Current interest rates and operating costs are pricing some would-be owners out of the senior living and care market, and making it difficult for others looking for opportunistic growth, according to the experts at Cambridge Realty Capital.
“If anybody is trying to do new financing, either to grow their business or even just to refinance their existing business, they’re searching for ways to eke out a little more cash flow so that they can pay more in debt service because of the interest rate environment,” Senior Vice President Brent Holman-Gomez told the McKnight’s Business Daily.
He suggested contracting services when making operational changes as one way to increase cash flow and expedite access to loans. That way, an owner / operator can come out of the gate with financial statements created for the next six months or longer that show that the change is already in place or that a change has occurred when they apply for a loan.
“If there’s a way you can do it in an intractable method, you have documentation that could be used in underwriting to give you the effects of that change right away,” he said.
In general, he said, the pricing of properties has softened a bit in recent months.
“But the interest rate environment is such that getting a loan toward it is always constrained, or most of the, nearly all the time, it’s constrained by the amount of funds you have available for that service, and not by value,” Holman-Gomez said. “We can get an appraisal that supports the value that you’re going to pay for the building, but the cash flow that the operations have are what’s actually going to determine the amount of wealth that I can make.”
He noted that long-term interest rates are starting to decrease a little. He speculated that the Federal Reserve, which sets short-term interest rates, “is not likely to make any significant moves in an election year.”
