With buyers and banks willing to transact based on pre-COVID occupancy, SNFs are selling at record highs: ESI

In his 17-year career in the skilled nursing business, Jason Stroiman, president of Evans Senior Investments, says he’s never seen skilled nursing facilities sell for as high a price as they are selling today.

“Volume is up, prices are up and everyday people are asking me one question: ‘Why?” Stroiman told attendees of an ESI webinar for skilled nursing owners/operators last week.

One of the biggest reasons for the record high SNF valuations is the fact that new nursing home construction in the United States remains at a critically low level, mostly because construction costs are prohibitive, at more than $200,000 per bed and, as a result of the COVID-19 pandemic, development financing simply is unavailable, Stroiman said. As a result, acquisition remains the best avenue for growth by regional operators. 

In addition, despite the turbulence in the market sparked by COVID and plummeting occupancy throughout the senior housing industry, both the debt and equity markets for SNF buyers are healthy.

“Since COVID hit, we’re seeing between 75% and 85% loan-to-value on the debt side, and the equity requirements have dropped as well,” Stroiman said “With so much supply of equity in the marketplace, everyone is fighting over the few deals that are out there, which is driving prices even higher, and we think we’re going to continue to see that.”

ESI Director Kris Lowes agreed, adding that despite the fact that SNF occupancy across the country remains at an all-time low, buyers and banks continue to transact on a pro-forma cash-flow basis based on pre-COVID performance. 

“Right now, sellers are really getting the benefit of a full recovery even if we’re not there yet,”

Lowes said. He noted, however, concerns about what will happen if the census doesn’t fully recover. “At some point, buyers and lenders will only transact on actual cash-flow,” he said.

Despite the fact that the home care sector became more of a force driving consumers away from skilled nursing amid the pandemic, Lowes still doesn’t view the sector as a strong competitor for SNF operators. 

“Skilled nursing communities are much more efficient and proficient at taking care of residents, given available staffing, so we just don’t think at the end of the day home health is a long-term serious threat to the skilled nursing community,” he said.