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Selling Your Senior Housing Facility? Want a Fast Close? Be Prepared!

In this hot seller’s market a seller must be prepared for an increasingly rigorous due diligence process by prospective buyers.  Healthcare legislation uncertainty coupled with increased competition for quality assets has led to heightened diligence by buyers whose aim is to evaluate, mitigate and price the perceived risk attendant to health care transactions.

The following will help Sellers be prepared:

  1. Be prepared to provide 3 years financial statements and year to date financial statement. Your senior housing broker should request a list of all benefits of ownership that might be added back to the facility’s earnings before interest, taxes, depreciation and amortization (EBITDA).  Banks will also look for an industry average 5% management fee for underwriting.
  2. Tax Returns. Be prepared to provide 3 years tax returns and current years extension if filed.
  3. Be prepared to provide 3 years census by payor.
  4. Payor information. Identify and produce all provider agreements, demonstrate compliance with billing and reimbursement and payment regulations, or show what remedial steps will be taken to resolve any issues prior to closing.
  5. Regulatory compliance. Be prepared to provide the facility’s last two years State and Federal surveys along with all plans of correction (POC).
  6. Be prepared to provide the last 2 payroll runs.
  7. Be prepared to provide copies of all collective bargaining agreements.
  8. Real Property. Be prepared to provide evidence of ownership and a survey.  Disclose any environmental issues if they exist.
  9. Licenses & Waivers. Provide all information relating to licenses and certifications relevant to the operation, including healthcare licenses, certificates of need, and local business licenses.
  10. Confirm that all ongoing litigation is covered by insurance and that anticipated liability is within policy limits.
  11. Compile a detailed schedule of fixed assets and inventory.   Identify whether any assets are leased or subject to liens and if so provide the underlying lease or debt instruments.  Identify which assets may not be transferred to the buyer because they are owned by other parties.

The due diligence period in a transaction can make or break a transaction. Not being prepared will cost sellers money and could prevent the close.   Well organized data is essential and is evidence of the seller’s professionalism which instills buyer confidence.  It demonstrates pride of ownership and value and results in a smooth transaction and a fast close.

WINNERS & LOSERS: SENIOR LIVING PROVIDERS ACQUIRE DISTRESSED DEALS

The <a href=”https://www.shepjch.com” target=”_blank”>acquisition of bankrupt or distressed deals</a> provides an opportunity for Senior Living Providers to grow and increase their presence in today’s competitive market.   Sweeping changes in the Healthcare industry as a whole and the recession has caused serious problems for many Assisted Living, Skilled Nursing and Continuing Care Retirement Communities often resulting in bankruptcies.  The <a href=”http://www.hhs.gov/healthcare/rights/” target=”_blank”>affordable Care Act</a> and the evolution of health care technologies are contributing factors.  Continuing care retirement communities in particular continue to face financial distress and challenges, which they’ve encountered ever since the economic crisis made it difficult for prospective residents to tap into their home equity.  Skilled Nursing facilities face performance challenges as they try to adapt to a post –Affordable Care Act and Culture Change world.<!–mep-nl–><!–mep-nl–>Providers of small, medium or large portfolios have suffered and either declared bankruptcy or have been forced to sell at below the market rate per bed and unit.  The losers, unfortunately for them, fall by the wayside, but their loss is a gain for those strong providers that have survived the downturn and are actively seeking growth in the present competitive and soaring Healthcare market. Providers that can adapt to the changes in the industry are emerging as winners.  <a href=”https://www.shepjch.com/Bankruptcy.html” target=”_blank”>Chapter 11 bankruptcy</a> is always an acquisition opportunity.   These properties are particularly attractive to smaller and mid-sized operators and owners that cannot compete with large-cap REIT’s.  The current soaring per unit prices of Facilities virtually eliminate acquisition by the small and mid-sized providers.<!–mep-nl–><!–mep-nl–>The acquisition of a bankrupt or distressed facility presents a challenge and demands due diligence on the part of the new owner or operator.  The all-cash deal, quick due diligence period, correction of all the problems that have caused the bankruptcy and the amount of capital expenditure to make the facility competitive in the market place are monumental considerations faced by a new owner/operator.<!–mep-nl–><!–mep-nl–>The turnaround from a distressed deal to a successful deal with an attractive EBITDA takes hard work, knowledge, capital and time.  For example, a facility purchased for five million, two million in capital improvements, rate increases, change is payor mix and new market branding can result in a fresh concept and energy  brought to the market.  In three to five years the “winner” could be the proud owner of a twelve million dollar facility which becomes attractive for a REIT acquisition.  In such a case it is evident that the result makes the acquisition of the distressed facility worthwhile.<!–mep-nl–><!–mep-nl–>New capital, demographics, technology and a culture change in the industry have accelerated the pace of the market.  In this rapidly changing, competitive and demanding Healthcare market the prudent Senior Living provider must take advantage of all growth opportunities.  The winners who have taken the opportunity to grow in number and deliver a higher quality of service to the increasing senior population makes the entire Healthcare Industry stronger.

