Some more information has come out on MedCore Partners’ off-market acquisition of seven senior living communities from Ventas, and it may preview how far values may fall in the wake of COVID-19. A release from Kong Capital, which partnered with MedCore to acquire the portfolio, shows that the purchase price negotiated with Ventas fell from the originally agreed upon $70 million to $52 million as a result of declining NOI and the new realities that come with owning senior care properties these days. The purchase comes to just under $90,000 per unit, and represents a 26% decline, certainly on the high end of people’s predictions for a valuation correction across the seniors housing industry. Occupancy apparently dropped about 2% across the portfolio in light of COVID (not bad compared with many other properties), and expenses obviously rose because of PPE purchases, but we still don’t know the quality of the buildings nor how far operations may have fallen in recent months.
Consisting of independent living, assisted living and memory care units, the portfolio is located in Washington State, with five locations there, and California, with two. Tacoma, Washington-based Senior Services of America is the in-place operator and will stay on with MedCore and Kong Capital. Around $13 million will be invested to improve the properties and make them more competitive in their respective markets. MedCore’s Michael Graham also stated that there was room for “significant occupancy improvement,” but that the turnaround potential varied from property to property. They will likely remain more middle market communities too.
MedCore, Kong Capital and a group of South America-based equity investors had a purchase and sale agreement on the portfolio in January 2020. But after all the uncertainties brought on by COVID-19, beyond just preventing international travel for these investors, the group dropped out, causing MedCore and Kong to next turn to a large pension fund. That firm also pulled out and the partnership had just three weeks to close on the deal. Finally, Locust Point Capital stepped in as the sole limited partner on the acquisition and provided the equity. Bank of Montreal (BMO) provided the senior loan.
So far this year, there have not been many cases of purchase prices significantly slashed because of the pandemic. That is because of both a lot of good faith among the parties involved and that there have been only so many closings. Anecdotally, we have been hearing of more modest declines between 5% and 10%, but few thought it would be as high as 26%. We’ll have to wait and see how it all shakes out for the rest of the year.
