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Senior Housing > Blog > 2016 > April

How the Lack of SNF Construction in 2016 Will Impact the Industry

According to a recent report from Integra Realty Resources (IRR), a successful real estate consulting firm, construction will be slow in the world of senior housing throughout the remainder of 2016. In the report, the firm indicates that skilled nursing facility (SNF) development will be “minimal” and that the facilities that are newly erected will likely focus on short-term, post-acute rehabilitation services. This should come as no surprise to those within the industry, as we are seeing more and more facilities close their doors and eventually reopen under new ownership. It is no secret that many existing SNFs have struggled over the last decade. Whether due to the recession or some other factor, we have seen numerous facilities file bankruptcy. So, what does this mean for senior housing – more specifically those interesting in investing in an SNF?

Depending on where you stand, the lack of SNF construction is viewed as a positive. As we continue to see troubled, older facilities close their doors, we expect to see a trend of interested investors swooping in and capitalizing on the situation. Under new ownership, many SNFs are able to get back on their feet and provide residents with high quality services. While we may not be seeing very much new construction in senior housing, the following is taking place:

  • More than 7,000 SNFs were under construction throughout the United States as of the third quarter of 2015
  • During the same quarter of 2014, only 3,600 were under construction

These numbers show that more and more facilities are being bought and renovated, instead of brand new nursing homes being constructed. In many instances, the older facilities are simply in need of an overhaul and specific interior renovations.

When looking at the impact this will have on the senior housing market, it is important to take all factors into consideration. We are not in need of new SNFs, we simply need to focus on how to make existing facilities better and more efficient. Again according to a survey conducted by IRR earlier this year, people in general are optimistic about the nursing home market. In fact, 39% of those surveyed believe the senior housing market has yet to reach its high point. This is yet another great sign for those thinking about getting into the industry and investing in a troubled nursing home or assisted living facility. 2016 will continue to be a year of transition and change for the senior housing industry, and that’s not a bad thing.

If investing in senior housing is something that is of interest to you, we encourage you to contact us. Shep Roylance and the entire JCH Senior Housing Group team have years of experience facilitating senior housing transactions and we would be happy to discuss your options with you today.

The Danger of Solely Relying on CMS’ Five-Star Quality Rating System

If you are at all familiar with skilled nursing facilities – specifically, investing in them – you’ve likely heard of the CMS Five-Star Quality Rating System. First implemented in order to provide those searching for the right nursing home a guide to compare and contrast senior care facilities throughout the nation, this rating system has become an invaluable tool used by investors interested in purchasing an assisted living facility or nursing home. This can be attributed to the fact that the CMS (Centers for Medicare & Medicaid Services) rating system provides an in-depth overview of skilled nursing facilities (SNFs), allowing potential investors to review their existing portfolio and see if the property is worth investing in.

While the goal of CMS is to help consumers and investors alike make important and impactful distinctions between and high- and low-performing SNFs, the danger of relying solely on this rating system are becoming more and more evident every day. While taking CMS ratings into consideration is certainly a good idea, when investors rely 100 percent on these ratings they are not getting the complete picture. Sure, numbers and performance are definitely important, but they are not the end all, be all. Before we dive deeper into this topic let’s take a brief look at what, exactly, the five-star quality ratings are and where they came from.

What Are the Components of the Five-Star Quality Rating System?

There are numerous factors taken into consideration when evaluating a nursing home’s performance. However, the main components include:

  • Health Inspections
  • Staffing
  • Resident-level Quality Measures

Based on how the facility performs in the above areas they will receive an overall CMS rating. The overall rating is a combination of the three individual star rating dimensions, the most important of which is the health inspection rating.

Considerations for Investors

There is no question that the CMS rating system is an important consideration for investors and consumers alike. The point we would like to drive home is that there are additional factors that investors should look at. Furthermore, the Five-Star rating should not be the deciding factor as to whether an SNF is investable or not. In many cases, investors are looking for a quality facility that has a great deal of potential. Say you find that ‘perfect’ facility, but it’s CMS quality rating is dismal, at best. Before walking away from that facility, take a step back and ask yourself what is important. With this, it is important to understand that the CMS system isn’t necessarily about measuring quality – it’s about performance. When it comes to investing in the right SNF facility for you, keep these considerations in mind:

  • Look at the big picture – In some instances a facility will receive a bad CMS rating because of something that happened several years ago. It is important for investors to recognize key historical factors that may have impacted the CMS rating, but are no longer applicable. 
  • What is the driving force behind a bad rating? In many cases, an SNF will receive a poor CMS rating because of personal family grievance. While resident satisfaction is undoubtedly important, an investor should not rely on this measure of performance solely.

Our advice? Ask questions, take outside factors into consideration, and don’t put too much stock in CMS ratings. While this system is in place to help guide you, there are other ways to gain pertinent information about a facility that are equally as important.

If you are thinking about investing in a nursing home or assisted living facility, you should be taking the above points into consideration. Investing in a senior living facility is a big step, and something that Shep Roylance and The JCH Senior Housing Group has years of experience with. We can help ensure you are making the right decision and aren’t leaving out any important considerations when evaluating various SNFs. For more information, please contact us today.

The Changing Face of Nursing Homes

If you are in the market to buy a nursing home, now is the time. Though many state that these properties are struggling, there has been an increase in profits. Part of this is due to Medicaid insurance coverage. The other part, however, is due to the changing population.

Nursing Homes and Medicaid 

Many nursing homes are filled with patients who have only Medicaid for their insurance. This means that taxpayers are footing the bill. Recently, a number of states threatened to create cuts affecting this source of income However with these not occurring , the projected levels of income are exceeded and record profits are made. In 2011, 39 states found Medicaid remained stable. This allowed the executives of nursing homes to enjoy an increased salary of 15% and the CEOs in management of assisted living homes for sale increased their salaries up to 200

Nursing Homes and the Aging Population

As the Baby Boomers enter their older years, more and more residents are looking for senior housing for sale. The increase in residents means an increase in revenue for the nursing homes. The problem, however, is the staffing ability. Most nursing homes are struggling to fill state and federal staffing requirements due to a shortage of applicants. There are not enough trained workers willing to take on the career of a skilled nursing facility. Eventually, as roles are filled, the profit is going to trickle down and create a lower margin for the CEOs and executives.

Nursing Homes and Safety

As the profit is rolled down into a new staff and training, nursing homes will become safer. More employees mean there will be a lower ratio of patient to worker increasing the attention each patient receives. There are also new guidelines and regulations recently approved that ensure the staff is properly trained and educated. In New York, for example, this includes:

  • Maintaining a nurse on staff for special needs patients
  • Implementing strong enforcement of negligence laws
  • Meeting educational hour regulations for Direct Aides

The important aspect of this is that patients, and their families, feel safer as a resident in the home. Money spent by taxpayers to support the elderly through Medicaid is also going to be managed better due to the increase in care. If you want to buy a nursing home, it is important to do your research and speak to your broker. Profits are increasing, but so are the requirements you need to fulfill to be considered a safe institute.