Senior Living Investment Brokerage Sells Two Eastern Pennsylvania Communities

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Toby Siefert and Matthew Alley of Senior Living Investment Brokerage, Inc. recently sold two Seniors Housing Communities in Eastern Pennsylvania. The first property consisted of 118 Personal Care units and 12 Independent Living units consisting of 58,800 square feet on 4 acres. Originally constructed in the 1960’s with updates and additions through 2004. Census was 85% all of which is private pay. The other community, in the same city, has 98 Personal Care units and 13 secured Memory Care units consisting of 44,525 square feet originally constructed, expanded and renovated between 1987 and 2000. Census was 66% and all the residents are private pay. The cap rate at the time of sale was 6.8%. The Seller is a private owner exiting the business. This was their only seniors housing communities. This is the first acquisition by the Buyer. The principal is creating a new company but has significant experience as an operator of seniors housing. The new owner will focus on marketing to drive census and increase margins with plans to re-finance to a HUD mortgage after stabilizing census. For additional information on this transaction or how Senior Living Investment Brokerage can assist you, contact Matthew Alley or Toby Siefert at 610/858-2501 www.slibinc.com

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How Do Rising Interest Rates Impact the Value of my Senior Living Community?

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Over the past several years, interest rates have remained extremely low.  The 10 year US Treasury rate (a common benchmark for financial instruments) reached an all-time low in July, 2012, at 1.53% and today is around 1.8%, the Federal Funds Rate has been close to 0% for years and the Fed made its first rate increase this past December.   The 10 Yr Treasury hit an all-time high in August, 1981, at 15.32% and has averaged 4.64% since 1870.   Thus, there is a high likelihood that interest rates will increase as they revert back to the historic mean.

Interest rates are a measure of an investor’s desired rate of return.   An interest rate, or a rate of return, is made up of three components, risk, inflation, and time value of money (allowing someone else to use your money).   The theoretical risk free investment is a US Treasury or FDIC insured savings account/CD.   Thus, all other investments can be benchmarked by these indexes.  The greater the perceived risk of an investment, the greater the spread, or “risk premium”, will be for that investment over the US Treasury.   Today, average capitalization rates (rates of return/risk premium) for assisted living facilities are around 7.5%, or about 500 basis points above the 10 US Treasury.   This is the risk premium investors place on assisted living versus the alternative of investing in a “risk free” US Treasury bond.   When the rates increase on US Treasury bonds, typically cap rates increase on senior living communities (or any investment), assuming the risk premium stays the same.

To determine the value of a senior living community, the Net Operating Income (NOI) is divided by the Cap Rate.

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

Thus, as interest rates, and cap rates increase, values go down.  Below are several examples:

NOI = $600,000, Cap Rate = 7%, Value = $8,571,429

NOI = $600,000, Cap Rate = 8%, Value = $7,500,000

NOI = $600,000, Cap Rate = 9%, Value = $6,667,000

As you can see, for every 1% increase in the cap rate, the value drops by over 11%.   Thus, if interest rates continue to rise over the next several years, it could dramatically affect pricing.   If an owner has a desire to sell their community anytime in the next several years, now might be an opportune time.

For a complete analysis on how interest rates can affect your community’s value, both now and in the future, contact Jason Punzel, Senior Living Investment Brokerage, INC, at 630-858-2501 x 233 or [email protected]

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Toby Siefert Hired to Sell Skilled Nursing Facility in the Northeast

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Senior Living Investment Brokerage Hired to Sell Skilled Nursing Facility

Toby Siefert of Senior Living Investment Brokerage, Inc. recently sold a 30 Bed Medicare/Medicaid Certified Facility in Northern Vermont. Senior Living Investment Brokerage, Inc. was hired to market the community because it was the smallest property in the owner’s portfolio and did not fit their investment objectives. The site did not offer the opportunity for expansion. The physical plant was older and had certain limitations. Census at the time of sale was 81% with a quality mix of 50%. The Buyer is a local family that owns and operates a seniors housing/long term care community in the same town. For additional information on this transaction or questions regarding the value of your seniors housing/long term care facility, please contact Toby Siefert of Senior Living Investment Brokerage, Inc. at 630/858-2501 or [email protected]

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Ryan Saul Announces Illinois Skilled Nursing Facility Sale

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Ryan Saul of Senior Living Investment Brokerage recently announced a Skilled Nursing Facility sale in Illinois. The sale also included a rehab company, in-house therapists and a staffing company. The 106 bed community was originally built in 1972 with a 16 bed, 10,000 square foot addition completed in 1985. The therapy wing was added in 2008 and an interior renovation was completed in 2009. The entire facility is comprised of approximately 40,933 square feet and is in 4.89 acres. At the time of the execution of the sales contract, occupancy was 93% on 100 functional beds and the contract price was $13,500,000. But based on a census MAC clause, the final sales price was adjusted by ($127,358). The Seller was a family owned business exiting the long-term care industry. Due to current market M & A conditions, they made the decision now was an ideal time for them to divest of their skilled nursing facility and retire.The Buyer, a private family based organization, was also based out of Illinois and owns and operates a nearby skilled nursing facility. The Buyers intend on doing an expansion to the current building with all private suites. The quality mix at the time of sale was 98%. The transaction closed at an 8.23% cap rate, 0.70 GIM and over $126,000 per bed. For additional information on this Skilled Nursing Facility Sale or for a confidential analysis of your seniors housing property, contact Ryan Saul of Senior Living Investment Brokerage, Inc. at 630/858-2501 or [email protected]

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