Skilled Nursing Market

Focusing on the skilled nursing market, its average price per bed dropped 14% from $93,000 in 2019 to $79,700 in 2020. We have seen larger percentage declines in the past, most recently an 18% decline from the $99,200 per bed average price in 2016 to $81,355 per bed in 2017. Considering the circumstances of 2020, there could have been a steeper fall in average price, with the sale of many ailing facilities by highly motivated owners. But federal and state aid programs prevented many owners from having to sell, leading investment demand for SNFs to outpace supply of facilities available for sale. That helped push up the average purchase price in the first half of 2021 to $88,500 per bed.

But this strength in average pricing does not show that the bifurcation of the market grew in the pandemic. Alongside the sales of plenty of struggling facilities in 2020, including eight properties selling below $10,000 per bed and more than 30 priced under $25,000 per bed, there is another side of the market with newer transitional care facilities that care almost exclusively for Medicare and private pay patients, usually at a higher acuity too.

The introduction of the Patient Driven Payment Model (PDPM) reimbursement rule change in October 2019 had previously ushered in a buying boom in the transitional care market, as these facilities were primed to benefit the most from it. That may not have been first on the mind of some SNF buyers since the pandemic began, but they still paid up for the higher and steadier stream of cash flow. In addition, the premium placed on strong existing cash flow likely only rose as the pandemic drove many struggling, older facilities into financial distress and to sell at steep discounts.

Throughout the 21st century, skilled nursing cap rates have gradually fallen, but compared to the seniors housing market, the average has remained remarkably steady. However, it should be noted that

OUR GOAL IS TO HELP YOU REACH YOURS

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For over 20 years buyers and sellers have trusted the JCH Senior Housing experts to deliver maximum results. Visit us on the web at www.theJCHGroup.com Call 888-916-1212 and let us exceed your goals.

National Investment Center for Seniors Housing & Care

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Flexible Capital During Turbulent Times

F. Donald Kelly III – Managing Director | Locust Point Capital

The pandemic has presented unrivaled challenges for seniors housing and skilled nursing owner-operators, from COVID outbreaks to additional resident and staff safety protocols and procedures, meeting requisite levels of staffing, and increased costs of operation. In addition to the multitude of operational challenges, owneroperators are challenged with meeting underwritten expectations of loans structured and closed prior to the pandemic. As a result of this confluence of events, many owner-operators are experiencing technical defaults and looming maturity dates.

According to Dan Contardi, Founding Partner of Locust Point Capital, “we are hearing from our borrowers and seeing in the portfolio that census and profitability are trending positively. Such trends are expected to continue but may take time for a return to normal. I have always believed, and now more than ever believe, that borrowers need patient capital with reasonable expectations and the flexibility to work through challenges when they arise.”

Locust Point Capital is an asset management firm specializing in direct lending to the seniors housing and care industry. Locust Point strives to bring a relationship approach to lending and form long lasting partnerships with borrowers, lenders, private equity investors, and sponsors. Locust Point’s team is comprised of members with broad lending and investing experience in the seniors housing and care sector, and their investment philosophy is built on providing the transparency, flexibility, and reliability. Their core senior leadership team of Eric Smith, Dan Contardi, Helen Quick and Don Kelly have over 90 years of combined seniors housing and skilled nursing industry experience.

Locust Point Capital partners with banks and other lenders in the market to provide capital solutions in the form of “B” tranche subordinate debt, mezzanine debt and preferred equity which, in combination, provides a “whole loan” solution to owner-operators seeking to advance their business goals and continue to provide these essential services and care.

Locust Point Capital has remained active during the pandemic, consistently working to provide needed capital to owner-operators for new construction, acquisition, recapitalization, and refinancing. During 2020, Locust Point Capital closed 20 transactions and has remained active this year closing 14 transactions for the year to date as of June 30, 2021.

According to Don Kelly, Managing Director at Locust Point Capital, “we are encouraged by how our owneroperator relationships are navigating the challenges in the current environment. We value our owner-operator relationships, many of which span decades. As a team, we work to support our borrowers in navigating this new landscape, not just with our capital and flexible structures, but with our expertise and thought leadership. Our expertise is constantly expanding and growing from our frequent dialogues with participants serving many aspects of the seniors housing and care industry. Our company is founded on relationship lending and repeat business. Throughout the course of the pandemic, we received an abundance of positive feedback from our owner-operators and have a sincere appreciation for these relationships and their support.”

Balance Sheet Strength, Relationship Focused

Locust Point Capital is a direct lender specializing in providing capital to the lower middle market seniors housing and care industry.

Locust Point Capital provides flexible, creative, and non-dilutive capital solutions to owner-operators of senior housing and care facilities.

Transparency, trust, certainty of execution, and creative structuring are the cornerstones of our business goals.

For more information, visit www.locustpointcapital.com or contact:

Don Kelly

941.961.0277 dkelly@locustpointcapital.com

Dan Contardi

732.945.7466 dcontardi@locustpointcapital.com

Eric Smith

732.945.7459 esmith@locustpointcapital.com

as the pandemic wreaked havoc on most facilities and their bottom lines, in many cases, facilities’ current financials did not reflect historical or “normal” performance.

For our statistics, we strive to collect only trailing financials and census figures that best reflect the stream of cash flow and existing census that the buyer was purchasing (and presumably valuing), not what they hope to achieve in the future. However, these more recent metrics were not always available, nor best reflected how the buyers valued the property. There were also some very low or negative cap rates not included in the average (only “market” cap rates are included) and could understate the market’s weakness. But, thanks to the diligence and generosity of countless brokers, lenders, buyers, sellers and operators who contributed information on either a confidential or disclosed basis, we are confident that these statistics are the most accurate and