 51 units (45 private and 3 semi-private). Each building is on approximately 4.5 acres. At the time of the sale, the combined census had stabilized at 62%. The Seller was two separate but related entities. The Buyer is a regional owner/operator based in Missouri. They plan on increasing the license to Level II which will provide for additional reimbursement and census enhancement opportunities. For additional information, please contact Brad Clousing at clousing@slibinc.com or Jeff Binder at binder@slibinc.com

Patrick Byrne Sells Illinois Skilled Nursing Facility

Patrick Byrne sold a 75 bed skilled nursing facility in Coulterville, Illinois, a small town 50 miles east of St. Louis. The 28,606 square foot building was built in 1999 on 0.83 acres and sold for almost $60,000/bed. Originally developed by a non-profit organization, the property struggled financially. Sold to a for profit owner, they were able to stabilize the property, improve operations(91% census at the time of sale). Despite being profitable, Illinois' delay in Medicaid reimbursement and poor rates, led the owner to pursue a sale. Although the Medicaid rate is $101.09 and Illinois is approximately 6 months behind in reimbursement, Senior Living Investment Brokerage, Inc. was able to procure three strong offers within 10 days. The ultimate Buyer was a regional operator from Missouri. For additional information on this transaction, please contact Pat Byrne at 314/961-0070 or byrne@slibinc.com

Toby Siefert and Ryan Saul Complete Skilled Nursing Sale in Pennsylvania

Ryan Saul and Toby Siefert recently sold a 97 Bed Skilled Nursing Facility in Pennsylvania. The Seller was a regional not-for-profit that had engaged Genesis Healthcare to manage the community. The property had bond financing and the hold on the bond was achieved. It was a mutual decision by the owner and the bondholder to divest of the community. The property was not in a core market of the owner or manager. The Buyer was a regional owner with other seniors housing properties in Pennsylvania. The 24,000 square foot building was built in 1967 and 1972 on 0.69 acre. The census at the time of sale was 89.9% Senior Living Investment Brokerage was able to procure multiple offers for the Seller. For additional information, please contact Toby or Ryan at 630/858-2501.

What a buyer can do

I am often asked by buyers of nursing homes and assisted living communities what they can do in order to "get the deal."  Well, there are a lot of things that a buyer can do in order to grab a seller's attention.  A little work up front can go a long way when that perfect opportunity comes up.  Here are a few things you can do in order to better your chances to get the deal.

1. Prepare a bio with company history and facilities owned and operated.  What is your mission?  Sellers want to know your philosophy and who they are leaving their property to.
2. Have your equity lined up.  Ask your personal banker to provide a letter referencing your financial strength and ability to provide the equity required for a transaction. 
3. Have your debt lined up.  Obtain letters from two lenders speaking to their interest to provide financing for you.
4. Put together a professional letter of intent with your logo.  The letter of intent should clearly state the purchase price, earnest money deposit, due diligence period and closing period.
5. Have your due diligence list ready so that a seller can anticipate the type of information that they will need to put together for you.
6. It might sound simple, but don't breach confidentiality and abide by the process that the broker and seller have established.  Meet timelines and provide all information that is requested.

If you would like to learn more about buying or selling a nursing home or assisted living facility, please contact Ryan Saul at Senior Living Investment Brokerage, Inc. at ryansaul@slibinc.com or 630-858-2501.

Should I sell now or wait to improve my community’s performance?

As broker’s we get posed this question often.  The biggest driver of a community’s value is its current net operating income and Cap Rates.   Communities are typically valued be dividing its current net operating income (NOI) by the current cap rate.   A cap rate is similar to an interest rate and measures investor’s perception of risk in a given asset.   A high cap rate indicates greater risk, and thus a lower value.

When a property is not operating at its potential, net operating income is lower than it could be and the value is thus lower.  Many owners think it might make sense to try to improve their community’s NOI and then try to sell in the future.  There are two main things an owner needs to consider when thinking about this strategy.  First, is it realistic that their community’s net operating income will increase in the near future without significant changes – capital expenditures/remodeling, a new management company, new staff, etc.  Does the owner have the ability and resources to execute this changes?  The community will not simply do better on its own because it may have had success at some point in the past.   The industry is constantly changing and improving, and owners need to also continue to change and improve to keep up.  It is not simply good enough to keep doing what you have done in the past and hoping things will improve on their own.  This strategy doesn’t work in any industry.

The second item to consider is; where will cap rates be in the future?  Cap rates are greatly influenced by interest rates.   As interest rates rise, so do cap rates, and thus property values decrease.  Although there is not a 100% correlation between cap rates and interest rates, there is a very strong correlation between the two.  Since interest rates are at an all-time low right now, there is a good chance that they will raise in the future, and cap rates will along with them. 

