Recap of NIC Fall 2018

This year, the National Investment Center held its annual conference in Chicago from October 17^th to 19^th. The NIC, a non-profit organization, aims to support access and choice for American seniors by providing data, analytics and connections that bring together investors and providers in the senior housing industry.

The JCH Consulting Group attended NIC, as always, with great success. Our investment specialists held 30 meetings with operators and investors. It was an excellent time to meet with players of all types in the senior housing industry to discuss hot topics, rising concerns and share new information. 

A Bullish Outlook for the Senior Housing Industry in 2019

The senior housing industry has absolutely boomed in the past few years. The worries, for many, however, remain the same. Will an oversupply of construction diminish property values? Will certain senior housing investments flounder as they fail to perform to expectations? An increase in interest rates has hit some places hard and operators are still struggling to find good talent to staff their senior housing investments.

In spite of these issues, the senior housing industry remains bullish for the foreseeable future. In fact, investment specialists and industry veterans alike report that these concerns are all signs of an industry experiencing rapid growth. Certain aspects of the senior housing industry are growing faster than others. As inevitable pricing corrections take place, the entire industry is expected to stabilize.

In fact, as mentioned in the past, the American senior housing industry has attracted many international investors. At the NIC Bootcamp, a program specifically designed for first-time attendees, a significant number of guests were international players.

There was a particularly strong interest from Asian investors.  Many represented private equity firms and state-owned developers. For example, prior to the conference, news broke that Sino-Ocean, a Chinese real estate developer, acquired a 40 percent share in the American operating company Meridian Senior Living. While historically international partnerships have failed to flourish, traction has nonetheless been building.

The Senior Housing Industry Flushed with Debt and Equity

As debt rates rise, operators expect the senior housing industry to change in several ways.

Most obviously, rising interest rates raises cap rates and lower value. Consequently, expensive debt limits the amount a buyer can pay for any particular senior housing investment. It is unclear just how far and how long debt will rise. Fortunately, demand for assets within the senior housing industry is still high.

While eager or inexperienced investors continue to buy expensive or overvalued assets, industry veterans look forward to pricing corrections, especially for those holding onto existing assets and looking for growth.

Rapid growth does make the senior housing industry a tricky environment to navigate. With attraction to equity unlikely to diminish anytime soon, investors are encouraged to stay wary before committing to new senior housing investments. Too often people overpromise returns, causing negative reactions and in some instances, tarnishing the asset class or product type. Trust in senior housing investments that have sensible numbers with attainable returns.

Work with The JCH Group for Your Senior Housing Investments

The JCH Consulting Group works with hundreds of operators, investors and specialists to successfully navigate the senior housing industry. With well-researched and informed decisions, our team routinely builds strong and solid portfolios.

No matter the size or type of real estate asset, we are your top resource in making the most of your senior housing investments in the senior housing industry. By sticking to longstanding industry principles, our guidance in the sector has always weathered storms in the senior housing industry.

For expert guidance, work with the investment specialists at the JCH Group. Learn more about the senior housing industry and receive a free business valuation at your convenience.

Good Operators in the Senior Housing Industry

For the past several years, the senior housing industry has experienced drastic changes. New product has flooded the marketplace from inexperienced players with a fresh supply of capital. Many seasoned investors are worried how the influx of new assets will affect the senior housing industry, and it has finally become clear what will happen in the next few years.

The senior housing industry still offers lucrative opportunities, but it takes more than money to make senior housing investments work.

Why Invest in the Senior Housing Industry Now?

Seasoned investors have the upper hand in the current senior housing industry. The timing could not be better to acquire senior housing investments.

Parts of the industry have taken a hit, experiencing slow growth or declines in valuation. Overall this is due to high supply and lower demand of beds available. Eager investors have over-built skilled nursing facilities and assisted living facilities in some markets, and at the moment there simply are not enough people to fill these facilities.

Specialists within the senior housing industry expect the next two to three years to be filled with some turbulence. A significant number of new assets will struggle with occupancy and be forced to sell at severe discounts. This creates a perfect opportunity for those looking to acquire senior housing investments at incredibly low prices.

