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Carefully does it

The burgeoning opportunity to support care home operators

Anthony Newman Specialist Business Development Manager Allica Bank

Care home operators have had more than their fair share of challenges during COVID. But despite this, the sector has been a healthy source of commercial mortgage activity, especially as the impact of the pandemic on care homes looks to be receding.

Here at Allica, this has not gone unnoticed by our broker community. Alongside seeing a growing number of care home transactions come our way, many brokers have started to explore opportunities with us to support clients in the sector for the first time.

Of course, the UK’s ever-growing elderly community is no secret, and has created robust demand for high-quality later-life care for many years – demand that doesn’t look set to slow down any time soon. But it begs the question, why are we seeing so many transactions right now? And what can you do to get involved?

A changing landscape

Alongside a need to increase the UK’s total stock of care home beds to meet the demand of an aging population, the identity of care home operators is shifting, too. And very few are looking to stand still!

Many longstanding operators have seen the burdens of the pandemic as the perfect catalyst to retire or sell up, while on the flip side, those

8 | NACFB remaining in the sector are largely looking to expand their portfolios and have been happy to snap up those properties being put on the market. Alongside this changing of hands, we’re also seeing an increasing number of new operators enter the market, eager to add value to the sector. It’s created an exciting opportunity for brokers to help reset the care home landscape.

Nuance and know-how

The main barrier to entry for brokers is the unique nature of the sector. Issues such as staffing shortages and COVID relief packages are common across many industries, but how they’ve been applied to the care home sector stands out. And there are several extra factors lenders will take into account, too.

For example, the care home’s Care Quality Commission rating; the number of beds; demand and local competition; and whether the property is a purpose-built care home or a conversion. Many lenders will also measure serviceability on a client’s cashflow (CFADS) and cash position when it comes to debt service, too, rather than a more typical earnings before interest, taxes, depreciation, and amortisation (EBITDA) assessment.

It makes in-depth knowledge of both the sector and the application process even more important than with a ‘standard’ deal. This is exactly why Allica Bank launched a specialist care home team last year, dedicated to supporting brokers with care home transactions. The idea was to empower brokers without that experience, by allowing them to work in partnership with someone that does.

Is this an opportunity you’d like to leverage, too? Reach out to us at introducers@allica.bank. We’d love to support you.