The State of the Skilled Nursing World
In recent quarters, census seemed to be an issue for Skilled Nursing facilities; this factor hindered financing efforts for some investors and operators. The census issues seemed to be experienced on a national basis by SNF operators in Q3 and Q4 of 2017. On a positive note, many operators appear to be rebounding from this recent decline. Like many phenomena in business, these types of variances in census occur because of the cyclical nature in the Skilled Nursing sector. Therefore, it’s critical for operators to work with lenders and equity providers that know and understand skilled nursing operations. This knowledge base allows lenders to identify the cycle of census in skilled nursing and not punish the operators for these variances when they are shopping for debt and equity.
So far, we have not seen any direct impact on the senior housing industry due to the recent tax reform congress passed. Once 1031 exchanges were left unchanged by law makers, everyone appeared to breathe a huge sigh of relief. We will have to see how these tax reforms play out in the second half of 2018. Presently, it appears that most business models can increase their labor force under the new tax reform adjustments. Hopefully, senior housing operators can do the same.
The consensus is that lenders will continue to focus on the same indicators: regional & local market conditions, operator track records, facility financial performance, current state and federal reimbursements and forecasts, how RCS-1 plays out and the quality of the physical plants.
Types of Debt Available
Conventional long term commercial loans, and non-agency debt, are still somewhat illusive in the sector. We don’t see that changing anytime soon. The easiest, most abundant debt in the market place, are bridge loans and long-term HUD debt. These two types of loans should remain relatively easy to obtain, assuming the assets performance supports the contemplated loan amount. Accounts Receivable loans or asset-based loans (ABL) continue to be readily available to operators as well.
Advice Going Forward
The best advice we can give as brokers to operators is to stay focused on operations. It’s easy to get distracted by all the institutional debt and equity chasing in the senior housing space. Stay focused on your operations. Specifically, maintain quality managed care contracts and hospital relationships, keep census high, manage expenses and risk factors, and stay in compliance with licensing. If your operations are efficient and profitable, all the other components of the business will fall into place.