It would be a smart move to take full advantage of this change in circumstance. Investors should partner with solid operators to acquire these assets, turn them around and reposition the assets using their proven operating systems. With the right team, these discounted senior housing investments should yield returns well into the double digits.

What Makes a Quality Operator in the US Senior Housing Industry?

Inexperienced operators and ineffective operating systems can degrade senior housing investments. This is why many of the new products in the senior housing industry right now are struggling to perform to expectations.

A solid operator knows how to run a facility at a profit while delivering high quality care to consumers. Unfortunately, many operators are unable to juggle these two objectives.

Good operators both meet the financial goals of the company and deliver high quality care to residents. These successful operators typically maintain an occupancy rate of 85 to 90 percent. Their rental rates consistently rank in the top 10 to 15 percent of their market and enjoy an operating margin between 25 and 30 percent. While some of these numbers shift depending on the rental rates, nevertheless good operators perform to a high standard. What they achieve is what makes the senior housing industry as lucrative and attractive as it is.

Why do these operators consistently succeed? Simple, they routinely offer and maintain both quality service and product that consistently attract and satisfy residents.

The senior housing industry serves senior residents at a very specific life stage. These residents need medical care, lifestyle accommodations and other requisites specific to their age group. If a senior housing investment meets the specific needs of these seniors, census should never be an issue. Unfortunately, many new investors do not recognize quality service as being a key factor in turning a profit.

Good operators also stay on top of financial reporting, care and obtain all the licenses, certificates and talent necessary to ensure a smooth operation free of trouble that make them seem unsuitable to possible residents. After all, a facility in the senior housing industry deals with the lives of hundreds of people, many of whom require medical assistance. It is imperative that operators have the appropriate clearance, permission and rights to safely operate a facility and provide care for residents.

How Do Medicare and Private Pay Affect Performance in the Senior Housing Industry?

Within the senior housing industry, operators run on one of two pay models: Private pay and Medicaid.

The Private pay models allow operators total control over rental rates that reflect the value of a worthy product and service. Under the private pay model, there are hundreds of sub-business models. These would include owner/operator, developer/operator, management companies and rental vs. buy-in facilities.

With private pay models, operators can truly customize their senior housing investments and position themselves uniquely in the senior housing industry. They can design in-house activities, upgrade the physical plant and control how many residents stay in their facilities. With complete control over their senior housing investments, these operators have the chance to accomplish a great deal financially.

On the other hand, Medicaid works under the mercy of politicians. If the government decides to reduce funding and services available to senior residents, operators must abide by those changes. There may be little to no warning about these impending changes. As a result, operators are constantly working with shifting operating systems.

Operators working on the Medicaid pay model have the added challenge of being cost leaders. Because the government determines rental rates and revenue lines, in order for senior housing investments to profit expenses must be managed to the tee. Paperwork must be absolutely accurate. There is no room for mistakes.

While private pay offers more room for profit, not every senior can afford that senior housing available on the private pay model. Typically, these senior housing investments are upscale and tailored for a specific consumer base. Meanwhile, there remain hundreds of thousands of seniors needing affordable housing, which they can only achieve through Medicaid. As a result, both pay models are necessary to serve the entire senior housing industry. Operators simply must be savvy on how to make themselves the most attractive choice to their respective residents in any given market.

Connect with The JCH Consulting Group for the Right Housing Investments

In the end, the senior housing industry serves senior citizens. Those acquiring senior housing investments must stay vigilant about their consumers. Regardless of financial situations, every senior deserves a safe and clean place to live. The operators who understand their customers are those who succeed in the senior housing industry.

At the JCH Consulting Group, our investments specialists understand what seniors want and need from their operators. We also know what operators need to do to succeed in the senior housing industry.

To elevate your operating system or make the next move in the senior housing industry, work with the JCH Group. Our experts are here to help with your senior housing investments.

Is the Senior Housing Industry Just Rent and EBITDA?

One of the largest evolutions in the senior housing industry is the sophistication of the financial model. The senior housing marketplace offers limitless opportunities for those seeking high return, senior housing investments. However, with the surge of fresh players entering the senior housing industry, it seems that the industry has been inappropriately reduced to a simple mathematical equation. Somewhere along the line, the senior housing industry turned into a machine focused only on rent and EBITDA.

