It is a good time to be a Seller of Seniors Housing. Capitalization Rates are excellent and generally steady. Capital is abundant both within the Senior Living eld as well as being successful in attracting outside investment capital (non-Seniors Housing investors) as well. Occupancies will always have some challenges but have been helped by the improving demo- graphics. Lenders have noticed that the Seniors Housing sector has been outperforming other commercial real estate asset classes and thus their willingness to aggressively seek opportunities has been obvious. In short, the Senior Living sector is solid and very sound going forward, even if some buyers may grumble at “paying up.”
The most obvious headwinds facing operators today are the following:
All three trends above have impacted the Assisted Living market here. The labor issues are, together with inadequate Medicaid reimbursement rates, making it extremely difficult for skilled nursing homes to survive. This is especially apparent in smaller, rural facilities. In fact in Wisconsin alone, 17 nursing homes have closed their doors in 2019 alone. We expect to see more nursing home closings in 2020 as well.
So where are the best opportunities to grow by acquisition in 2020? You better be ready to pay up if you intend to acquire larger, newer and best in class stabilized facilities. For those looking for better returns albeit with slightly more risk, we speculate that the best return opportunities may shift in the coming months and years toward failed development projects or by repositioning older properties through updating and by other capital improvements. However the rising costs of construction and potentially borrowing costs may prove to be mitigating factors going forward.
The most obvious headwinds facing operators today are the following:
- Surging Labor Expenses
- Tight Labor Market (with historic low unemployment rates and fierce competition)
- Rising Building & Construction Costs (increasing costs of both materials AND labor)
All three trends above have impacted the Assisted Living market here. The labor issues are, together with inadequate Medicaid reimbursement rates, making it extremely difficult for skilled nursing homes to survive. This is especially apparent in smaller, rural facilities. In fact in Wisconsin alone, 17 nursing homes have closed their doors in 2019 alone. We expect to see more nursing home closings in 2020 as well.
So where are the best opportunities to grow by acquisition in 2020? You better be ready to pay up if you intend to acquire larger, newer and best in class stabilized facilities. For those looking for better returns albeit with slightly more risk, we speculate that the best return opportunities may shift in the coming months and years toward failed development projects or by repositioning older properties through updating and by other capital improvements. However the rising costs of construction and potentially borrowing costs may prove to be mitigating factors going forward.
| 2020 OPERATIONAL ISSUES
| WISCONSIN 2ND BEST Mcknights Senior Living Magazine reported recently that Wisconsin rates 2nd best in the country (behind only Massachusettes) for protections against elder abuse according to a study done by personal nance website WalletHub. South Carolina and California were at the bottom. |
ASK THE INVESTOR
Are filling those last several units in my building all that important?
One could argue that those last units are incredibly important. For every additional occupied unit (say above 75-80% occupancy) one could impute that approximately 30% of the additional revenue would go for new, incre- mental expenses (because at relatively high existing occupancies, most operating costs already are incurred and paid). Thus approximately 70% of the additional revenue results in a VERY HIGH incremental pro t margin.... new cash that drops right to the bottom line! For a single facility operator with an average fee of $4000 per month, the 70% incremental pro t margin results in new cash ow of $2800 per month per additional unit lled. This ow yields an annual cash increase of $33,600 for EACH additional occupied unit. This could increase the value of your property/business by a SIGNIFICANT amount. Fill those last few beds!
Are filling those last several units in my building all that important?
One could argue that those last units are incredibly important. For every additional occupied unit (say above 75-80% occupancy) one could impute that approximately 30% of the additional revenue would go for new, incre- mental expenses (because at relatively high existing occupancies, most operating costs already are incurred and paid). Thus approximately 70% of the additional revenue results in a VERY HIGH incremental pro t margin.... new cash that drops right to the bottom line! For a single facility operator with an average fee of $4000 per month, the 70% incremental pro t margin results in new cash ow of $2800 per month per additional unit lled. This ow yields an annual cash increase of $33,600 for EACH additional occupied unit. This could increase the value of your property/business by a SIGNIFICANT amount. Fill those last few beds!
ISSUES & THOUGHTS
A recent Minneapolis Star Tribune article makes the case that tapping older workers is one of the keys to solving the shrinking workforce problem.
Governmental use restrictions such as zoning and private restrictions such as deed restrictions play a significant role in impacting a property’s market value. Knowing those property use restrictions is crucial to avoiding being over assessed on your property tax bill.
The interest rate drop has not only lowered the cost of capital for borrowers, but it has also helped offset higher operating costs at a critically important time. In late 2019, the 10 year Treasury yield stood at 1.75%, down about 125 basis points from the start of 2019.
The NY Times reports that more than 440 rural nursing homes have closed or merged in the past decade. Principal causes are inadequate Medicaid reimbursements and labor shortages.
More than 50% of federal spending will soon be dedicated to Seniors according to the latest Congressional Budget Office (CBO) estimates. The two main drivers of that spending are aging baby boomers and rising healthcare costs.
A recent Minneapolis Star Tribune article makes the case that tapping older workers is one of the keys to solving the shrinking workforce problem.
Governmental use restrictions such as zoning and private restrictions such as deed restrictions play a significant role in impacting a property’s market value. Knowing those property use restrictions is crucial to avoiding being over assessed on your property tax bill.
The interest rate drop has not only lowered the cost of capital for borrowers, but it has also helped offset higher operating costs at a critically important time. In late 2019, the 10 year Treasury yield stood at 1.75%, down about 125 basis points from the start of 2019.
The NY Times reports that more than 440 rural nursing homes have closed or merged in the past decade. Principal causes are inadequate Medicaid reimbursements and labor shortages.
More than 50% of federal spending will soon be dedicated to Seniors according to the latest Congressional Budget Office (CBO) estimates. The two main drivers of that spending are aging baby boomers and rising healthcare costs.
| EVERS VETOES CNA BILL Call Gov. Evers and tell him that his veto of the Republican sponsored bill easing training requirements of CNA’s was petty politics and unhelpful. e labor shortage is real. is bill could have been a real help in solving this crisis. Instead, Evers veto will likely harm our most vulnerable. | NOTABLE QUOTE “If you don’t listen to your customers, someone else will.” --Sam Walton |
Specializing in Seniors Housing since 1992
Confidentiality assured approach
Commercial Association of Realtors award winning broker
CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
414.416.3001 & 262.312.4642
Confidentiality assured approach
Commercial Association of Realtors award winning broker
CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
414.416.3001 & 262.312.4642
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