Is anyone here familiar with underwriting senior housing developments and, specifically, how shared rooms/fees work?
From the OMs I've read, it looks like assisted living/memory care rooms are often shared. Would that mean that both resident's are paying the base rent listed for the shared room? Or that the unit's rent is $X split between 2 people?
I'm also confused by 'second person fees'. How is this different than a shared unit? It seems to be a flat fee tacked on to any BR in a unit. So for example a 2 BR could be occupied by 4 people (2 couples) paying the total 2 BR rent + 2 shared person fees?
Greatly appreciate if anyone has experience underwriting these deals and could link up with me. Thank you!
I'd say it's very common to see shared memory care units, not as common to see shared assisted living units but it does happen. For an MC shared unit (sometimes called semi-privates) you have it right that two non-related residents would each pay 50% of the total unit rent. To use very generic numbers it'd be normal to see an MC wing that has a number of private units that are $6,000/unit and a number of shared units where each resident pays $4,500 for a total unit rent of $9,000. I like MC shared units that resemble a 1BR where one resident lives in what would normally be the living room and the other in the bedroom. I've seen shared MC units that resemble studios, but man that's not a lot of space. Looks like a freshmen dorm room.
Not as common to see units in AL shared by two unrelated occupants, this is where the second person fee typically comes in. You'll have a couple that's residing in a 1BR or 2BR unit where they pay the full rent of the unit and then a second person fee of something like $1,000 or $1,200. I'd be very surprised to see the situation you described where two couples are both residing a 2BR. What might be confusing is that sometimes AL 2BR units will be licensed for two beds (and brokers will show that in the OM), but functionally it doesn't play out like that very often. Not to say it never does, I have seen instances of shared AL units where two unrelated occupants share a 1BR or 2BR, in which case it would work like I laid out for MC.
What it can kind of be boiled down to is an unrelated second occupant versus a related second occupant. Shared/semi-private units (typically in MC) consist of two unrelated occupants where each pay 50% of the rent. Related second occupants, typically spouses, are common in IL and AL and the couple will pay the full rent of the unit in addition to a small fee for the additional, related occupant.
HCCRE02 does a great job explaining the difference here between second occupant and shared unit. Another way to think of shared units is by counting revenue per bed. So 4 shared units = 8 beds paying $4500 each.
Happy to answer any SH underwriting questions you might have
Thanks guys, this is tremendously helpful information.
I was also curious as to the types of margins these properties generate. I would think the margin decreases from IL --> MC as the scope of services increases.
I'm estimating a 30% margin by looking at the financials of various senior housing REITs. Is that a fairly accurate figure?
Harum eaque natus odio consequuntur sed deserunt. Aut dolores officia qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...