The Dangers of Playing the Numbers Game

Most investors only want and know numbers feeding the bottom line. It is a simple demand considering how much money flows in and out of these senior housing investments. These investors want every metric available to measure successes, shifts and profits with their senior housing assets. They want to know where every dollar comes from and where it goes, including metrics like EBIDTA, census, rates, margins, per resident/patient day and more.

These numbers are undoubtedly important and relay key information in keeping senior housing investments performing well. However, this approach can quickly turn into a numbers game, shifting focus away from what truly drives this industry, caring for the health of seniors.

Take a closer look at the senior housing industry and it is easy to tell that the most successful operators focus not only on the financial metrics and measures but trust that quality care and good customer service will drive the bottom line.

Metrics are important, but they are not everything. Profitability always follows good service and a quality product. Instead of falling into the trap of playing the numbers game, like the majority of operators and investors in the senior housing industry today, make your senior housing assets truly stand apart from the rest through the quality of care and amenities offered.

Have Your Housing Investment Stand Apart as Best-In-Class

The number one priority of all operators is to keep the beds full. As long as the resident census remains high, the facility should be profitable. But with the senior housing industry continually growing, more products are entering the space. There are many more independent living, assisted living and skilled nursing facilities competing for the same resident or patient. As a result, it becomes crucial to stand apart and above the competition.

The senior housing industry is, first and foremost, an industry that delivers specific lifestyle healthcare for senior citizens. Think about what aspect of your senior housing assets residents find most attractive.

Do you have a certified dietician designing every meal for seniors?

Do you have a legitimate wellness program?

Does your facility offer an exceptional caregiving staff?

How do your social clubs compare with those of other facilities?

How does your physical plant compare with the local and regional market?

In addition to determining your particular strength, seek independent verification and third-party certification. These come in the form of a “Best in Class” recognition, and these awards carry with them great marketing tools.

Why would a resident want to live in your facility? How can you attract them earlier? The earlier they move into your senior housing asset, the lengthier their stay, which means you generate revenue for that much longer.

The Senior Housing Industry is Always About the Customer

The senior housing industry differs from other asset classes because operators essentially live with their customers. This is a service industry, the people are the business, and as long as the residents receive high quality care and quality of life, they have no reason to leave.

Some of today’s operators think they know all there is to know in the senior housing industry. While the industry is not new, it is still quite young, and demands grow and shift constantly. To keep up with the ever-changing business model, we recommend maintaining a “student-learning attitude”. Learn and converse with staff members, caregivers, guardians and residents. The market changes as they change, so they are your best resource to staying on top of your operating game.

Work with The JCH Investments Specialists for More Senior Housing Tips

The JCH Senior Housing Investment Brokerage serves as a premiere brokerage in the senior housing industry. We have designed, negotiated and closed hundreds of transactions. From independent living facilities to skilled nursing facilities, we are your experts for the perfect senior housing investment.

For your free business valuation or for more information, speak to a JCH investment specialist today!

The senior housing industry has experienced exceptional growth in the past few years. Investors from different product types have brought their capital, connections and value to the industry, making it an attractive and successful real estate asset class. The construction cycle is currently booming as new investors and industry veterans take action. In short, the senior housing industry has delivered the results investors want. So much so that the potential for senior housing investments in the US senior housing market has attracted the attention of foreign players.

In particular, Chinese investors have shown great interest in the operating platforms utilized in American assisted living and memory care facilities; with the intent of utilizing the platform in China.

Chinese Money Makes US Senior Housing Investments Shift

Recently, a Chinese equity company attempted to acquire the giant American senior housing operator Brookdale Senior Living. Additionally, Watermark Senior Living, one of the larger assisted living operators in the US, announced the potential sale of their operating company to a Chinese investments company named Keppel. These are major transactions and unique in nature.

Typically, senior housing investments and acquisitions revolve around the purchase of real estate. However, these Chinese investors have only purchased the operating platforms to these companies rather than the real estate themselves.

Why is this the case?

In the past, Chinese investors have had their capital ready to purchase the real estate and company as a whole. However, the Chinese government has prohibited the acquisition of foreign commercial real estate. As a result, investors have redesigned their plans for senior housing investments to acquire only the operating entities.