For example, a community is currently producing $600,000/year in NOI and the current cap rate for that type of community is an 8%.   To determine the value, $600,000 would be divided by .08 to come up with a value of $7,500,000.  However, the owner is not happy with the value and decides to spend $300,000 on remodeling, hire a new marketing director, and spend more of their own time at the community to help control expenses.   Over the course of two years, the owner increases NOI to $800,000/year.   However, during that time, interest rates increased and now the cap rate for this type of community has increased to a 10%.   The new value would be determined by dividing the current NOI of $800,000 by .10, equaling $8,000,000.  Thus, after spending $300,000 in remodeling, the owner has only increased the value by $200,000 after working hard for over two years.  It is also possible, that NOI doesn’t increase at all with a remodel and new marketing director because a competitor builds a new facility close by and saturates the market, or the new marketing director turns out to be worse than the original director, or the Executive Director quits and the owner can’t find a good new one, or one of the many other challenges that owner’s face every day occurs. 

The biggest risk facing owners today who are considering selling in the next several years are rising interest rates.  If a community is not preforming at its optimum, an owner has to realistically assess if they have the ability, time and resources to make the changes needed to truly increase the NOI, understanding there are many outside factors that could inhibit their ability to execute the plan.  The old saying, “A bird in the hand is better than two in the bush” is often true today.

For a complete analysis of what your community is worth, contact Jason Punzel – punzel@slibinc.com or 630/858-2501

Ryan Saul Completes Indiana Nursing Home Sale For Record Price

Ryan Saul sold an 128 Bed Skilled Nursing Facility in Fort Wayne, Indiana. The facility has a stellar reputation for quality care which was reflected in the purchase price of over $100,000/bed. Although originally built in the 1970.s, the Seller had continually invested capital and upgraded the building. It is arguably one of the best SNF's in Indiana. The Seller was an Assisted Living owner/operator that purchased the SNF because it was adjacent to one of his ALF's. The Seller had recently sold his Assisted Living portfolio so he elected to sell the SNF. The Buyer, based in Chicago, aligned with a regional to operate the facility. The operator manages several properties in Indiana and Illinois. The 37,000 square foot building on 4.3 acres was built in the 1970's. The census at the time of sale was 84% with an 80% quality mix. The community sold at a 14.13% capitalization rate/1.4 GIM. For additional information, please contact Ryan Saul at ryansaul@slibinc.com or 630/858-2501.

Brad Clousing and Patrick Burke Sell a Florida Assisted Living Community

Brad Clousing and Patrick Burke recently sold a 50 Unit Assisted Living Community in Naples, Florida. The transaction was subject to the assumption of an approximately $3.3 million HUD loan and replacement reserve balance. The sale price of the 1997 building was $5,600,000. The census at the close of escrow was 80% and the cap rate was 3.7%. The Seller was a partnership based in Naples and operated by a related entity. The Buyer was a Memphis based partnership and will be operated by a Florida based management firm. The Buyer intends to improve census and operating margins through a dedicated focus on memory care. For additional information on this or other Senior Living Investment Brokerage transactions, please contact Brad at clousing@slibinc.com or Patrick at burke@slibinc.com 630/858-2501

Ryan Saul Secures Buyer for Illinois Skilled Nursing/Independent Living Community

Ryan Saul has sold a 62 bed skilled nursing facility with 8 independent living units in the rural community of Walnut, Illinois. The facility, on 11.5 acres, has minimal staff turnover and great quality care. The skilled portion was built in 1977 and the independent portion of the building was built in 1998. This was a rare situation where the transaction was a stock sale. The Selling entity consisted of 26 stockholders from the local community. The buyer was currently managing the facility making them the best fit for a stock sale/purchase. For additional information, please contact Ryan Saul at ryansaul@slibinc.com or 630/858-2501.

What you can do to close faster

In case you didn't know already, we are in a Seller's market.  It is still important for Sellers to be organized and prepared for due diligence to ensure a faster close.  Utilizing a broker with experience and a well organized data room will save you time and money in the long run.  Here are just a few items that you can focus on in order to make due diligence easier on everyone:

1) Real Estate: Your building (physical plant) can often be the main focus of due diligence.  Before you start the sales process, make sure you have evidence of ownership entities and that you are zoned correctly.  Also, make a list of any Environmental issues that you are aware of and be prepared to correct these problems, if you haven't already.  The best thing that you can do is develop a plan in advance.  Make your own list of contractors in case you need them for things like roof, foundation, HVAC and Environmental.  Accompany the Buyer's professionals on the tours so that if the need comes up for you to get a second opinion, you can explain the issue to your contractors.

