As many of you will read in this month’s issue of The SeniorCare Investor, we discuss the difficulties in valuing an entrance-fee CCRC and a rental CCRC. But how do you value a CCRC that is in the middle of transitioning from entrance fee to all-rental? That was the problem facing a faith-based nonprofit looking to sell its CCRC in St. Louis, Missouri. Built in 1984, 2003 and 2013, the community features 110 independent living units, 22 assisted living units, 22 memory care units and 41 skilled nursing beds.
The owner exclusively operates entrance-fee communities, but during the Great Recession, they decided to convert the St. Louis community to all-rental. However, because of the move, the community no longer fit in the nonprofit’s strategy, prompting the sale to an operator who would complete the transition. There were around six different payment structures and options for the residents through the years, which was probably a bit confusing, and at the time of the sale, about half of the existing residents had been admitted under the entrance-fee structure. The buyer assumed the entrance fee liability, but the seller escrowed funding for it until there is just a small liability remaining.
The buyer has some work to do to improve the community. Although well maintained by its previous owners, the community could use an aesthetic update. And while the SNF and the ALF are close to capacity, the IL census could be improved, which the buyer plans to do with a marketing campaign geared towards the new rental structure. Combined occupancy is 89% right now. Finally, the buyer plans to roll back the inflated expenses and benefits, since the community currently operates at a 3.6% margin. The transaction came with a purchase price of $12.8 million, or $65,600 per unit. Brad Clousing, Patrick Byrne and Ryan Saul of Senior Living Investment Brokerage handled the transaction.
