Several times a week, I’m asked, “is now a good time to sell my senior care property?”, or some variation of that question.
In December of last year, Senior Housing News polled over 600 senior care property owners and operators to compile, The new 2018 Senior Housing News Outlook Survey and Report (2018 Senior Housing News Outlook Survey and Report), which lends some statistics to provide an unbiased answer. Here’s how it stands;
In Q2 of 2017, 10% of respondents planned to sell senior housing assets, however in 2018, a huge up-tick of 37% of respondents plan to sell their senior care property this year! Additionally, independent living is the preferred category by 33% of respondents, while closely followed memory care properties with 24%, remaining the most sought after senior care properties by investors.
To discuss your property and market specific trends, please contact Brad Goodsell at 630.858.2501 or firstname.lastname@example.org, to obtain a confidential, no-obligation valuation of your senior care property.
As we reflect on 2017, I also cannot help but look back on the last 20 years. Not only has the sector changed immensely in terms of product types, reimbursement, providers, etc., but so has Senior Living Investment Brokerage. Sure, there were just a handful of us as recently as 15 years ago, but now a majority of our team has been in place for at least a decade. I have to believe that experience carries with it an understanding of the industry and its nuances, a familiarity with a multitude of owners and operators, buyers and sellers, lenders and capital providers, and so on. But what is really at the forefront of this reflection is our role in the space as we move into 2018. Along with everything else that has changed, we have seen an expansion of competition in the investment sales arena. Honestly, there are some really good people doing really good things that we have to go to battle against. It should, and will, challenge us to do better, be better, in 2018 and beyond. But what is our differentiator? Experience is good and I believe we have one of, if not the most, experienced teams. Depth? We also have one of the largest teams providing both a national scope, but regional expertise as well. Confidentiality has always been at the core of what we do – and I feel like we are successful in managing a transaction to allow as little disruption as possible at the community level. But we are also hands on. We also care deeply about the process and all involved. It tends to be the “little” things that linger when we close a transaction. The emotion of selling something that has been more than a business, and seeing the embrace, and tears, of owner and now former employees and residents. Today’s competitive environment means moving to a level that truly differentiates you from others. Promote your strengths, embrace your challenges, and always try to do the right thing. Recently, Pat Byrne did just that. After successfully helping to facilitate a portfolio sale he was not content on simply moving on. “There’s no industry where the key players are more interconnected than senior living, so relationships matter. We’ve seen SLIB and its team take that ethos seriously in past transactions, even when we’ve not come out the high bidder,” said Josh Stevens, President and Co-Owner of Cedarhurst Living, a Clayton, Missouri based owner/operator of 20 senior living communities in Oklahoma, Kansas, Missouri and Illinois. Stevens continued, “A great example is a recent deal where SLIB sold a six-building owner-operated portfolio to a buyer based out of the Northwest. The seller was looking to get out of senior living and focus on their core business outside of seniors housing. Because of that transaction, the executive leading the seller’s operating platform, who is committed to the senior living industry as his career path, needed to find a new organization to grow with. Pat Byrne made the introduction to us, and the executive now acts as our Senior VP of Finance and Accounting and improved his position all the way around. Pat was able to put together a win-win for all involved.”
Should I sell or lease my Senior Living Facility? – By Jason Punzel
When considering disposing of a senior living facility, my owners ask us, “Should I sell or lease my Senior Living Facility?” There are advantages and disadvantages of each option.
The biggest advantage of selling an assisted living facility (or independent living facility) is an owner receives all of their cash up front and has no future financial liabilities or risk (other than the reps and warranties agreed to in the Purchase Agreement). The owner no longer has the risk of the market going down in the future, new government regulations, overbuilding, etc. The biggest disadvantage of selling is paying the capital gains tax, which can be substantial for those owners who have owned their facilities for a number of years and/or did a 1031 exchange when purchasing the facility.
Leasing, on the other hand, has the advantage of not having to pay a large sum of capital gains tax and the advantage of receiving monthly rent. For those owners who do not need a large amount of cash upfront, leasing can provide a great residual income for years. However, the disadvantages of leasing are many. To begin with, an owner must find a quality tenant that has the operational and financial ability to run the facility for the length of the lease. If the operator defaults on the lease, the owner could be in the position to have to take over the operations of the facility, which could be in poor condition. Additionally, at the end of the lease, the owner still has to make a decision on what to do with the facility. If the market is worse, and/or if there are new competitors in the area, the facility could be worth substantially less than at the beginning of the lease.
When the market to sell a senior living facility is good, like it is today, it typically makes more sense to sell and eliminate the risk of an operator defaulting and/or the facility being worth a lot less at the end of the lease. However, when the market to sell is not as good (like it was in 2009-2010) it might make more sense to lease the facility to a quality operator.
For more information on different exit strategies, contact Jason Punzel at email@example.com or (630) 858-2501 x 233.