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 that specializes in nationwide senior living investment brokerage solutions, including active adult, independent living, assisted living, memory care, and skilled nursing brokerage. Learn how our senior living broker and operational improvement solutions can help you, and contact us today to learn how we can assist you in enhancing senior living.
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
Underwrite Senior Living (senior housing) differs from other real estate assets. Moreover, the valuation here is largely tied to operations and the operator. However, this is not the case in other real estate segments. Property management has little impact on financial performance and value. In this article, I analyze top strategies for underwriting senior living investments.
The first and most important segment to Underwrite Senior Living 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) and other senior living reporting agencies to analyze occupancy, absorption, and growth.
Next, I’ll spend most time understanding each competitive community in the market for Underwrite Senior Living.
Additionally, I want to know how my community ranks against each competitor in 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 footage, 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 will meet with the Executive Director to discuss desired unit types, amenity room utilization, and any wish list items. I will also review the past several years of capital expenditures, along with the current cap ex budget, to develop a realistic plan for the future. Finally, I will spend time understanding the current and future technology implementation at the community.
Finally, compare the operating and financial performance to the industry to analyze any variables. Use industry resources and simple benchmarking analysis.
Overall, there are many things to consider before making any senior living investment decision. However, applying some of these senior living strategies can help ensure your 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