Mergers and acquisitions are nothing new, but an increase in merger and acquisition activity has begun.
No industry is immune to the pressures of economic uncertainty and rising inflation costs, including senior living. The post-pandemic landscape is marred with casualties, coupled with workforce shortages, burned out employees and less-than-ideal occupancy, set amid the backdrop of a possible recession. Yet with the right perspective, those same challenges and constraints represent tremendous opportunities for those who know where to look.
Here are three specific areas to keep your eye on in the days ahead.
Offloading portfolio properties
Larger companies that have portfolios brimming with properties intensely have felt the challenges of operating through COVID-19, coupled with ongoing economic pressures. Whether you’re a regional provider with a mid-size footprint (6 to 10 properties) or a large real estate investment trust with more than 20 properties, sometimes offloading underperformers in the portfolio is the fiscally responsible thing to do. It can be a tough decision, but right-sizing portfolios and selling off certain assets restores balance sheets and simultaneously creates other marketplace opportunities.
Those deals often are discreet and not widely publicized. Many transactions we’ve vetted and pursued have been the result of large REITs offloading portfolio properties. In those deals, we’re providing short-term capital for clients who have the vision and know-how needed to acquire those communities and make them successful again. Those transactions frequently are comprised of stand-alone assisted living buildings or stand-alone assisted living/memory care buildings.
Beyond one-off assisted living or memory care communities, large companies and REITs also are offloading several properties within a portfolio at once, equating to mini pools of properties for purchase. In financial terms, mini pools are clusters of assets sold together, rather than individually or one-off deals. Those transactions are desirable to many types of investors, but particularly operators who specialize in turnarounds or regional owners/operators who want to expand their footprint in their own backyard.
Although those mini pools of properties weren’t working for the previous owner, new owners with regional expertise are poised to make those communities thrive again, specifically because of their local market knowledge and built-in referral networks. In some cases, those properties fell outside either the expertise or geographic regions of the larger portfolios they were a part of, and that played a significant role in their demise.
Regional owner/operator retiring
The pandemic caused all of us to reassess what we wanted out of work and life, including employers and employees. Although some of those realizations have fueled what experts coined the Great Resignation, the movement has also morphed into the Great Realignment.
This realignment was acutely felt by the regional owners and operators who were on the cusp of retirement at the beginning of 2020. Many postponed their retirement date to ensure stability for employees and residents during the worst of the pandemic; others quickly realized that although they once thought retirement was a far-off goal, the stress of the pandemic accelerated that timeline and succession planning was rapidly prioritized.
Now, those owners and operators are ready to relinquish the reins to a successor. For some, it is a welcome sense of relief; for many others, it understandably carries mixed emotions.
Opportunities such as these create the necessary sequence of events for the owner or operator to retire off into the sunset while opening the door to another individual or company with a fresh vision for what that senior living community can become. The possibilities are endless, but this is especially true for someone who currently is an experienced administrator or executive director that always has dreamed of owning and operating his or her own facility or retirement community.
Those types of transactions will usher in a new wave of management, uniquely shaping the future of senior living.
Stalled construction sell-offs
Blue-sky and new build construction has come to halt for many, and although some developers are on the cusp of finishing the property itself, there isn’t a pipeline to fill it. Recently, we’ve seen numerous deals come to market where a multifamily developer decided to expand into senior housing without any expertise or knowledge of the industry (other than that the person thought he or she could make some fast cash because of boomers flooding the market) and as a result couldn’t sell or fill the units.
Stalled construction projects quickly are becoming sell-off assets, creating prime opportunities for savvy operators to acquire a brand-new property and fill units from their existing pipeline. In some cases, the construction is stalled before completion and offers smart buyers an even lower basis in the facility.
Naturally, those kinds of transactions aren’t for everyone, especially ones that involve unfinished construction, but every challenge creates an opportunity. This is like Newton’s Law, simply adjusted for finance: For every challenge there is an equal and opposite opportunity.
Each of those three scenarios will only continue to accelerate in this current economic climate, creating additional M&A activity along with ushering in a new era of senior living owners and operators. Timing is everything, and for those who know where to look, marketplace opportunities will continue to abound.
Don Pelgrim is the CEO of Wilshire Finance Partners, a real estate finance and investment company specializing in bridge loans and capital solutions for senior living and healthcare from $1 million to $10 million nationwide. Before joining Wilshire, he was a practicing attorney and held several executive positions in the banking and financial services industry. He has a juris doctorate from Loyola Law School of Los Angeles and an undergraduate degree in business administration from Hofstra University.
The opinions expressed in each McKnight’s Senior Living marketplace column are those of the author and are not necessarily those of McKnight’s Senior Living.
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