Know anything about assisted living? Either as landlord or business operator

Has anyone been involved with an assisted living type place or old peoples home type facility? Not so much the large corporate type places but more of the smaller 10, 20, 30 bed type facility. I am sure there are licensing procedures to open something like this etc. Is this a good source of income as a passive investor? What are profits or operating costs like per bed? Not worth the hassle?

 

It is really just a straight up MF community. Management just restricts applicants to 55+. you dont get any tax benefits or grants. The idea is that it caters to the 70 yr old (i don't think any in our community were as young as 55) looking to downsize from their home, but doesn't need any assistance. And that this is a growing demographic b/c of Baby Boomers getting older. I guess you could look at it as a stepping stone to assisted... although that is kind of depressing.

 

When you have cash folks living there it is a cash cow. When you have folks that have depleted their assets and on Medicaid is where you get hit, and hit hard. The paying for a room (either solo or not) is one thing but where the costs skyrocket is for "care packages" (assistance in bathing, dress, grooming, showering, etc.).

Get your facts first, then you can distort them as you please.
 

Has anyone underwritten an ALF/healtchare facility recently?

I would love to hear thoughts on how the underwriting process looks for that. I see the mention of them being like MF communities. What are typical operating expense margins for these types of properties? How do you go about determining cap rates/finding comparable properties?

Any nuances that you have run into before that you'd suggest paying closer attention to?

 
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I have a fair amount of experience/exposure to this industry (ILF/ALF/SNF/MC/CCRC) in commercial lending capacity. The senior living sector is extremely nuanced so I would offer caution going in as an inexperienced investor unless you are partnering with a player well-versed in the game. This space has really grown up in the last 10-15 years and its no exaggeration to say that inexperienced operators chasing yield/profit are - in no small part - due to the inflated inventory levels observed in major markets across the country. This has led to noticeable margin compression. The newer players attempting to capture market share are imposing reputational risks across the broad market and have (in my direct experience) truly caused harm to people and the industry.

I can go into lots of detail as desired, but understand that from an underwriting standpoint, market demand/feasibility is CRITICAL and not to underestimate the power of a well-developed study by a reputable economist who knows how to search/read data. Second is cycle timing: ALF/MC is past the peak so, from a landlord perspective, lease coverage ratios are going to be perpetually challenged except in your virgin markets (which are almost like unicorns). ILF has not quite peaked but will soon. SNF is not expected to peak until ~2030 but SNF is a full-fledged C&I business model, not a quasi-CRE like ALF/ILF.

Re: cap rates, valuation in this space is going to be driven by market demand and this is a different approach than in your traditional appraisal methodologies for CRE. For ex, an ALF facility 3 miles away is in a COMPLETELY different market than an ALF 30 miles away and that must be understood. Similarly, an ALF 3 miles away could be in the same market as one 20 miles away IF they are separated only by 10-15 mins of drive time due to accessibility of freeways. 'Placement' decisions for seniors is driven to a remarkable extent by the proximity of children or immediate family so you have to consider what defines a market in that regard and it isn't just your typical appraisal approach of an X/Y/Z mile radius. That said, cap rates for ALF/ILF facilities are going to range between 6-9% depending on A/B properties and other factors.

"And where we had thought to be alone we shall be with all the world"
 

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