How do Cap Rates for Senior Living compare with Apartment Buildings?

How do Cap Rates for Senior Living compare with Apartment Buildings?

A Cap Rate is the most commonly used method in determining the value of a real estate asset.   A cap rate is derived by dividing the annual net operating income by the purchase price.   The higher the cap rate, the lower the price of the asset.   The greater the perceived risk is in an asset, the higher the cap rate, and thus, the lower the price.

According to Senior Care Investor, in 2013 the average cap rates for an independent living facility was 8.2%, the average cap rate for an assisted living facility was 8.7%, and the average cap rate for a skilled nursing facility was 13%.  According to Freddie Mac’s survey in February, 2014, the national average for apartment buildings in the US was 6.4%.

Why do senior living assets have a higher cap rate than apartment buildings?  Senior living assets are still considered riskier because an investor is buying the real estate and the operating business instead of just the real estate and leases as is the case for apartment buildings and commercial real estate.

However, this also presents an opportunity for those who are good at operating seniors housings communities to make a greater return on their investment than investing in lower cap rate real estate assets.

For more information on what your Seniors Housing Community may be worth, please contact Jason Punzel at punzel@slibinc.com or 630-858-2501.

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.

They will be calling . . . .

More and more companies are hiring people dedicated to calling owners to see if they will sell to them.  Are they calling you?  Do they tell you all about how they are the next best thing to sliced bread?  How confidential they will keep things?  Do they tell you they pay top dollar, can close very fast and have money burning a hole in their corporate pocket?  

They are telling you all this because they want to buy your property for below market!  These buyers are not paying as much for a property that has  market exposure to a pool of qualified buyers.  Instead, they are trying to tie up the property and buy it for below market before it has pricing competition.

Don't leave millions on the table.  Let Senior Living Investment Brokerage, Inc. confidentially represent you in the sale of your facility.  Let us add you the long list of success stories of sellers that had unsolicited offers but after being property represented by SLIB, sold for 30% more.  The market is extremely strong right now with cheap capital and a shortage of quality properties.

Please contact Ryan Saul to learn more how we can help.

Market Gaining Strength

The evidence is there.  The market continues to be torrid.  There is very little supply available, interest rates are at historic lows and buyers are aggressively looking for assisted living and long-term care facilities to buy.

Please join me at this year's NIC Conference September 19-21 in Chicago to network and hear about the current state of the market.  I will be guest speaking and presenting a case study at a breakout session on Thursday where you can hear the variables that impact you as a buyer or a seller.  Learn how we value properties and the variables that come into play in the current market.

Please contact Ryan Saul to discuss the current market and the value of your property.

The Price is Right

Senior Living Investment Brokerage prepares an analysis of what a property is worth using market research and our vast knowledge of the senior housing market. It is important to price an offering that maximizes return for a Seller and also is attractive to Buyers. Upon completion of our analysis, Sellers acknowledge that our value is in line. Rightfully so, every Seller wants to maximize their return. They ask us to list 20%, 30%, even 40% higher than the true market value. They feel that an overpriced property can simply be reduced if it doesn’t sell. The danger with this approach is that many Buyers won't even look at an offering if it is priced too far above market.

A property that is overpriced and has been on the market too long is perceived as tainted. Buyers start to question why it hasn’t sold. A property that is priced correctly generates the most Buyer interest and competition that results in top-of-the-market values.

If you are looking to sell and want to maximize your return on investment, make sure your facility is priced accurately. In the past three years we have sold our offerings for 96% of our initial market valuation. Please contact Ryan Saul for a confidential proposal to determine market value.

Senior Living Investment Brokerage, Inc. Sells 60 Unit Nevada ALF

George Pappas, Bradley Clousing and Ryan Saul have sold a 60 unit Assisted Living Facility in Nevada. The property consists of 5 buildings each containing 12 units. Although the facility had enjoyed strong occupancy for 20 years (the property was constructed in 1989), in the past two years the census had fallen to 50% due to new competition and a soft housing market. In addition, the facility had it's share of surey problems in recent years. Prior to close, the survey issues had been cleared and occupancy had been increased to 65%. The Seller was a "hands-off" group of investors. The Buyer is a national owner/operator looking to expand their presence in Nevada. The facility has adequate space to expand and accommodate additional levels of care as well as the opportunity to raise occupancy. For additional information, please contact Ryan Saul, Brad Clousing or George Pappas at 630/858-2501.

