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 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

Skilled Nursing Cap Rates - why are they higher?

Lately, I have spoken with several Skilled Nursing facility owners about why capitalization rates are so much higher for Skilled Nursing facilities than Assisted Living and Independent Living facilities, not to mention other commercial real estate classes.  

First off, a primer on how cap rates work.  A cap rate is defined as the NOI divided by the purchase price of the facility.  Using a very simple example, if a facility has $1 million in NOI and it has a 10% cap rate, the facility will be worth $10 million ($1 million / .1).  

Average cap rates vary based on industry trends and interest rates, but currently average cap rate ranges are as follows:

• Independent Living - 7.0%-8.0%
• Assisted Living - 8.0%-9.5%
• Skilled Nursing - 12.5%-13.5%

There are three reasons that Skilled Nursing facilities have much higher cap rates than Assisted Living or Independent Living facilities: 

1. Reliance on Government Reimbursement: There is no question that the majority of Skilled Nursing facilities rely on Medicaid and Medicare reimbursement for the majority of their revenue sources.  Assisted Living typically has very little Medicaid reimbursement and Independent Living has no government reimbursement (unless it's low income housing). 

This can have an enormous impact on value because if the state cuts its Medicaid rate by 10%, every SNF in the state will lose 10% of its Medicaid revenue with little that the facility can do to recoup it.  If the federal government cuts its Medicare rate by 5%, every SNF in the country will lose 5% of its Medicare revenue.  This decline in revenue dramatically impacts the bottom line.

While other real estate classes are affected by economic trends, both nationally and locally, government reimbursement is an added risk for the Skilled Nursing class that needs to be factored into expected returns and hence, values / cap rates.

2. Additional Liability:  As the acuity level of the residents increases, the risk of liability increases.  A resident that needs more assistance is going to be more likely to have an accident or unexpected downturn in his/her health, which can lead to greater risk of a lawsuit.  In states that do not have tort reform, this can be a large risk that is not easily insured against, even with liability insurance policies. 

3. Increased Specialization in Care:  Additionally, as the acuity level of the residents increases, the specialization and expertise needed to care for those residents increases.  An operator of Skilled Nursing facilities needs to hire more competent staff with a greater level of skill in caring for residents than Assisted Living or Independent Living operators.  

While an operator needs to consider the increased risk of running Skilled Nursing facilities, higher cap rates lead to greater investment returns than most other commercial real estate classes. 

For more information, contact Matthew Alley at alley@slibinc.com or 630-858-2501

Matt Alley Presents at the Texas Health Care Association

Matt Alley spoke at the Texas Health Care Association Annual Convention this week. Matt spoke on Tactical Debt Financing and Achieving Your Bottom Line. He co-hosted with Lancaster Pollard and Oxford Finance. The topic specifically related to buying and selling long term care and senior housing properties. For more information you can contact Matt at 630/858-2501 or alley@slibinc.com Matt is Managing Director at Senior Living Investment Brokerage, Inc.

Jeff Binder Sells ALF/MC Community in Iowa

Jeff Binder sold a 42 unit Assisted Living and Memory Care Community in one of the fastest growing cities in Iowa. The community consisted of 36 assisted living units and 6 memory care units. Originally constructed in 1995 as a condominium, it was converted and renovated for assisted living in 2000. The three story building is comprised of approximately 29,000 square feet on 0.6 acres. The spacious units have a number of amenities not typically found in assisted living communities such as gas fireplaces and balconies. At the time Senior Living was hired to market the community, the occupancy was near 70% and had been experiencing a slow decline in performance over the past 4 years. The Seller is an Iowa owner/operator divesting this asset in order to exit the seniors housing sector. The Buyer is a regional owner that plans to use their broader base to gather economies of scale. For additional information on this transaction, please contact Jeff Binder at 314/961-0070 or binder@slibinc.com

Matt Alley Sells Texas CON

Matt Alley has sold a 56 bed Medicaid Certificate of Need in Texas.  The buyer is a developer located in East Texas with several facilities in Texas.  The buyer will benefit from the additional Medicaid beds that the state issues when a new facility is built.  For additional information please contact Matthew Alley at alley@slibinc.com or 630/858-2501

Bid deadline or no bid deadline? That is the question....

Since we represent approximately 30% of all announced seniors housing and nursing homes sold, we are often asked about timing and process as it relates to the sales process.  We don't believe in setting a bid deadline for a number of reasons.  

1) It often limits the amount of groups that will be interested.  Either they don't have the time to meet the deadline or they prioritize other deals that they can come to terms quickly with the Seller and move to the next step.

2) Buyers typically wait until days before a bid deadline to actually look at a deal and do any level of due diligence.  This leads to uneducated offers and little marketing feedback throughout the process.  Momentum and competition are a seller's best resource.

3) If a bid deadline is set when an offering goes to market and no offers come in, the offering is negatively impacted.  At that point, buyers know the asset has no interest and then look to purchase at distressed levels.

4) The first offer is typically the best offer.  Those buyers that drop everything to spend time on an opportunity should be rewarded with the opportunity.  It doesn't make sense to force a ready, willing and able buyer sit on the sidelines just waiting out a period of time before they submit an offer.

Buyers: Do you agree?  Do you like when there is a set bid deadline?  If you are one of the few that do, what do you think is the right amount of time to give to review the information?

Please contact Ryan Saul for a proposal to see what your assisted living, independent living, memory care or skilled nursing facility is worth.