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 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.

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

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.

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

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

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

Washington Healthcare Association Conference

On Monday, February 24^th, I had the honor to present at the Washington Health Care Association’s Spring Conference.  The topic was on Valuing and Analyzing Senior Living and Skilled Nursing Facilities.  During the hour long session, we discussed the current market and valuations, and then analyzed facilities using an ROI/IRR spreadsheet.   This allows investors to calculate how small changes in assumptions (rent growth, expense growth, exit cap rates, etc) can have huge impacts on the IRR over the hold period.

For those of you who were not able to attend, feel free to contact me at punzel@slibinc.com or 630/858-2501 to get a copy of the presentation, including the most recent market valuations.  

How Closely are Cap Rates and Interest Rates Correlated?

A cap rate is calculated by dividing the net operating income of a property by the purchase price.   The cap rate would equal the rate of return on equity if a property was bought with all cash and the net operating income stayed the same for the next twelve months.    As cap rates increase, the purchase price decreases, and vice versa.  

The interest rate on a US Treasury Bond is considered the “risk free” rate of return, since US Government has never defaulted in the past, it is the World’s trade currency, and it has the ability through the Federal Reserve to print money to meet its obligations.   Therefore, many investments are analyzed by their spread over the US Treasury rate.   The riskier the asset, the larger the spread is over the US Treasury.  Over the past 10 years, skilled nursing cap rates have averaged about 1,000 basis points above the US 10 year treasury rate and assisted living cap rates have averaged about 600 basis points above the US 10 year treasury rate.   This is because skilled nursing is considered a riskier asset than assisted living.

This raises the question, is the risk “spread” over the US Treasury a constant or not?  Or, when interest rates change, do cap rates always change in exact correlation?   Although interest rates and cap rates are closely connected, there is not a 100% correlation. 

However, inherently, the risk premium over the “risk free” rate of a US Treasury Bond of any asset is going to vary based upon the demand of investors.   Additionally, the risk premium varies based upon future expectations of a given asset.  Seniors Housing assets still have a greater risk premium than traditional market rate apartments since the investment community considers it a more risky asset.  However, given the future demand for seniors housing, this risk premium may decrease, resulting in a lower cap rate, even if interest rates increase.  Thus, while interest rates do have a strong correlation with cap rates, there are many other factors that go into determining a cap rate, mostly importantly, the future risk that investors perceive in a given asset.

For more information about Senior Living asset values, please contact Jason Punzel, Senior Associate, at Senior Living Investment Brokerage, INC.  punzel@slibinc.com.

Portfolio Sales

Pricing Premiums for Portfolios vs. Single Asset Sales

As a company, we value many senior living and skilled nursing facilities both as portfolios and single asset sales.  Often times we get asked the question if there is a premium to sell a portfolio of facilities instead of an individual facility.  In general, the answer is “yes”.  However, it depends on the size of the single asset vs. the size of the portfolio, the location of the portfolio and the make-up of the portfolio. 

In general, portfolios are more attractive to buyers if they are in the same general geographic location, are similar in size and quality and are either mostly seniors housing or mostly skilled nursing.  A portfolio is easier to manage and will fit the acquisition criteria of a buyer better when it is more homogeneous.

When comparing prices of an individual asset vs. similar assets that are in a portfolio of multiple assets we typically see a premium of 5-15% for the portfolio.  A portfolio allows a buyer to deploy more capital at once, achieve greater economies of scale, makes it easier to enter a new geographic location, and often allows for more attractive financing terms. 

Whether you own one community or several, the first step in determining value is to engage an experience professional to assist in the valuation and analysis of your property/properties.  Let us know if you would like a no-obligation market analysis.  

Clousing, Saul and Binder Sell Georgia Assisted Living/Memory Care Community

Brad Clousing, Ryan Saul and Jeff Binder teamed together to sell a 93 unit Assisted Living/Memory Care community in north central Georgia. The community consisted of 74 assisted living units and 19 memory care units on 15 acres. The community consists of 2 buildings, built in 2011 and 2012, an additional 20 unit expansion permitted and graded overlooking a private lake. The property leased up ahead of schedule and was fully stabilized by April of 2013. The Seller is a local developer of which this was their first seniors housing development. The Buyer is a national REIT and the asset will be operated by their affiliated operating company. Senior Living Investment Brokerage was able to procure a sale price of $236,833 per unit at a 7.5% capitalization rate.

Patrick Byrne and Jeff Binder Sell Central Illinois Assisted Living Community

Jeff Binder and Patrick Byrne facilitated the sale of a 37 unit Assisted Living Community in Central Illinois for over $140,000/unit. The facility was developed by a group of local investors to service the local seniors housing residents. After years of stable operations, the facility experienced a downturn in 2011-2012 and a decision was made by the partners to sell. The Buyer was American Realty Capital which retained Good Neighbor Care as the operator. The census at the time of sale was 92%. The 37,000 square foot building was built in 2005. For additional information, please contact Pat Byrne or Jeff Binder at 314/961-0070.

Patrick Burke Facilitates North Carolina Adult Care Home Sale

Pat Burke sold a 64 unit/120 bed Adult Care Home in North Carolina. The building was originally developed as a skilled nursing facility but was converted to assisted living in 1996. The community has struggled with occupancy (51%) and was 95% Medicaid census at the time of the sale. The Seller is a local couple that had owned/operated the community since 1996. The Buyer is an investment holding company based out of Hong Kong. The Buyer plans on investing over $1,ooo,ooo in renovations/capital improvements. They have engaged a national operator with a North Carolina presence. For additional information, please contact Patrick Burke at 630/858-2501 or burke@slibinc.com