Slow time of year? I think not.

I was hoping to slow down, catch up on paperwork and read a good business book this holiday season. That isn't happening. A lot of clients wisely use this time to have a confidential proposal done. That is just fine with me. With all this activity, that means 2012 should be another record year. We are working on a number of closings over the next two weeks and our proposals have increased dramatically. If you were frustrated by the lack of deals out there to purchase over 2011, hold on, I think 2012 will be the year of opportunities. If you have thought about selling, now is a great time to have me do a confidential proposal to see what your property is worth.

Please call me at 630-858-2501 or Email Ryan Saul at ryansaul@slibinc.com to discuss.

Patrick Byrne and Jeff Binder Sell Missouri Assisted Living Facility

Patrick Byrne and Jeff Binder sold a 40 Bed/28 Unit Assisted Living Facility located in Saint Louis County. Originally constructed a short-term rehabilitation facility, it was purchased and renovated into an assisted living facility by a non-profit organization affiliated with a Catholic based organization. In recent years, the funding for the facility had diminished and a decision was made to close the facility in June, 2011. Senior Living was tasked with repositioning and marketing a vacant building which had lost value upon closure. After only 3 weeks of marketing, Senior Living identified 3 bidders on the property. The Buyer intends on reopening the facility after some minor physical plant changes and redecorating. The Buyer will focus on the private pay market. Built in 1984 and located in a working class community, the 17,864 square foot facility sold for $1,200,000 or $30,000/bed. For additional information, please contact Pat or Jeff at 314/961-0070.

Brad Clousing and Ryan Saul Sell Louisiana Assisted Living Facility

Ryan Saul and Brad Clousing have sold a 77 unit Assisted Living Facility north of New Orleans. Senior Living Investment Brokerage, Inc. fielded multiple offers and created a confidential, competitive market to achieve a top-of-the-market price. Constructed in 2009, the facility reached stabilization in 2010 and maintains a strong census. the 77 unit facility consists of 27 studio units and 50 one bedroom units. The Seller is a local real estate owner and this was his only Seniors Housing asset. The Seller made a strategic divestiture to take advantage of the strong market after following a number of completed transactions by Senior Living Investment Brokerage, Inc. The Buyer is an investor in Seniors Housing based in Kentucky with operations in Michigan. Through their marketing efforts, Ryan and Brad were able to negotiate a purchase price of $11,000,000 ($142,857/unit) at a 7.36% capitalization rate. For additional information, please contact Brad or Ryan at 630/858-2501.

Senior Living Sells Ohio Assisted Living/Alzheimer's Care Facility

Jeff Binder, Ryan Saul and Brad Clousing have sold a 102 unit Assisted Living and Alzheimer's Care Facility in Ohio for $17,500,000. Constructed in 1998, the facility is 69,184 square feet on 4.5 acres. The Seller is a national owner/operator and the Buyer is a Florida based real estate investment company who intends on keeping the current management in place. The facility sold for a 8.5% cap rate and a 2.9 GIM.

Brad Clousing Closes $15,100,000 Florida Portfolio

Brad Clousing has completed a sale-leaseback of three assisted living facilities in Central Florida for $15,100,000. The transaction comprised of a 43 unit facility built in 2005, a 42 unit facility built in 1997 and a 42 unit facility built in 1988-expanded and renovated in 2005. This transaction allowed the Seller to retire the existing debt, free up liquidity and maintain operation of the facilities. The Seller operates other facilities in the area and has several properties under development. For additional information, contact Brad Clousing at 630/858-2501.

Upside? What Upside?

The number of potential Sellers exploring the option of divesting has doubled in the last year. So why the lack of quality inventory on the market? The answer, no upside value.

Sellers realize that the lenders and buyers are back in the market aggressively looking for acquisitions. However, the market is not paying for upside. Lenders, appraisers, and buyers are only paying for what your property is worth today. In order for Sellers to maximize their value, my advice is to increase the census, improve cost centers and/or build that valuable program. A buyer won't pay you for the work they will have to do to see that value. If you want the value, improve the cash flow and you will be rewarded accordingly.

Please contact at Ryan Saul for a confidential proposal to determine the market value of your property.