Monthly Archives: June 2018

June 22, 2018
Jason Punzel

Seniors Housing – Private Pay vs. Medicaid

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Seniors Housing – Private Pay vs. Medicaid – By Jason Punzel

Many owners struggle to decide when, and what percentage, of Medicaid residents they want to accept in their seniors housing facility.   For newer properties in affluent areas, it is very easy to accept only Private Pay residents.  Additionally, for older buildings in rural or less affluent areas, often times Medicaid is the only payor source that allows an owner to keep their community full with residents.

The debate between Private Pay vs. Medicaid really comes with communities that are 10 – 20 years old, in moderate income areas, that might be over built.  Often times a community starts out as all Private Pay when it is built, but as the community ages and new competition is built, future Private Pay residents go to the new community, leaving the existing community with lower occupancy.  This community must now decide on how to attract new residents to keep occupancy high and often decides to start accepting Medicaid, which typically has 30-50% lower rates, with the idea that a full community with some Medicaid is better than a community with all Private Pay, but low occupancy.  With lower revenue coming in, there is less money to complete new capital projects which results in less Private Pay residents wanting to go to this community and thus, an increasingly higher rate of Medicaid residents.

Different Markets for Assisted Living Communities:

When a community faces lower occupancy because it is no longer the newest community in the market place, it must decide what their future strategy will be.  It might be to do a major capital improvement so it can compete with other newer facilities for Private Pay residents, or to focus more on “middle market” Private Pay residents providing a nice facility with activities and services, but at more moderate rates than the high cost provider that is focusing on the highest end amenities.  The goal would be to keep the community at a very high occupancy at moderate prices.  The final decision might be to allow the community to accept a high percentage of Medicaid residences, while keeping capital projects, amenities and extras at a minimum.  Of course, the community would still strive to give all the needed medical and personal services, but extras would be limited.

Conclusion:

It is important for owners to honestly assess where their community fits in the market place and adjust accordingly so it can achieve a high occupancy, be profitable, while providing for the needs of the residents.

Contact Information:

For more information on how Private Pay vs. Medicaid residents affect the value of your community, contact Jason Punzel at 630-858-2501 x 233 or punzel@slibinc.com.Oak Cottage Front 2

June 8, 2018
Matt Alley

What Is The Value of Newly Developed Senior Housing Facilities?

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What Is The Value of Newly Developed Senior Housing Facilities? – by Matthew Alley

Clients will often ask us, “What is the value of newly developed Senior Housing / Long Term Care facilities?”

The value of newly developed senior housing depends on specific market factors and the asset class. Specific market factors can include a lot of things. For example, is a hospital in town, or 20 miles away? Are there many adult children in town who can pay for senior care? Is there low or high local unemployment? What is the local unmet demand for senior care? The brokers of SLIB know their specific local markets and how these factors affect facility value.

While local market factors are important, the lease-up rate of each asset class also plays a role in the value of newly developed senior housing.

This week, the National Investment Center for Seniors Housing & Care (NIC) released a study on how quickly each asset class achieves lease-up.

Lana Peck, senior principal; Anne Standish, research statistician and Beth Mace, chief economist shared that after the first four years from opening, median occupancy is 95% for Assisted Living, 94% for Memory Care, 93% for Independent Living and 92% for Nursing Care. Conversely, after the first two years from opening, median occupancy is 89% for Assisted, 89% for Memory Care, 88% for Nursing Care and 84% for Independent Living.

As the article states, “A well-located and rapidly leased-up project can build forward momentum for steady demand, high occupancy and solid revenue growth, and build a strong reputation in the trade area among potential residents and their adult child influencers.”

The article continues listing factors that might affect lease-up, such as property age and size, the condition of the residential real estate market, quality of and proximity to competition, consumer familiarity and acceptance and operator quality.

It is important to keep these lease-up statistics in mind when settling on pro forma financials, as well as equity and debt needed at the start of new construction.  If an operator projects to achieve 95% occupancy within 12 months, they should ask why their facility will achieve a much stronger lease-up than the median.

Also, if a facility is planned to open in your market area, it will take a period of time for the facility to lease-up, especially if it is an Independent Living or Nursing facility.

If you own a Senior Living / Long Term Care community and want to better understand what buyers are looking for, and potentially how they would evaluate your community, please contact Matthew Alley at 630.858.2501 or alley@slibinc.com.

 

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