Senior Housing - Vetting Operators

For those of you in senior housing, how do you go about vetting operators? Do you have any specific processes in place? What are the deal breakers?

The yields seem so juicy with this property type and demographics over the long term look so compelling. At the same time, a bad operator could cause you to lose your shirt no matter how great of a mouse trap you build.

Comments (6)

Aug 13, 2019

Hi Blake w Mitch and Murrary, any of these discussions helpful:

Hope that helps.

Most Helpful
Aug 15, 2019

We are an LP common equity provider that invests in ground-up senior housing development. I cannot possibly overestimate how difficult the space is right now and how many headwinds there are on the operator side. This is the truth - the operator has all the leverage and there is a massive talent war right now for ED's and sales directors. For example, Civitas has ~20 or so deals under contract where they hold the entire GP equity piece. These projects will be allocated their top personnel and receive the most attention from corporate. As a third party operator they are not nearly as incentivized to perform and a talent scarcity is lowering management quality.

Also, keep in mind the effect of minimum wage rises and general labor scarcity on caretaker payroll burden, and how this affects NOI margins. Too much capital has plowed into the space, AL and MC occupancy has trended sharply downward over the past 5 years. Rising construction costs have raised many pro forma rents beyond what families can pay even in areas with median HH incomes $120k+.

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Aug 15, 2019

Great insight InVino. Much appreciated!

Aug 15, 2019

For sure. There's going to be a lot of pain in the space before the demographics surge. Check out all the bankruptcies.

Aug 16, 2019

Couldn't have said it better myself. In regards to the initial question, even incredibly smart operators I work with are facing these same headwinds, labor issues, and different regulatory bodies imposing new regulations. If an operator is promising you the moon I'd vet the shit out of everything. Especially look at their relationships with regulatory bodies and other medical professions in their market and the tenure of the team they have in place. High turnover is probably a bad sign for one reason or another.

There's a ton of nuances that go into it so feel free to PM me with questions or post them here in the open.

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Aug 19, 2019