2) Personal Property: Make a list of inventory that is going to be excluded from the sale.  It is also a good idea to remove these items before going to market.  For instance, if there is art or a sculpture that has sentimental value, remove it so that a buyer doesn't think it is staying after the sale.  Also, look into your community name, entities, phone numbers, website/Email, etc. and find out what can be transferred and what notices are necessary.

3) Employee Matters:  Make sure that you run a report with all of your employees.  Know what your PTO liability is going to be and make a plan for how that is going to be paid out.  You might want to leave a credit for a buyer so that they can pay out employees.

4) Insurance/Litigation:  Contact your insurance agent and obtain a Loss Run report for the last five years.  Make a list of any outstanding litigation and potential liabilities that you are aware of that need to be identified in the Purchase and Sale Agreement. 

5) Surveys:  Put together state and federal health surveys and any POC for the last three years.  It is going to be important that you are in compliance and you are going to want to show a buyer you are in compliance and what you have done in order to stay in compliance.

6) Finances: Obtain a copy of your mortgage and note.  Make sure there is no lockout or prepayment penalty.  Contact your tax accountant and discuss your potential tax liabilities associated with a sale.  They might be able to give you advice on how to mitigate that liability on the front end as well.

For more information on how to sell your facility faster and at a top-of-the-market price, contact Ryan Saul at ryansaul@slibinc.com or 630-858-2501.

Can Interest Rates Go Any Lower?

Over the past several years, interest rates have been 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 2.64%, the Federal Funds rate has been close to 0% for several years.   The 10 Yr Treasury hit an all-time high in August, 1981 at 15.32% and has averaged 4.64% since 1870.  Many people assume interest rates have to increase since they have been the lowest that most can remember.

However, it is possible that might not be the case.  Japan’s 10 Year Treasury rate has fluctuated between .5%-2% from 1998-present and is currently at .59%.  Japan had an incredible economic run for years that ended in a deep recession in the early 1990s, leading to historically low interest rates for almost two decades.  However, unlike the US, Japan has suffered a declining population, bouts of deflation and near constant recessions over the past 20 years. 

While Japan is an example that American interest rates COULD continue to stay low, or even decline, the odds are certainly greater that they will increase.   America has an increasing population, is the world’s technology leader, has the best University system in the world and is still the world’s largest economic and military power.  As long as America’s economy grows, interest rates will eventually raise back to the long term average.  Thus, now is a great time to consider selling.

For a complete analysis on how interest rates can affect your community’s value, both now and in the future, contact Jason Punzel – punzel@slibinc.com

Nick Cacciabando Sells Kansas Retirement Community

Nick Cacciabando has sold a 54 bed Skilled Nursing Facility and 40 unit Residential Care Facility. Census at the time of sale was 94.7% and the capitalization rate was 9.9%. The communities were family owned and operated by a local owner/operator. These were the Seller's only remaining long term care/seniors housing communities as they are retiring from the business. The Buyer is a regional owner/operator with numerous properties and their headquarters are nearby. This was a strategic acquisition as they have a significant presence in Kansas and are hoping to realize operational efficiencies through economies of scale. For additional information, please contact Nick at nbando@slibinc.com or 314/961-0070.

Closing Costs

Most clients realize that when they sell their seniors housing or long term care asset, they will incur a number of transaction-related closing costs.  Having a good understanding of these costs up front through a dialogue with your broker, attorney, and accountant, can help you calculate the net proceeds upon a sale, and ensure it makes sense to go out to the market.  The last thing any party to the transaction wants is an unexpected expense that jeopardizes the viability of the deal.  Here are some closing costs and credits that often figure into the equation:

-Pre-payment penalties on loans (confirm the loan is not in a lockout period).

-Legal Fees

-Accrued Paid Time Off (“PTO”) – Buyer is typically credited accrued employee benefits at the time of sale 

-Transfer Tax 

-Recording Fees  

-Property Tax – All property taxes need to be brought current 

-Tail Insurance

-Brokerage Fees

-Escrow Basket – It is not uncommon for Buyers to set aside an Indemnification Escrow Holdback for a period of time (range from 6 months to 3 years) and depends largely on the perceived potential liability. 

-Refundable resident deposits

-Prepaid items: RE taxes, insurances, benefits, leases, P&I (credits)

Each State is different, so it is important to also talk to your legal and tax advisors.  To discuss the value of your community in today’s market so you have a baseline gross figure to work from, please contact Toby Siefert at 630-858-2501 ext. 235 or siefert@slibinc.com