Chinese investors have been remarkably proactive in these types of sales because China lacks a proper senior housing model despite a pressing need.

Sudden Global Interest in US Senior Housing
Stems from Demand

China needs assisted living facilities to serve its senior population. The total population of people older than 65 in China is greater than the entire population of the United States. This represents the largest assisted living market in the entire world.

Rather than designing and implementing an assisted living model from scratch, Chinese innovators want to circumvent the start-up phase of the business. Instead, borrowing from successful American models, transplanting existing operating systems into their own growing senior housing industry.

China is not alone in showing interest in the US senior housing industry. Senior housing investments in the US still produce some of the highest returns in a real estate backed asset class, making it an attractive choice to those with capital to invest.

Expect More Foreign Involvement in the Future

Foreign interest and investment is unlikely to slow. The JCH Group was recently engaged by a large Chinese equity company to negotiate the sale of a large assisted living platform in the US for replication in the Chinese market. While this evolution makes some people in the senior housing industry uncomfortable, the change is inevitable.

For American investors, it may be difficult to believe that foreigners want to play in the US senior housing space. In terms of the market and public appeal, the senior housing industry has experienced some hiccups. Wall Street’s hostile behavior toward senior housing operators has repeatedly hurt valuations and chipped away at public trust. Media has overblown minor issues within the senior housing industry, creating more trouble than they are worth. However, foreign investors coming from countries with no senior housing industry have seen the promise and potential.

How do American players feel about the change? Smaller operators have warmly received the idea while larger operators have mixed feelings. However, it is very difficult to ignore what Chinese investors offer. They bring an immense amount of capital to ensure that deals close.

For now, foreign investments have inflated valuations at the facility level. Effects on the operational level are not yet known. The long-term impact of foreign involvement remains unclear, but is inevitable.

Work with The JCH Group
to Handle Future Senior Housing Investments

As global interest in the US senior housing industry grows, American investors face an increasingly complicated market place. To ensure that every step is the right step, work with the investments specialists at the JCH Group.

The JCH experts have the experience and information to help you navigate the senior housing industry. We know all there is to know when it comes to assisted living facilities, skilled nursing facilities, independent living facilities and other healthcare properties.

No matter how many players crowd the senior housing industry, senior housing investments should always work for you. The JCH Group ensures that you receive the correct information to make responsible decisions.

The National Senior Housing Market:

Analysis and in-depth look into its immediate future.

Senior Housing continues to enjoy a very robust, yet stable marketplace in 2018. While some product types within the asset class have distinct concerns, the overall outlook is very bullish. Senior Housing is divided into three major market segments: Independent Living (IL), Skilled Nursing Facilities (SNF), and Assisted Living Facilities (ALF). We will focus on licensed healthcare facilities, SNF and ALF, in today’s analysis.

ALF transactions have been consistent in 2018. REITs continue their focus on this product type while diluting some of the SNF saturation in their portfolios. ALF cap rates have inched up slightly, primarily due to capital costs in the market, while SNF cap rates have remained constant. The class “A” single-asset ALF cap rate remains in the high 6% range, and then goes up, depending on the facility’s quality, performance, and location. SNF cap rates have consistently remained between 10% and 13%. As new construction enters the marketplace and interest rates rise, we will likely see some movement in the cap rates on both product types. How big the nudge, of course, is yet to be seen.

Also noteworthy is that occupancy has slumped in both product types in recent quarters. We attribute this to the new product entering the space as well as naturally occurring industry cycles. New construction is a hot topic in ALF and Memory Care Facilities. There is significant development activity in many markets – potentially too much in some. We have witnessed a considerable number of construction starts in Texas, Arizona, Illinois, Minnesota, the Southeast, and the Northeast. While the baby boomer generation will undoubtedly fill this new product eventually, they are not yet significant Senior Housing consumers. As a result, we may have a few rough years ahead regarding occupancy in some of these markets.

