Recent changes in the language in the AR Agreements reduce confusion, clarify ambiguous statements, and speeds up the process which benefits the SNF provider in acquiring AR financing. The earlier version of the agreement left many deals on hold because of the lack of clarity which discouraged many AR Lenders from making a commitment. The good news is that the new language in the agreement gives providers a much better chance of obtaining AR financing. The changes are open for public comment. However, HUD is allowing deals to close before the end of the comment period if both parties agree to and accept the terms of the new wording.
HUD 232 CHANGES:
DEFINITION OF AR LOAN OBLIGATION Excluded many restrictions. The new definition takes a Broad approach which requires AR Loan obligations to be directly related to the benefit of the facility.
CLARIFICATION OF EVENTS THAT TRIGGER A “CUT-OFF” By eliminating many of the reasons that would cause HUD to subordinate its interest in the AR of the provider, the new agreement states that only defaults to the AR loan can cause the AR Lender to cease funding and trigger a cut-off time.
CLARIFICATION OF HUD AND FHA LENDER’S NOTICE AND CONSENT RIGHTS New agreement addresses specific scenarios that have caused problems in the old agreement. The new agreement makes it clear that AR advances that are over the agreed upon maximum commitment amount, but over the borrowing base formula, only require notice and not consent from the FHA Lender or HUD.
MODIFICATIONS WITHOUT CONSENT The new agreement clarifies what modifications can be made to the AR loan documents without HUD’s consent or the consent of the FHA Lender.
These changes are significant and will make it easier for Skilled Nursing providers as well as the full spectrum of Senior Living providers to secure AR financing, a blessing for the Senior Housing Industry in this economy where demand is greater than the supply.
A number of my other Blogs addressed the impact that the Skilled Nursing industry has been experiencing with HISP, (self-insurance), dual eligibility and early hospital readmission penalties. This blog explores the brighter side. There are many positive steps being taken by Nursing Home Providers and all healthcare providers that reflect the shift from the historically operated and regulated institutionalized medical/residential facilities to person-centered care based on the belief that values and wishes of residents should be honored by those working directly with the residents, and those individual values and wishes are of prime importance. By the 21st century most providers were aware that the nursing home and healthcare providers of the past no longer met the needs or the demands of the generation seeking transitional care or long term care. The following reflects examples of how some providers have met the challenge of Culture Change:
Village Care in New York became aware that they needed to distinguish between the residents that were looking for short term care and those that required long term care. They found that most of their residents were interested in getting quality care and returning home. Village care responded by creating a plan that would build a unique, new short-stay plan program that would help people heal and recover faster and therefore return home sooner. The needs and desires of the individual became the paramount concern of Doctors, nurses and care givers and all employees of Village Care. The consideration of the needs of today’s patient, and the demand in the community for high-quality post-hospital rehab, shaped the plan and design for the Village Care Rehabilitation and Nursing Center, defining its role in New York City healthcare.
The Green House Model was developed by Dr. William Thomas which is a radical departure from the traditional nursing home’s institutional setting and mindset. The Green House model by design and philosophy encourages small groups of residents and staff to become a community which together promote high quality care respectful of each resident’s individual wishes. The change in emphasis necessitates a different approach to facility size, interior design, staffing patterns and methods of delivering skilled professional services. The project is active in 32 states with 134 homes open and 106 homes in development since May 2012.
Some of the changes on the road to a more person- centered, homelike resident experience are untested and their outcomes are therefore uncertain. To improve life quality of residents in nursing homes, assisted living and continuing care residential communities, regulations and courts must accommodate necessary innovation and its uncertain consequences in ways that reward and encourage rather than punish culture change. The healthcare industry is on a move. The healthcare industry, like all of us, are struggling to adjust to the new 21st century demands of a fast changing technological age. Trial and error persists, mistakes are made and it seems like we are all slow learners. However, the intentions of the majority are good, even though sometimes the outcome is disappointing, but out of the struggle comes the progress in the healthcare industry, as well as in all of our lives.
THE TIME TO ACT IS NOW: The acquisition market is hot as existing providers stay competitive by adding to their portfolio. Bigger rather than smaller is producing lower costs, higher quality care, and attractive bottom line for aggressive providers in all types of Senior Facilities: Assisted Living, Memory care, Independent Living, Post Acute Care and Continuing Care Residential Communities.
Low interest rates and cap rates trending downward prompt established providers as well as new players entering the space to compete for the purchase of facilities on the market or future development. According to statistics, senior housing is the No. 1 asset across all commercial real estate based on returns. Consequently if a facility which is on the market was purchased at a 12% return, a new operator could be interested in buying it at an 8% return because the perception of risk is diminishing.
As Senior Housing mergers and acquisitions reach over a reported 16 billion, increases in the average price paid per unit is hitting new highs. Data shows for the 12 months ending September 30, 2014 compared to the previous year the average price per unit for assisted living increased 30.5% from $150,600 to $196,000, jumped 28.8% from $164,000 to $211,300 per unit for independent living/assisted living, and 7% from $73.300 to $78,400 per bed for skilled nursing. Driving the increase in skilled nursing prices was the growing number of over $100,000 per bed skilled nursing facility acquisitions in the past two years.
Buyers are positioning themselves for the changing post-acute care market by purchasing those skilled nursing facilities with the most potential to increase their sub acute census and managed care business according to a report by Stephen Monroe.
The Market for high-quality senior living properties today is stronger than it was at the peak of the last bull market in 2006-2007. The availability of equity and cheap debt, plus an influx of new buyers continues to drive prices up and cap rates down in a senior housing bull market that is seeing more mergers and acquisition transactions than ever before according to Irvin Levin Associates.
THE PRUDENT, DEMAND DRIVEN HEALTHCARE PROVIDER is an active player in today’s Healthcare Industry which is providing an attractive bottom line as well as a quantum leap in qualitative care for the senior population.
By: Shep Roylance