Monthly Archives: March 2020

March 25, 2020
Jason Punzel

Senior Housing and Skilled Nursing is a Safe Asset Class


Senior Housing and Skilled Nursing is a Safe Asset Class – by Jason Punzel

As I write this today, the stock market is up substantially for the second consecutive day.   The Fed’s actions coupled with the expected passing of the $2 trillion stimulus package has brought some calm to investors.   However, we all know that the market will be volatile for the foreseeable future.

There has been a lot of concern about how shelter in place policies will affect commercial real estate.  Most retail and office landlords have been inundated by tenants with requests for rent abatement and/or lease restructuring due to their businesses being closed or virtually closed.   Hotel and resort occupancy has been devastated, and even apartment owners are concerned about their tenants being able to pay rent due to possible job loss.  However, many believe senior housing and skilled nursing is a safe asset class.

Initially the REITs’ within this sector saw their stock prices drop between 40-70%, but have rebounded strongly over the past several days.   Why is that?  To begin with, the payor source for these communities is very strong.   Approximately 65% of all residents in Skilled Nursing, Assisted Living and Memory Care are on either Medicaid or Medicare, and the government is not going to stop paying.   The rest of the residents that are paying themselves “private pay”, have their assets mostly in cash and bonds, and not the stock market.   Very few people that are over 80 years old have a high percentage of their net worth in the stock market.  Thus, they will continue to have the ability to pay their monthly rent and service fees as their net worth has been affected very little over the past month.

As a whole, the senior living industry has been very proactive in combating COVID 19 with increased hygiene protocols, severely limited access to communities from outsiders and quarantining residents to their rooms, as necessary.  There have been outbreaks within communities, and there will continue to be more.  However, considering there are approximately 16,000 nursing homes and 30,000 assisted living communities in the US, the outbreaks have been small as a percentage of the whole.   Many owner/operators that we have spoken to have actually seen their occupancy rates increasing over the past several weeks as many feel their loved ones will be far safer in an assisted living community than anywhere else.


While the Senior Living industry certainly is not immune to the COVID 19 pandemic, thus far, it has held up well in terms of occupancy and the payor source.   We believe many of the senior housing REITs have been unfairly punished along with retail, office and hotel REITs.   Watch for a continued strong rebound in this asset class.

Jason Punzel, Managing Director, punzel@slibinc.colm

March 16, 2020
Jason Punzel

The Danger in Long Term Financial Modeling in Seniors Housing


The Danger in Long Term Financial Modeling in Seniors Housing – by Jason Punzel

Long term financial modeling is essential in evaluating any income producing asset.   The Cap Rate only considers the current (or trailing) net operating income and does not factor in things that could happen during the hold period.   The Internal Rate of Return, or IRR method (leveraged and unleveraged), is a much more valuable tool.   By using IRR or a discounted cash flow model, one is able to factor in future impacts on cash flow such as rent growth, expense growth, vacancy, capital expenditures, leverage, future interest rates, and future sales price.   However, the danger in long term financial modeling is in the assumptions made.

IRR Scenarios:

In using IRR, or any long-range planning tool, one must be disciplined enough to not use the financial model to justify a current sales price.  For example, if a property is selling at $10,000,000 and a company’s investment threshold is a 10% IRR, it could be very easy to increase the future rent growth to 3% vs. 2% to help justify a current sales price.  In a financial model that I recently developed; the IRR went from 8% to 18% just by increasing the rent growth from 2% to 3% per year.  While this may seem like a lot, the future rent growth compounds upon itself and the NOI increases much faster during the hold period resulting in more cash flow, AND a higher sales price at the end of the hold period.  Similarly, an expense increase of 2% instead of 3% resulted in an IRR of about 24% vs. 18% in the same model.  These are just two of many examples of how changing a few “minor” details can dramatically change the IRR and justify a given purchase price.

Another important item to consider is that most models predict a straight-line future.  For example; rent growth will be 4% a year during the hold period (or expense growth, vacancy, etc).  We all know that this simply won’t happen.  There will be ups and downs based upon the economy, competitors, etc.  If we predict a 4% rent growth each year and one year the rent growth is zero, and then resumes at 4%, not only did the property lose the 4% rent growth that year, but every subsequent year because financial models compound each year.


While long term financial models are very useful, and essential, in valuing a property, one must be very careful to take an unbiased, conservative approach as to not use the model to justify a sales price.  Additionally, it is useful to run multiple financial models, or stress tests, to study how different financial scenarios effect the rate of return of a given property.

To learn more about how long-term financial models effect the price of your senior living community, contact Jason Punzel at or 630-858-2501.

March 11, 2020
Matt Alley

NIC Spring Conference Recap


NIC Spring Conference Recap – by Matthew Alley

National Investment Center (NIC) holds their Spring (previously regional) industry conference every March, typically moving between San Diego and Dallas. The NIC conferences are typically attended by REITs, private equity companies, operators, lenders, brokers and industry suppliers of the Seniors Housing Industry. The conference consists of speakers, educational sessions and a focus on networking meetings.

After recently returning from the Spring NIC conference in San Diego and talking to dozens of owners, operators, lenders and other industry professionals, I was struck by a few items:


The industry is certainly concerned about the impact of COVID-19 (coronavirus).  The spreading virus clearly impacts the elderly and otherwise immuno-compromised.

There were rumors of 10%-15% of the scheduled attendees cancelling due to their concern for the virus.  For those of us that attended the NIC Spring Conference, there was clearly an increased dedication to hand hygiene.

I came away impressed by the industry and its responsible and decisive actions that each operator is taking to keep its residents, employees and vendors safe.  Whether it’s restricting visitors, scanning vendors and employees or having intense training, I believe that operators are doing everything they can to do their part in slowing the spread of this virus.

Equity/Debt Sources

Almost without fail, lenders, REITs (both public and private), private equity and other capital sources were bullish on the industry and looking for opportunities to place capital in the seniors housing / long term care industry.

While there are concerns about overdevelopment and government reimbursement, profits are continuing to grow and the capital sources believe that the industry is healthy.

Interest Rates

Interest rates were low last week and have gotten even lower over the past week as the stock market has declined.  Low interest rates have allowed owners to have a lower cost of funds and therefore be able to pay lower cap rates and higher prices per bed/unit for their acquisitions.

Additionally, groups have been able to refinance portions of its existing portfolio to both lower their debt service and pull equity out.  Both of these will help existing owners to be more aggressive looking to acquire new facilities.

Contact Information:

If you are considering buying, selling or financing a seniors housing / long term care community, please contact Matthew Alley at 630-858-2501 or

NIC Spring Conference Recap 2020