In addition, an unexpected headwind has hit Senior Housing in recent quarters: labor shortages. Finding entry-level labor at the facility level has proven to be an increasing challenge for many operators. The good news is the industry is attacking this issue head on, implementing several solutions, often bringing migrant worker resources to the forefront. Another dynamic industry shift is the movement away from large, top-heavy corporations. Many larger national operators are instead adopting a top-light, bottom-heavy management format where each facility stands on its own, with the corporate office merely as a support system.

The big issues to watch looking forward will be the absorption rate on new construction, specifically in ALF and Memory Care, and the industry’s response to the labor shortage. Nevertheless, the fundamentals in Senior Housing are very strong and will remain strong for the foreseeable future.

Nick Stahler

Senior Vice President, JCH Senior Housing Investment Brokerage

Office: 714.463.1663
Email: [email protected]
BRE: 01722556
vcard

Nick Stahler has 12 years of experience in the Senior Housing Investment industry with 1 billion dollars in closed sales.

Senior Housing Escrow

The senior housing industry continues to be a robust investment platform full of opportunities. New players are looking for ways into the senior housing industry. Meanwhile, many current owners are contemplating whether or not it is the right time to sell their senior housing investments. In several ways, today’s higher prices are a perfect reason for those already holding senior housing assets to sell. These owners have plenty of people willing to buy skilled nursing facilities and assisted living facilities at historically high prices.

With all the stars aligned to benefit those selling healthcare facilities, operators ready to sell need to maintain current performance levels for a smooth escrow and final transaction. Otherwise, the deal may fall through and cost sellers significant profit.

Protect the Value of Your Senior Housing Investments and Maintain Performance

When should operators in the senior housing industry choose to sell their senor housing assets? Overall, since current market conditions are favorable for sellers, they will already receive top dollar for their asset. However, individual sellers should list their senior housing investments when operations are running well or when the operations are experiencing an ascending trend.

There are a few general rules operators should remember to follow when selling in the senior housing industry.

First, assess the physical plant to ensure it is in good repair. Make all necessary repairs before starting the marketing campaign. Except for needed repairs, refrain from making remarkable changes to the plant. For example, it would be unwise to suddenly change the flooring in the assisted living facility after listing the asset for sale. The buyer may not like the flooring and could potentially change the terms of the deal. In a more serious situation, complications may arise during the construction period and slow the escrow process or even halt the transaction altogether.

Second, it is critical to increase or maintain the facility’s census at the current or even higher rental rates. In other words, the beds must remain full. This is true for any facility in the senior housing industry.

Third, expenses should remain consistent unless there is an area where savings can be achieved without affecting the facility’s revenue or census. Make sure that if expenses are cut, it does not affect resident care, revenue or census.

Fourth, do not hire any unnecessary staff. It is important not to alter the method of attracting new residents in the senior housing industry, especially if a current referral agency has been working well. The old adage “if it isn’t broken don’t fix it” are words to live by.

Finally, it is a wise decision not to alert the facility staff of the sale. This could create multiple layers of issues. First, staff members may feel their jobs are endangered and leave in search of work elsewhere in the senior housing industry.

More seriously, they may leak the information to residents. In turn, residents may feel uncomfortable and abandoned by current owners and choose to move out on their own terms. Overall, news of the sale may lower staff morale and work ethic, cause panic and compromise the overall operations of the facility.

Once the senior housing asset for sale enters escrow, the facility is under even greater scrutiny. Pay attention to the details that make your senior housing asset a good buy.

Other Caveats During the Purchase and Sales Agreements

The escrow period in the senior housing industry does not open until the Purchase and Sales Agreement (PSA) is completed and signed. The PSA is not signed until all schedules are attached and accepted by the buyer.  The buyer typically is not required to fund the escrow deposit until the PSA is completed. Once again, it is during this time that the senior housing asset for sale is under the greatest amount of scrutiny. It is also the most fragile time when the deal can change.

Read: Choosing A Sales Price

Once the PSA has been completed and signed, the escrow period and due diligence period begin. Typically, the buyer’s lender produces a list of requested due diligence items. It is the seller’s responsibility to assemble and deliver these items as quickly as possible.

If items detailed on the due diligence list cannot be produced for any reason, the buyer must be notified in writing which items are unavailable. It is important to remember that in most timelines, the due diligence period does not officially begin until the buyer receives all available items requested on the list.

