How to accurately underwrite any senior living investment nationwide
By Scott McCorvie, CEO, Enhance Senior Living
About Enhance Senior Living
Enhance Senior Living is a national senior living broker firm specializing in nationwide senior living investment brokerage solutions including active adult brokerage, independent living brokerage, assisted living brokerage, memory care brokerage, and skilled nursing brokerage. Learn more about our senior living broker and operational improvement solutions and contact us today to learn how we can help you enhance senior living today.
To enhance your senior living knowledge subscribe to the Enhance Senior Living Podcast. The show is on all podcast platforms including Apple Podcasts | Spotify | Amazon Music
Underwriting senior living (senior housing) is unlike any other real estate assets as the senior living valuation is largely tied to the operations and operator. This just isn’t the case in any other real estate segment — as the property management has little impact on the financial performance and value. In this article, I’ll analyze some of the best strategies to underwrite senior living investments.
The first, and most important segment to underwrite, is the operator, or management company. I want to understand the manager’s senior living history, past experience, operational efficiency, leadership experience, community staffing ratios, geographic concentration, acuity mix, marketing systems, litigation history, current and future capital partnerships, community ownership, and future growth plans.
I want to know how many similar buildings they own and/or operate, and their performances. If it’s a new development, or turnaround community, I want to make sure the management is part of the overall plan, and compensated for the value creation (not a straight management fee).
Last, I want to really dive into the culture of the management, and see if this culture transfers to the residents and staff. Every time I underwrite an operator, I’m looking for a long-term partner, and not just a one-time deal.
If the management checks all the boxes, I’ll dive into the financials. I want to look at least three years of operating history, the past few monthly rent rolls, as well as the past several months of payroll statements (position, FTEs, and wages). I want to understand the revenues and expenses on a per-resident-day basis, and look for opportunities of growth or conservation.
I’ll then compare the revenues and expenses per department on a per occupied unit and per resident day basis to other communities with similar size, acuity, and geography. I spend a good amount of time working with the new manager on their year one proforma/budget (including any marketing and staffing changes). I want to make sure everyone is on the same page of future performance. Last, I want to get a solid understanding on any development/redevelopment costs, timelines, and financial impacts.
The next segment I’ll spend ample time on is underwriting and understanding the local market. I’ll look at the calculated supply/demand, penetration rates, and unmet beds from any recently completed appraisals or market studies. I’ll call the local planning board to discuss any applications for new senior living development.
I’ll utilize NIC MAP (if market is covered) as well as other senior living reporting agencies to analyze occupancies, absorption, rates, and rate growth on a macro and micro level. Last, I’ll spend most time understanding each competitive community in the market. I want to know how my community ranks to each competitive community in terms of price, service, quality, amenities, location, and reputation.
If all the previous three segments check out, I’ll finally spend some time on the actual real estate. I’ll want to know the year it was built, renovated / converted, and spend time understanding the unit count, unit square footages, amenities, dining room size(s), offered amenity rooms, hallway sizes, acuity room locations, courtyards, parking, traffic flow, nurse call system, FF&E / flooring replacement history, A/C systems, etc.
I’ll want to meet with the Executive Director to discuss desired unit types, amenity room utilization, and any ‘wish list’ items. I’ll also want to dig into the past several years of capital expenditures, along with the current cap ex budget, to get a realistic plan for the future. Last, I’ll spend time understanding the current and future technology implementation at the community.
Last, you’ll want to make sure you’re comparing the operating and fianncial performance to the industry to analyze any variables. You can do this using industry resources and sophisticated industry-benchmarking analysis.
Overall, there are many things to consider and underwrite before making any senior living investment decision. However, applying some of these senior living strategies can help ensure your senior living investment is a success.
About Enhance Senior Living
Enhance Senior Living is a national senior living broker firm specializing in nationwide senior living investment brokerage solutions including active adult brokerage, independent living brokerage, assisted living brokerage, memory care brokerage, and skilled nursing brokerage. Learn more about our senior living broker and operational improvement solutions and contact us today to learn how we can help you enhance senior living today.
To enhance your senior living knowledge subscribe to the Enhance Senior Living Podcast. The show is on all podcast platforms including Apple Podcasts | Spotify | Amazon Music
enhanceseniorliving.com | seniorlivinginvestments.com | srgrowth.com | generationalmovement.com