United States: Market Analysis: Senior Living And Long-Term Care Asset Financing

On April 27th, Seyfarth Shaw LLP and Commercial Real Estate Finance Council ("CREFC") hosted an After Work Seminar titled "Senior Assisted Living and Long-Term Care Asset Financing," featuring a distinguished and dynamic group of panelists in the senior living and health care real estate industries. Interested in their perspectives and insights? Here are the 5 key topics they discussed:

1. Determining appropriate level of care

A physician's evaluation of a patient's ability to accomplish the activities of daily living (sometimes referred to as the "Katz Scale") – described as the ability to dress oneself, feed oneself, ambulate, use the bathroom and general hygienic care – is the way the appropriate level of care is determined. As a patient requires more assistance accomplishing these activities, the level of care the patient requires correspondingly increases and the patient is transitioned to the appropriate facility (or if the patient's rehabilitation is successful, then the patient may be "discharged down" to a lower level of care). The spectrum of care offered to patients ranges from independent living facilities, at the lower end of the spectrum, to assisted living, skilled nursing and finally to sub-acute care facilities, at the top of the spectrum.

2. The baby boomer generation is aging and the health care real estate market correspondingly continues to grow

While the market truly peaked in 2013 from a total dollar perspective, the total deal volume has generally remained consistent. Panelists attributed the market dips to a few different factors, including (a) a growing disconnect between purchasers and sellers, with purchasers demonstrating greater selectivity in choosing properties and conservative pricing and sellers looking towards historic prices, rather than current value, in expecting higher purchase prices; (b) more conservative underwriting of deals; and (c) changes to the banking regulations.

3. Visible market consolidation

As a result of the more rigorous banking regulations, financial pressures for more investment in technology and greater demands on working capital, all panelists have seen a market consolidation. Over the last three to five years, smaller market players have faced growing challenges in competing with their national and regional counterparts in technology investment, quality of clinical care, maximization of the number of beds occupied by government-insured patients and consistency of positive outcomes. The result is that national and regional health care providers have been buying out smaller operators and health care facility owners. The market consolidation may be further fueled by the Affordable Care Act, since hospitals are facing negative consequences for readmissions, which impacts their step-down facility referrals.

4. Increased development of medical campuses

There has been a notable increase in the development of medical campuses by health care real estate investors in an effort to control the "life of care" of the patient and to allow patients to age in place. Investors are looking to acquire entire medical campuses and enter into sale-leaseback transactions with operators of hospitals, independent living facilities, skilled nursing facilities, assisted living facilities and hybrid memory care services. From an underwriting perspective, this "age in place" model preserves the financial viability of each facility by limiting the incentive for lower care facilities to keep patients requiring higher levels of care in place and thereby incurring unbudgeted costs and strains on resources and personnel.

5. Affordable, long-term care of low and middle income patients

There is a growing need to provide affordable long-term care for low income and middle income patients, which is currently an underserved market mainly due to financial barriers faced by these patients. One innovative solution that some health care financiers are working on with local housing authorities is to layer in low income based tax credits and/or Section 8 vouchers. While this structure means the facilities will be subject to additional governmental restrictions, it also provides a financial solution so that the providers can service this important and growing part of the population in a manner that is viable for both the patients and the providers.

Additional information regarding the Seminar is available on CREFC's website.


Boyd Gentry, Chief Executive Officer, Senior Options Health Care

Cynthia Mitchell, Partner, Seyfarth Shaw LLP


Bianca Andujo, Senior Vice President, BOK Financial

Ken Buchanan, Senior Vice President & Director of FHA Underwriting, Walker & Dunlop

Sheri Dacso, Partner, Seyfarth Shaw LLP

Erik Howard, Managing Director, Real Estate Finance, Capital Funding, LLC

Timothy Sanders, Senior Investment Officer, Ventas

Jeffrey Stein, Executive Managing Director, Capital Finance, LLC

Trace Wilson, Investment Associate, Prudential Mortgage Capital Company

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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