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

Medicare - What no one is talking about . . . yet

So, you have heard me preach about how strong the market is.  I have been on my soap box, jumping up and down, pleading with people to think about what their nursing home or Seniors Housing community is worth.  Now is the time to sell.   Change is coming.  I don't think it is the kind of change that drives pricing up.

1) We know that interest rates and the cost of capital are increasing.  This will inevitably lead to downward pressure on pricing.

2) Our favorite White House is now talking about accelerating Medicare cuts to skilled nursing facilities.  They are looking to cut healthcare spending by $400+ billion over the next 10 years.  In the budget, 2015 brings a 2.5% reduction.

My crystal ball, which is often cloudy, says that as we get closer to the implementation of these Medicare cuts, we may see a correction in pricing.  My advice is to take advantage of the current market.  A market that we are seeing record prices per bed/unit.

If you would like to know what your nursing home or Seniors Housing community is worth, please contact Ryan Saul at ryansaul@slibinc.com.

Brad Clousing and Matt Alley Represent Seller of Alabama ALF/MC Community

Matt Alley and Brad Clousing sold a 27 unit Assisted Living/15 unit Memory Care (SCALF) Community in Jacksonville, Alabama. The building is approximately 26,500 square feet on approximately 4.6 acres and was built in 2009. The site offers an expansion opportunity and the Seller has an active CON for an additional 9 SCALF beds that are not being utilized. The Buyer intends on expanding the building with a new separate secured memory unit and potentially adding cottages to the site. The Seller is a local partnership that is exiting the industry. The Buyer is a regional owner/operator and this is their first acquisition in Alabama. The asset was at 79% occupancy at the time of sale and sold for a 7.3% capitalization rate. For additional information, please contact Brad at clousing@slibinc.com or Matt at alley@slibinc.com 630/858-2501

Matthew Alley Sells a Texas Skilled Nursing Facility.

Matt Alley has sold a 115 bed skilled nursing facility in East Texas. The multi story, 57,500 square foot building was originally constructed in 1919 and the census at the time of sale was 72%. The Seller is a national operator headquartered on the East Coast. The Buyer is an owner/operator located in Central Texas already operating several facilities throughout the state. The transaction was funded by a local community bank. For additional information, please contact Matt Alley at alley@slibinc.com or 630/858-2501

Value Add vs. Stabilized Properties – How are they valued?

Value Add vs. Stabilized Properties – How are they valued?

For a property to be considered “stabilized”, it’s census and monthly (daily) rates must be similar to other properties in the market.  For example, if market occupancy is 92% and the average private pay rate for assisted living is $3,500/month, and if the property that is being analyzed has an occupancy of 93% and average rate of $3,400/month, the property would be considered stabilized.   In this case, the best way to determine its value is by using the Capitalization Rate method.  This involves using the Net Operating Income of the property (NOI) and dividing it by Cap Rate.  If a property has an NOI of $1,000,000 a year and the typical Cap Rate for this type of property is a 7.5%, then the property’s value would be $13,333,000.  This is a very straight forward method of analyzing the value of a property.

Where valuing a property becomes more challenging is when the property is not stabilized at the current market occupancy and rates.   For example, if a property is 100% occupied with an average monthly rate of $3,500, one might assume that it will be hard to maintain a 100% occupancy on a going forward basis, and therefore will reduce the revenue in their analysis to an amount closer to market occupancy, thus reducing its NOI and price from its current state. 

Likewise, if a property has an occupancy rate below market, for example 75%, the NOI of the property is probably very low or may even be negative.  However, the property still has value.  Depending on the quality and location of the property, it may have the potential to achieve a market occupancy rate, and therefore be worth significantly more than simply using the Cap Rate method to determine its value.  A new owner must identify what changes need to take place (capital expenditures, a new marketing plan, a new administrator, etc), the time, cost and likeliness of success to determine the potential future net operating income.   Typically, we see properties that are operating significantly below the market getting sold at a price somewhere between its current state (current NOI/Cap Rate) and its future value (potential NOI/Cap Rate).  The new buyer must be rewarded for solving problems and taking the risks involved in turning around a property.  However, the current owner will not sell unless they think they are getting a fair price for giving up the future upside.

Senior Living Investment Brokerage, INC works with many buyers for both stabilized and non-stabilized facilities and has a long track record of selling both types of facilities.  For a more complete analysis of the value of a property, please contact me at punzel@slibinc.com or Jason Punzel – 630-858-2501.

Brad Clousing and Jeff Binder Sell Two Georgia Personal Care Homes

This transaction consisted of 2 personal care homes located approximately 40 miles from each other. The first community is comprised of 94 personal care units, 22 of which are memory care units, and it is licensed for 105 beds. The building was originally constructed in 1997 but underwent renovations in 2001, 2006 and 2008. The 48,905 square foot building offers a variety of unit options and amenities. The second community is a personal care home that features 59 units and is licensed for 70 beds. The building was constructed in 2008 and is 43,201 square feet. This community also offers a variety of unit options and common area amenities. It also benefits from limited competition in the area. The Seller is a local owner/operator that developed both of the assets. The Buying entity is a partnership between a publicly traded REIT and their affiliated national operator. Both facilities were trending towards 90-95% occupancy at the time of closing. The sales price was $19,000,000 ($124,837/unit) which was an 8.0% capitalization rate. For additional information please contact Jeff Binder at binder@slibinc.com 314/961-0070 or Brad Clousing at clousing@slibinc.com 630/858-2501.

Jeff Binder and Toby Siefert Sell Portfolio in the Northeast

Toby Siefert and Jeff Binder have sold 7 Skilled Nursing Facilities in the Northeast. The portfolio consisted of over 750 beds and was in receivership. At the time of sale, the overall census was 91%. GIM of .58X and a capitalization rate of 10.5%. This was a confidential sale. For additional and/or detailed information, please contact Toby at 630/858-2501 siefert@slibinc.com or Jeff at 314/961-0070 binder@slibinc.com