It took over a year, but Tyler Merrill of Merrill Commercial Real Estate successfully closed the sale of two assisted living communities in Redding, California. One of the communities in particular was hit hard by COVID-19, and occupancy dropped by a combined 20% across the two properties. Despite that, the same private equity buyer remained interested throughout the difficult year and kept to the same agreed-upon purchase price of $18 million, albeit with an approximate $1 million holdback in escrow until the new owner reaches pre-COVID NOI levels and 75% occupancy. Before the pandemic, the communities maintained around 88% occupancy, but there is a lot of upside in expense management. Plus, the communities saw seven move-ins last month, so that mark seems achievable.
Originally built around 1999 and 2000, the communities are located around five miles apart in Redding. They total 151 units, with one location also providing memory care services. They were last acquired in 2008 through a 1031 exchange by an independent owner/operator that came from the multifamily industry. Over the years, labor costs kept rising as margins shrank. So, the seller decided to exit the assets even before the pandemic complicated the operating environment. They had roughly $14.5 million in HUD debt on the properties, which was assumed by the buyer. That came with a hefty fee, which was paid by the buyer, but to come into these assets with debt at such a low rate can certainly justify some of those costs. The buyer will bring in a regional operator to manage the communities.
