Retrades have become a relatively common occurrence in seniors housing M&A. For those readers who are fortunate enough to have not experienced this, a retrade is renegotiating the agreed upon purchase price – oftentimes at the point after the buyer has completed due diligence and earnest money is about to become non-refundable. Retrades are often linked to some unexpected decline in census or performance, or findings in the physical plant which will require major expense. These retrades are much easier to negotiate than the times a buyer asks for a reduced price and it appears that they didn’t do their homework on the front end, or never planned on following through on their offer price which secured the deal.
1. Seller’s Sales Expectations: If we are under contract on a facility for $12 million and before closing the buyer asks for a retrade down to $10.5 million and the deal falls apart, the Seller will never forget that at one time their facility was “worth” $12 million, even if all the other market feedback was $10-10.5 million. The original buyer set an unrealistic sales expectation that can be very difficult to duplicate.
2. Wasted Time: When a buyer retrades to a lower price, oftentimes our firm already had multiple offers in that lower range, only now we may be closing in on year-end or other deadlines and/or both sides have a significant investment into the deal.
What does this mean for Sellers? One benefit of working with Senior Living Investment Brokerage is to utilize our knowledge of who closes deals at or near the original terms and who “ties” deals up. However, too many times the reason we have to deal with a retrade is because the seller “took their hands off the wheel” once the deal was under contract. A Seller needs to run the community as if they weren’t selling- right up until the day of closing.
What does this mean for Buyers? We have already experienced clients who request that potential buyers put up non-refundable earnest money at the time of signing the LOI. That doesn’t fly in today’s market, but we can see things moving that direction, even if only a “token” amount is non-refundable. As more and more buyers enter the market, sellers are looking for ways to differentiate between Lookers and Closers.
