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

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.

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

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.

Cap Rates

How Cap Rates Are Determined

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 cap rate is a measure of risk.  Typically, the higher the cap rate, the riskier the asset is.  Cap rates for skilled nursing facilities typically range between 11-15%, where-as assisted living facilities typically range from 7-10%.  However, why does one assisted living facility sell for a 7% cap rate and another one sells for a 10% cap rate?

Typically, newer, larger facilities located in larger, growing,  metropolitan  areas sell at lower cap rates than older, rural facilities.   Other determinates are the income/occupancy history of a property.  Those properties that have a history of high occupancy and consistent earnings sell for lower cap rates than properties that have struggled in the past.   

Outside factors also determine cap rates such as interest rates, availability of debt and equity capital and general economic conditions. 

The first step in determining value is to engage an experienced professional to assist in the valuation and analysis of your property/properties.  Please contact us if you would like a no-obligation market analysis.   

Jason Punzel, Senior Associate.  punzel@slibinc.com

Money Money Money.....Money and more Money

After attending this year's NIC Conference, it became abundantly clear that money (both debt and equity) are chasing nursing home and seniors housing deals.  Everywhere you turned, there were lenders and equity players looking for opportunities to place capital.  Times are good, real good, but how long will it last?  That is the question.  There are rumblings about HUD, Fannie, and Freddie reaching their limit.  This should provide opportunities for other capital in the space.

I know I am always beating my SELL drum, but really, if you have ever thought about selling, now is THE time.  Please contact Ryan Saul if you would like to know what your nursing home or seniors housing property is worth.  I am always available to put together a confidential analysis.

What to do about Alzheimer's?

Most development I have seen across the country has been for residents with Alzheimer's.  Will it be enough?  If you know anyone that has Alzheimer's, it is a terrible disease.  As the US population ages and grows, the number diagnosed is expected to triple by 2050.  They are predicting close to 14 million people will be affected by the disease.  This is millions more that previously anticipated.

This is going to be a huge challenge for our society and will challenge caregivers, facilities and personal financial safety nets.

Owners and operators of Seniors Housing should be preparing now for the tidal wave of those affected with Alzheimer's disease.  Repositioning assisted living and independent living facilities is an ideal way to serve these residents.

If you have thought about buying or selling a memory care, Alzheimer's, or assisted living facility, please contact Ryan Saul.

Important Tax Information

The following article is important tax information for anyone considering the sale of their seniors housing facility.  Contact Grant Kief at kief@slibinc.com or 630/858-2501 if you would like a marketing analysis prepared for your property.
http://online.wsj.com/article/SB10001424052702303879604577410143118102490.html

Organize First...then sell

Senior Living Investment Brokerage provides value added brokerage services. Our job does not end with the selection of a buyer. In today's environment, managing deals and being prepared for deals going into escrow can be crucial. We work with our sellers on the front end to make sure that they are prepared for due diligence on the back end. It is a good idea to begin collecting due diligence information early in the process. That way, we are prepared when the deal goes under Letter of Intent.

If you are thinking about selling, you should contact a professional that can help you organize for future selling needs. Please contact me at Ryan Saul or 630-858-2501 to discuss how I can help you get organized if the need to sell comes up in the future.