Impact of Tax Hikes on Senior Housing M&A Market

After the American public spent much of 2012 contemplating the uncertainty in Washington, President Obama and Congress were able to engineer a last-minute deal that addressed the President's campaign to raise tax rates on wealthy Americans and avoided the revenue side of the Fiscal Cliff.

Tax rates were raised on incomes above $400,000 for single earners and $450,000 for married couples, which I will define as the "top tax bracket".  It also blocks spending cuts, also known as "the sequester" for two months, which sets up a whole new negotiation at the end of February.  How that might affect Medicare and Medicaid reimbursement is a topic for another time.

What does this mean to the senior housing M&A market? For earners in the top tax bracket, capital gains tax rates will increase from 15% to 20%.  As of now, there will also be a 3.8% tax on capital gains for the Affordable Care Act, which is more commonly known as "Obamacare". These increases in capital gains tax rates led to a flurry of transactions being completed in the fourth quarter of 2012.

This uptick in activity has led to very little senior housing inventory being on the market currently, with many sellers opting to list their properties in the latter half of 2012, as opposed to wait until 2013 in order to lock in more favorable tax treatment.

How can this help sellers of senior housing facilities? The change in tax treatment for sellers has not affected buyers' appetite for acquisitions, as there is still a great deal of equity and debt financing available for strong operators throughout the country.  With many aggressive buyers at the table and little inventory available, simple supply & demand economics would suggest that the first half of 2013 will see an increase in pricing for senior housing facilities.

As a potential seller, what should I do? While there is still a lack of quality inventory on the market, it might make sense to pull the trigger on selling your senior housing asset.  I believe that as the year goes on, more owners will try to take advantage of strong pricing multiples, which will lead to a greater supply and less attention to each specific listing.

If you are interested in selling or are just curious of your facility's value, Senior Living Investment Brokerage, Inc. provides non-binding marketing proposals.

We sold over $260 million in senior housing facilities in 2012.  We would be privileged to work with you in the sale of your facility.

Contact me via email at alley@slibinc.com or phone at (630) 858-2501.

Matthew Alley
Managing Director

2013 - 3.8% Tax when you sell your facility

3.8% No reason tax. Thanks a bunch Health Care reform!

The new health care reform includes a number of disturbing items. If you are thinking of selling your long-term care or seniors housing facility, I would seriously look into doing so between now and the end of 2012. As it stands today, in 2013, there will be an additional 3.8% tax on gains from the sale of investment property. Consult your tax advisor, but if you are planning on selling in the near future, now would be an ideal time to determine market value before the new tax goes into effect.

What will the new tax mean for capitalization rates, return on equity and overall value. I don't want to wait to find out. With lending back in the market, limited supply and stabilized value, please contact me at Ryan Saul for a confidential analysis.

If you are in the market to purchase, give me a call at 630-858-2501 to see what we currently have available to purchase.

PS - Let's make a change....get out and vote on November 2!

Sell or refinance...that is the question

Many of our clients are experiencing loans that are maturing. Rather than focus only on refinancing, doesn't it make sense to explore selling? Even though lenders are getting back in the market and making loans, they are requiring significant equity. Our clients are often faced with having to come up with additional cash/equity in order to refinance. Gone are the days of pulling out cash/equity when you refinance in the current environment.

Thankfully Senior Living is off to a great start in 2010. Based on the number of transactions we are closing, we see acquisition lending improving across the board. Buyers that have been on the sidelines for the last two years are looking for opportunities to grow their portfolio.

So, please give me the opportunity to put together a confidential market analysis of what your property is worth before you automatically refinance your facility. Please Email me at saul@seniorlivingbrokerage.com for more information.

Clousing and Binder Sell East Coast Florida Assisted Living Facility

Jeff Binder and Brad Clousing have sold a 44 unit assisted living facility on A1A in Florida. The 44 unit facility is 32,000 square feet and was built in 1996. Census at closing was 60%. The Seller is one of the larger owner/operators in the U.S. and had purchased the facility as part pf a multi-state/multi-facility transaction in 2006. The Buyer is a regional operator out of Florida.
The Seller assisted the Buyer by providing Seller financing in the form of a second mortgage. The primary financing is being provided in the form of conventional financing by a regional lender out of Central Florida.
Please contact Brad or Jeff for additional information.

Brad Clousing and Ryan Saul Announce Sale of Two Florida Assisted Living Facilities

Brad Clousing and Ryan Saul handled the sale of two Assisted Living Facilities in Southwest Florida, March 1, 2010. The facilities had 184 units combined (92 units each) and were built in 1999. For the Seller, it was a strategic disposition. The Seller, a national skilled nursing operator, had purchased these assets as part of a portfolio transaction that included skilled nursing facilities. The Buyer is a regional operator based in Florida who utilized conventional financing arranged through a regional bank. The properties sold for a 5.46% capitalization rate. For additional information, please contact Ryan or Brad.

Senior Living Announces Chicago SNF Sale

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

Ryan Saul and Jeff Binder Sell Wisconsin SNF

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

2010 Outlook Encouraging

What tough market? 2008 was one of the most challenging M&A markets on record. Despite the difficult market, SLIB had a record breaking year. We represented 25% of all reported transactions. 2009 is expected to surpass 2008 and our market share should reach close to 40% for 2009. A recent surge in Seniors Housing sales has improved my outlook for continued recovery and strength in 2010. Investors, owners and operators are re-entering the market after sitting on the sidelines. We are experiencing a shortage of properties available. Smaller, relationship lenders are the debt vehicle of choice (and often the only option). HUD is an option, but the backlog of applications and a "use it or lose it" by the end of the year vacation policy for HUD employees is causing a longer than expected HUD LEAN process.

