Do you own a troubled skilled nursing facility?
The facility’s license should be maintained at all costs. In the event of licensing issues with your Tenant, Receivership, Chapter 11 Bankruptcy or foreclosure, you must do everything possible to preserve the facility’s license. The loss of the license could be catastrophic to the future use and value of the facility.
For Example, The majority of the freestanding skilled nursing facilities were built in the late 1960s and early 1970s. Very few facilities have been built in California in the past 20 years. Due to the fact that most skilled nursing facilities were built within that era, many of the current rules, regulations and standards of the American Disability Act (ADA), Office of Statewide Health Planning and Development (OSHPD) and the California Department of Public Health’s Planning and Development have been grandfathered in. In the event the licensee loses it’s license, the landlord, bank or new owner would likely be required that the facility satisfy all of the new rules and regulations. The facility would be treated as new construction and would be required to conform to 2014 standards.
Areas of concern:
In California, it is likely your skilled nursing facility was built in the 1960’s or 1970s. When the facility was possibly built, the construction standard was ½” sheet rock. The new construction and fire safety standard is 5/8” sheet rock on the inside of all exterior walls in between resident units. This would mean that all of the existing sheet rock would need to be replaced. Current fire code also requires that a fire barrier be constructed between the ceiling of each unit and roof. A new fire code requires that resident doors carry a one hour fire rating or dual egress. Most doors from this age of building usually only carry a 20-minute rating. We have seen a number of buildings whose doors probably met required rating, but if the metal tag has been removed the inspectors considered it as non-rated and require its replacement. The replacement doors frequently require all new fire resistant frames, gaskets and hardware. It is also likely that all of the fire sprinkler heads, probably around 150 total, would need to be upgraded to be compliant with 2014standards.
Another issue to be considered is the adequacy of the fire suppression systems. Is it adequate in terms of pressure, volume and alarms, which may dictate that much of the piping, joints and pressure sensors may have to be replaced This study would need to be completed by the appropriate expert. The state will likely require that smoke detectors as well as heat sensors be placed in all rooms, common areas and be installed and hooked up to a new alarm panel. These alarm panels typically need to be connected direct or indirectly to the local fire department.
One of the new requirements enacted is that all glass windows must be dual paned, energy-efficient windows and doors. Essentially this would mean replacing nearly all the glass within the entire facility. Any glass that is within 2 feet of the floor must additionally be tempered glass which frequently doubles the replacement expense. The insulation in the roof would be required to be upgraded to R-41. It has been interpreted on occasion that in order to comply with this regulation the roof may need to be raised 12 inches to fit the additional linsulation This requirement may be waived, but not necessarily. Current code also requires that all exterior walls be a minimum of 2 x 6 construction and filled with the appropriate insulation material. Nearly all buildings in the 50s and 60s were made of 2×4 construction. Remediating this condition would likely include adding a 2 x 2 to the entire exterior wall studs and re-sheet rocking or simply replacing all exterior walls with 2 x 6 studs. Please consider that we are talking about replacing or modifying nearly every standing wall in the facility. The state fire marshal may waive this requirement, but is under no pressure to do so.
Another concern that we see with buildings of this age is an abundance of asbestos that was used in the tile flooring mastic, wall insulation, pipe insulation and frequently as drainpipes and ventilation stacks. All of these asbestos issues would need to be remediated prior to issuance of a new license. Because of the age of the building it is also common that we see a great deal of lead paint. Although this is normally not troubling to seniors, OSHPD usually requires its removal as well.
Seismic construction regulations were essentially nonexistent until the 1970’s. To bring a building up to current code usually involves constructing new footings and walls around existing structure and bolting the old structure to it. Digging the new footings is often terribly expensive as it becomes necessary to dig up and/or reroute water lines, sewer lines and gas lines. Again, because of the age of the building these pipes are often fragile and can be damaged easily and may require replacement far underneath the building or out to the street.
The American Disability Act was designed to make nearly all buildings more user accessible to those with walking disabilities and/or other infirmities. This includes ensuring that all sidewalks are wide enough for two people in wheelchairs to pass each other comfortably and safely. It also involves constructing ramps for wheelchairs in addition to whatever stairways there may be. They also require that all bathrooms be large enough that a 5 foot cardboard circle may be laid down on the floor. This was done to ensure that a person with the walker or wheelchair would have sufficient room to enter the bathroom and still maneuver there wheelchair without assistance. Most bathrooms that were constructed during this period fall far short of that requirement which could possibly lead to the tearing out and reconstruction of all of the bathrooms in order to make them large enough to be compliant with current standards.
Possible reduced bed count due to size of the units
Many of the resident rooms that were constructed during this period were approximate 175 sq. ft. in size. Current code requires that each 2-bed room needs to be in excess of 200 square feet. It is possible that a waiver may be issued for the smaller room size, but by no means is guaranteed. Also, current code does not allow for any new 3- bed or 4-bed wards that were common throughout the 50s, 60s and 70s. A reduced bed count translates directly to lower possible revenue and therefore lower value.
Based upon the age of a facility the upgrades would likely be cost prohibitive for a new buyer. Indeed, it would likely be cheaper to demolish the existing building and construct a new one then it would be to retrofit for the above issues and items. This is evident in that you see almost no skilled nursing facilities being retrofitted anywhere in the state. The demolition cost of buildings this age are often much higher than normal demolition. This is due largely to the fact that the asbestos would need to be identified and removed in its entirety prior to knocking it down. If the asbestos is located ceiling, walls or flooring the building must almost be disassembled board by board to keep asbestos from becoming friable or airborne.
New construction costs vary but run between $115,000 per bed to $145,000 per bed depending upon construction and land cost. This is largely the reason that in the last 10 years there has been only three new skilled nursing facilities built which doesn’t meet the demand of the state’s 3,000,000 increased population. i This lack of new construction has driven the price of older nursing homes to all-time highs. There is simply nothing new coming online to replace these aging facilities.
Over the years, JCH Consulting Group has been involved with many vacant bank owned facilities. Banks are usually unaware of how critical it is to preserve the continuity of the license, not realizing that the existence of the license determines the value of the facility. It is unlikely that a vacant unlicensed facility would ever be licensed as a skilled nursing facility again. Due to the nature of a single use asset, there are only a few potential uses for vacant skilled nursing facilities. One option is to convert the facility to a residential care facility for the elderly (RCFE) or an adult residential facility (ARF). The licensing requirements for RCFE and ARF facilities are significantly less than skilled nursing facilities. The least desirable option would be to demolish the facility to make way for a new development project.