Memory Care Demand Exceeds Supply & Shapes Future of Healthcare Industry

SENIOR LIVING PROVIDERS anticipate increased return on investment as a result of a favorable demographic environment. It’s just basic Business Cycle 101”.   With the growing baby boomer population there will not be enough senior housing for the demand of retired boomers.  Memory care communities are specifically in demand.

It is reported that every 68 seconds, an American develops Alzheimer’s disease.  By 2050 Americans will develop Alzheimer’s every 33 seconds.  The disease, which has no cure, no prevention and no proven way to slow its progression affects 5 million Americans today. It is expected to nearly triple by 2050 as baby boomers age. The nation’s 65+demographic, which currently accounts for 13% of the overall population, is expected to more than double by 2050 to more than 89 million  (20% of the population) according to the U.S. Census Bureau.

To support the need for memory care facilities, many assisted living communities are adding memory care to their services, and developers and architects are including specific design to accommodate the growing demand.  Memory care is very different from Assisted Living care and requires a unique structural design to support optimal living conditions for those who suffer from dementia. It also can effect financing and loan terms. However difficult, the need must be met and the return on investment encourages Healthcare investors to venture into the market.

Brookdale, one of the nation’s largest senior-living operators, has 647 communities in 36 states.  12% of the company’s residents (5771 seniors) are enrolled in Brookdales’s Clare Bridge memory care program at 86 facilities.  Smaller assisted living facilities are also devoting the much needed care and space to Alzheimer residents.  Maristone Living with two locations in the Nashville area, reports that Alzheimer is a growth unit for the company.  About 25% of rooms at Maristone are devoted to memory care residents.

As memory care providers compete to meet the needs of this growing segment of Americans with dementia many are turning to innovative solutions that revolve around engaging the senses.  The emergence of Snoezelen Therapy on the memory care scene is growing.  The therapy requires a controlled multisensory environment which allows memory care residents to guide their own therapy.  The purpose of a sensory room is to excite the five senses and re-engage residents with their environment.  Silverado Senior Living, a memory care provider in 8 states has shown the therapy to be successful.  Vice President of Silverado reports that incorporating the senses is the best means to communicate with memory-care residents.

So once again we see progress being made and the HEALTHCARE INDUSTRY IS ALIVE AND WELL.  The demand driven providers adjust to the demand and make giant steps in quantity and quality of service.

There are many notable trends in the nursing home marketing for 2014. Find out what the top five are and why they changed.

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Top 5 Trends of 2014 to Watch for in Nursing Homes for Sale

When you are looking for nursing homes for sale, it is important to pay attention to the latest trends. These ensure the property you want is up-to-date with the technology, design, and needs of its residents. In short, it makes it easier to create a profit. Along with this, it can also help adjust the pricing before purchasing. If, for example, the home does not meet these trends, you may consider negotiating to a lower price. Though there are many appearing, these are the top five to look for.

1. Increased Marketing for Not-for-Profit Nursing Homes

Not-for-profit assisted living homes for sale and established will be changing their marketing strategies in 2014. Currently, most non-profits rely on the good will of others such as support groups, religious organizations, or other donations. As the debate over not-for-profit and profit homes grows, non-profits will need to add capitalized marketing strategies such as radio, TV, and print advertisement. It may even be necessary to utilize social media and other Internet marketing tools. The marketing will increase as the debate between the two types of homes does as well.

2. Efficiency in Technology

Smart technology like tablets and phones is now utilized everywhere including nursing homes. Health monitors now connect to the Internet as well for easy access to data. This means all nursing homes are going to need efficiency data collecting and sorting technology. Some properties have the data collected, however, it is not shared and remains separated from other important information. An efficient nursing home utilizes a shared wifi and data collection point so all information is shared across the network. This allows for open communication through any technology, creating an effective operating system. If you are looking to buy healthcare property, ask what type of technology it has.

3. Interest Rates Rise on Nursing Homes for Sale

With the improving economy come higher interest rates for all property types including nursing homes for sale. This makes the homes harder to finance as other costs rise along with the interest such as those necessary for improvements. There is a smaller margin for error since your monthly mortgage payment is going to increase. To offset this, you will notice that the rents and rates given to its residents need to go up as well. While it helps cover your bottom line, it may make it harder to fill vacancies.

4. Customize the Space

Rather than being constrained in the property’s first design, many assisted living homes for sale can now be customized. This means changing finishes on hardware, paint colors, or countertop material. While it may seem simple, residents are going to demand flexibility and quick results. The property that allows customization is going to win the resident.

5.  Increase in Lawyer Needs

If your best friend is not a lawyer, you may want to find one who is. Lawyer needs are going to go up in 2014 and with this so will your budget. Any assisted living brokerage professional will recommend to significantly increase how much money you plan to spend. Lawyers are needed to ensure state and federal regulations are met on a daily basis.

Other trends to watch for include

  • Higher Media Influence
  • Increased Staffing Need
  • Familiarity with Brands
  • Continued Caps on High End Real Estate
  • Older residents

Though nursing homes for sale increased in price with the real estate market, now is the time to buy if you want to get in. The prices are going to only continue in their rise. If you follow these trends, you may find it easier to stay current in the market.