CCRC Sale in Missouri

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Bradley Clousing, Patrick Byrne and Ryan Saul of Senior Living Investment Brokerage, Inc. recently sold a 195 Unit Continuing Care Retirement Community in north St. Louis County. The 195 Unit/143 Bed CCRC Sale consists of 110 Independent Living Units, 22 Assisted Living Units, 22 Memory Care Units and 41 Skilled Nursing Beds. The asset, built in 1984, 2003 and 2013, was well maintained although the general aesthetic is a bit dated. The Seller is a faith based non-profit which exclusively operates entrance fee communities. The Buyer will focus on rolling back the inflated expenses/benefits. The overall occupancy at the time of sale was 89%. For additional information, please contact Senior Living Investment Brokerage, Inc. at 630/858-2501 or 314/961-0070.

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Brad Clousing and Pat Burke Sell Skilled Nursing Facility in Virginia

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Senior Living Investment Brokerage was hired to sell Skilled Nursing Facility in Virginia. Senior Living was able to procure multiple offers and the 300 bed facility sold for $28,500,000 ($95,000 per bed). The community benefits from a quality physical plant featuring private bathrooms in all the resident rooms. Recently, the community enjoyed a significant Medicaid rate increase. Medicaid residents made up approximately 80% of the census while the remaining residents were private pay and Medicare. The census at the time of sale was 95% and the cap rate at the time of sale was 12.7%. The Buyer is a REIT that entered into a long-term lease with an affiliate of the Seller. The transaction will eventually include the adjacent assisted living community which is awaiting TPA approval for the assumption of the existing debt. For additional information on this transaction or how we can assist you in the sale or purchase of your seniors housing community, please contact Bradley Clousing or Patrick Burke of Senior Living Investment Brokerage at 630/858-2501.

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Senior Living Investment Brokerage Completes Skilled Nursing Facility Sale

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Toby Siefert, Ryan Saul and Tom Rusthoven recently handled a Maryland Skilled Nursing Facility Sale. The 87 bed Skilled Nursing Facility is 41,139 square feet on 1.89 acres. The census at the time of the sale was 86%. The sale price was $9,100,000 or $105,000 per bed. The favorable price per bed was due to the quality reputation of the facility, the attractive location and Senior Living Investment Brokerage procuring a dozen offers for the Seller. Senior Living Investment Brokerage was able to exceed the Sellers pricing expectations. The Seller was a public REIT in conjunction with a national operator. The REIT and operator made a strategic divestiture due to the size, performance and geographic location compared to their other assets. The Buyer was a partnership between a California investor and a regional operator. For additional information on this sale, please contact Toby Siefert, Ryan Saul or Tom Rusthoven of Senior Living Investment Brokerage, Inc at 630/858-2501.

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When is the Best Time to Sell my Seniors Living Community?

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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 cap rate.   A cap rate is similar to an interest rate or rate of return and measures investor’s perception of risk in a given asset.   A high cap rate indicates greater risk, and thus a lower value.

Net Operating Income (NOI) /Cap Rate = Value  – (the higher the cap rate, the lower the value)

When a property is not operating at its potential, net operating income is lower than its potential and the value is thus lower.  Many owners think it might make sense to try to improve their community’s NOI and sell in the future.  There are two points 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 a great deal of change – capital expenditures/remodeling, a new management company, new staff, etc.  Does the owner have the ability, resources and desire to execute these 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 hope 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.  Interest rates are very low today, but clearly on the rise.  As the American economy improves and unemployment continues to drop, the Fed will continue to raise short term interest rates.    As interest rates rise, investors return expectations will also rise, resulting in higher cap rates and lower values.

Let’s use an example of a community that is currently producing $600,000/year in NOI and the current cap rate for that type of community is 8%.   To determine the value, the NOI of $600,000 would be divided by .08 to come up with a value of $7,500,000.  However, in this example, 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 increase and now the cap rate for this type of community has increased to 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 someone else builds a competing facility close by and saturates the market, or the new marketing director turns out to be worse than the previous one.  Or the Executive Director quits and the owner can’t find a competent 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 inhabit 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, Senior Living Brokerage, Inc., 630-858-2501 x 233 or [email protected]

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