Monthly Archives: May 2018

May 21, 2018
Jason Punzel

How Do Rising Interest Rates Impact the Value of my Senior Living Community?

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How Do Rising Interest Rates Impact the Value of my Senior Living Community? – By Jason Punzel

Over the past several years, interest rates have remained extremely low.  The 10 year US Treasury rate (a common benchmark for financial instruments) reached an all-time low in July, 2012, at 1.53% and today has risen to approximately over 3%, the Federal Funds Rate has been close to 0% for years and the Fed started rate increases in 2017 and it appears will continue for the near future.   The 10 Yr Treasury hit an all-time high in August, 1981, at 15.32% and has averaged 4.64% since 1870.   Thus, there is a high likelihood that interest rates will continue increase as they revert back to the historic mean.   Lately, we have had many owners ask us, “How Do Rising Interest Rates Impact the Value of my Senior Living Community?”

Interest rates are a measure of an investor’s desired rate of return.   An interest rate, or a rate of return, is made up of three components, risk, inflation, and time value of money (allowing someone else to use your money).   The theoretical risk-free investment is a US Treasury or FDIC insured savings account/CD.   Thus, all other investments can be benchmarked by these indexes.  The greater the perceived risk of an investment, the greater the spread, or “risk premium”, will be for that investment over the US Treasury.   Today, average capitalization rates (rates of return/risk premium) for assisted living facilities are around 7.5%, or about 500 basis points above the 10 US Treasury.   This is the risk premium investors place on assisted living versus the alternative of investing in a “risk free” US Treasury bond.   When the rates increase on US Treasury bonds, typically cap rates increase on senior living communities (or any investment), assuming the risk premium stays the same.

To determine the value of a senior living community, the Net Operating Income (NOI) is divided by the Cap Rate.

Net Operating Income (NOI) /Cap Rate = Value  – (the higher the cap rate, the lower the value).

Thus, as interest rates, and cap rates increase, values go down.  Below are several examples:

NOI = $600,000, Cap Rate = 7%, Value = $8,571,429

NOI = $600,000, Cap Rate = 8%, Value = $7,500,000

NOI = $600,000, Cap Rate = 9%, Value = $6,667,000

Conclusion:

As you can see, for every 1% increase in the cap rate, the value drops by over 11%.   Thus, if interest rates continue to rise over the next several years, it could dramatically affect pricing.   If an owner has a desire to sell their community anytime in the next several years, now might be an opportune time.

For a complete analysis on how interest rates can affect your community’s value, both now and in the future, contact Jason Punzel, Senior Living Investment Brokerage, INC, at 630-858-2501 x 233 or punzel@slibinc.com

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May 4, 2018
Brad Goodsell

What’s the First Step in Selling a Senior Care Property?

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What is the first step in selling a senior care property?

Often times, as the owner of a senior care property it can be overwhelmed when considering a possible sale.  Questions abound, such as what’s the sales process? How long will it take to sell? Who should I speak with?  Will my residents or employees find out too soon?

If you are considering selling your senior care property, the first step is to speak with a qualified broker who is part of a reputable brokerage.

At Senior Living Investment Brokerage (SLIB), we draw on over 20 years of industry experience, with a track record of over 1,000+ senior care properties sold nationally.  start hereThe sole responsibility, of our team of 15 brokers, is to you, the seller.  We listen to understand your objectives for sale, helping us to obtain a top of the market price for your senior care property.

After understanding your objectives for sale, the next step would be to provide a complimentary and confidential valuation of your senior care property.  Upon receipt of the necessary information, an analysis of the property and formal valuation are provided in a comprehensive proposal for your consideration.  Typically, we find that we end up selling the property within 5% – 10% of our initial valuation.

Throughout the process, the SLIB team works in close coordination with you, helping to answer questions along the way, giving guidance, while ultimately ensuring a timely and smooth transaction.

If you are interested in a valuation of your senior care property, or have questions about the associated sale process and timeline etc., please contact Brad Goodsell at 630.858.2501 or goodsell@slibinc.com .