If you have thought about selling, now is a great time to explore this option. With the lack of supply available, demand alone is driving activity and pricing. I am available to put together a confidential proposal to determine market value.

“It's tough to make predictions, especially about the future.” – Yogi Berra

Contact me via Email at Ryan Saul.

Sincerely,
Ryan Saul
Managing Director
Senior Living Investment Brokerage, Inc.

Matthew Alley Announces Sale in Texas

Matthew Alley sold a 112 bed Skilled Nursing Facility in Texas. Originally built in 1975 with numerous renovations (the most recent completed in 2009), the facility is a single story, brick exterior, 34,150 square foot building. This is the only LTC facility the Seller had and it was sold to an owner/operator purchasing their first facility in Texas. Financing was provided by a local lender. Please call Matthew at 630/858-2501 if you have any questions.

Senior Living Announces Two Sales

Jeff Binder and Nick Cacciabando sold a 39 bed Assisted Living Facility in the Oklahoma metropolitan area. The facility sold for over $105,000/unit and at a 9.9% capitalization rate. The Seller was a regional owner/operator and the buyer is a local owner operator with three other senior housing facilities. Financing was provided by a regional bank out of Kansas City.

Ryan Saul sold a facility in Dayton, OH, with 331 licensed skilled beds and 57 independent living units. The 445,000 square foot facility on 25+ acres was built in 1930 and sold by one of the largest Catholic health systems in the country. At the time of sale, the facility had negative cash flow. Financing was provided by a national bank out of Chicago.

Why Hire An Exclusive Broker?

If you are anything like me, you would not consider selling your home without the assistance of a trustworthy real estate professional. In our line of business, however, we often encounter owners of Nursing Homes and/or Assisted Living facilities who are reluctant to engage a professional to effectively market their properties. It is surprising that while most people willingly engage an agent in the sale of their home in order to obtain top dollar for their valued asset, others attempt to sell a multi-million dollar business on their own, running the risk of leaving a significant amount of money on the table.

The exclusive representation provided by Senior Living Investment Brokerage (“Senior Living”) creates a value for property owners that far outweighs the fees associated with entering into such an arrangement.

An exclusive representation agreement with Senior Living consists of two basic principles:

1) The owner agrees to sell the property and to list it only with Senior Living.

2) Senior Living commits its full expertise, experience, and resources to aggressively and confidentially market the property and to loyally represent the owner throughout the entire transaction.

Why Engage Senior Living With An Exclusive Agreement To Sell Your Senior Housing/Long-Term Care Community?

1) Confidentiality. When working with multiple brokers, they may not understand the importance of controlling to whom the information is sent and the intricate nature of facilitating confidentiality throughout the marketing process. We only contact potential buyers directly via an initial telephone conversation. Only upon receipt of an executed Confidentiality Agreement is any specific property information disclosed.

2) Higher price. Professional representation by Senior Living, a specialized company, exposes the property to a much larger market of buyers, thus increasing the price by more than the fees.

3) Sends a Message to the Market. Engaging Senior Living sends a strong message to the marketplace that, not only is the owner committed to selling the property, but that the likelihood of a successful closing is better. Therefore, more investors will devote time to the offering and ultimately bid higher on the property.

4) Establishes Pricing Expectations. This saves the owner time, effort and energy in that he or she will not have to fulfill numerous requests for information only to learn that the prospective purchaser’s price expectations are not in line with the current value of the property.

5) It Saves the Owner Time. In addition to promoting the property, Senior Living will minimize the owner’s time involvement by screening and presenting offers, fulfilling information requests, assisting in arranging financing, coordinating inspections and reviewing escrow documents.

Selling a Long-Term Care facility requires professional representation and Senior Living will achieve the highest price for your property. Our commitment to selling only Long-Term Care & Senior Housing and track record of success demonstrate this.

Feel free to contact me with questions at Michael Brundage.

By Michael L. Brundage,
Senior Vice President

Seller Financing - Helping the Deal

Seller financing might just be the magic bullet to help some deals get to the finish line.

Gone are the days of Sellers cashing in their lotto ticket when debt and equity was abundant. Buyers and liquidity were driving prices through the roof. Senior Living Investment Brokerage continues to sell Seniors Housing and Long-Term Care despite the challenges in the credit markets. In order for Sellers to maximize their value and increase the probability of getting transactions closed, Sellers should consider carrying paper and/or providing a second mortgage. When structured properly, Seller financing is an attractive option for both Buyer and Seller.

Buyers are able to structure a financing package that reduces the amount of equity by bridging the gap with a Seller note. Sellers will achieve a higher interest rate on their money compared to alternatives in the market. Personal guarantees and the right terms on the second mortgage provide added security for Sellers. By the time the note balloons in three to five years, the debt markets should have more options. Sellers will be taken out in an environment with more lucrative interest rate options. So, consider all of your options when attempting to achieve your investment objectives.

Contact me via Email at Ryan Saul for a confidential analysis.

Ryan Saul
Managing Director
Senior Living Investment Brokerage, Inc.

More Financing Options for Buyers

A recent Seniors Housing audio conference presented by Irving Levin revealed that HUD Lean Section 232 financing is becoming one of the few options available in this difficult lending market. Buyers looking to acquire long-term care facilities are encouraged by the non-recourse, 35 year terms. So far, Seniors Housing has been insulated from the major turmoil in the Real Estate market. Many lenders are actively looking for quality opportunities to place bridge money that can be taken out quickly. The "new" HUD Lean Section 232 program meets that demand and has achieved funding 82 days from application of average. Senior Living Investment Brokerage, Inc. can put Buyers in touch with lenders that specialize in the HUD financing. Our value added service is helping Sellers achieve their investment objectives in today's market. Contact me via Email at Ryan Saul for more information.


Ryan Saul
Managing Director
Senior Living Investment Brokerage, Inc.