Financial modeling for seniors housing and care is not as easy as it used to be, when revenues could be assumed to rise faster than expenses.
Have you noticed that financial modeling for seniors housing and care is not as easy as it used to be? In the past, forecasters (and buyers) would model 2% increases in annual costs and 3% increases in revenues. This would build in a growing profit amount, which always looked good to lenders and investors.
One of the problems with this was that annual capital expenditures were always, and I mean always, low-balled. Often it was a plug number at $300 per unit or bed, when it should have been three, four or five times that amount.
The problem today is deeper than that. How do you forecast revenues to rise faster than expenses when you often need to discount rents to get residents in the door? Add to that costs, especially labor, which are often rising faster than inflation.
How do you factor in legislated increases in minimum wage rates to your financial forecasts? For those buyers coming into the market and thinking they can manipulate a few numbers and make the deal pop, that just doesn’t work as well anymore. The era of financial manipulation may be coming to an end, as operations are just getting too difficult.