For sellers listing their senior housing assets, it is imperative to deliver all items on the list with honesty and completion. Any missing details can cause turbulence. Ninety-nine percent of the time, buyers in the senior housing industry will take advantage of weaknesses and discrepancies. They often take the opportunity to renegotiate the sales price. In some cases, they cancel the sale altogether.

While unforeseen circumstances cannot be helped, negligence is a costly mistake. Continue running your facility as if you were going to keep it for the next 10 years, this will help ensure the transaction closes.

Work with the JCH Group for the Best Results in the Senior Housing Industry

The JCH Group is the leading brokerage in the senior housing industry. Our combined experience and expertise has successfully closed hundreds of transactions and increased the wealth of hundreds of our clients. There is no senior housing investment sale we cannot improve.

The senior housing industry is ripe with opportunity. Whether selling or buying properties, make your sale or acquisition count with the investments specialists at the JCH Group. We have experience with independent living facilities, skilled nursing facilities, assisted living facilities, memory care facilities and portfolio management.

Call us for your free facility valuation, we are happy to answer your questions and make your next senior housing investment count.

The JCH Group Celebrates Its 20^th Year

This June the JCH Group proudly celebrated its 20^th anniversary as a top brokerage in the senior housing industry. It is an accomplishment in a league of its own. No other brokerage in the senior housing industry has served for 20 consecutive years with our type of achievements and focus.

Our Humble Beginnings in the Senior Housing Industry

In June of 1998, Jim and Cindy Hazzard came together with friend and colleague Lee Blake. The three veterans each had with them hard-earned experience working the senior housing industry, and each brought with them unique skill-sets that could not be found elsewhere in senior housing brokerages.

Jim served as a regional director of marketing for a prominent skilled nursing operator in the Southwest. He had over 30 facilities under his control. Meanwhile, Cindy worked as a marketing consultant for one of the largest national assisted living companies. Lee Blake was an expert in the food service segment—undoubtedly one of the most important components of healthy living for seniors. Lee had also brokered a few deals in senior housing prior to joining the JCH team.

Together, these investment specialists formed their own team and offered clients what no other senior housing brokerage could: actual grass-roots experience within the senior housing industry.

Bringing Value to the Senior Housing Industry

This type of in-depth operational knowledge proved vital in closing sales with clients. Their unique collection of experience attracted an extensive list of clients, each eager to make the most of their senior housing investments in the senior housing industry. Most notably, Lee Blake sold Granger Cobb his very first assisted living facility. Granger Cobb, one of the most recognized operators in the senior housing industry, came to fame with Summerville and Emeritus, now called Brookdale.

In June of 2006, the JCH Group added Nick Stahler as a team member. Nick carried with him a strong real estate and finance background in assisted living facilities within the senior housing industry. With the addition of Nick, the JCH Group made a great leap forward in solidifying their financial success and that of their clients.

In January 2018, Mike Mooney joined the team. With 12 years of experience conducting hundreds of appraisals and market studies, Mike further strengthened the JCH team of investments specialists, building the strongest senior housing investment team possible.

Building Success in the Senior Housing Industry from the Inside Out

Twenty years later, the JCH Group has closed over 400 transactions totaling $4 billion in sales volume, making us one of the most celebrated and diligent senior housing brokerages in the country.

At the JCH Group, we work for you. We do not condone internal competition like other brokerage cultures. We work as one team toward one goal. From marketing members to support staff, and from broker agents to CEO, we each strive to maximize wealth for our clients with their senior housing investments.

To maximize your position in the senior housing industry no matter your skill level, work with the best and receive best. Contact the JCH Group today at 888-916-1212.

Senior Housing Industry – New Tax Reform

At the end of 2017, President Trump and Congress delivered new tax reforms. Within two months, a number of changes came to the Affordable Care Act, immigration restrictions, infrastructure upgrades and regulatory reforms. Many of these changes benefited the senior housing industry and were favorably implemented at the beginning of 2018.

The Senior Housing Political Action Committee, funded by ASHA and donations from larger operators in the senior housing industry, pushed and fought for operators and seniors alike. Working alongside ASHA and congressional contacts fostered over the years, the committee achieved three significant changes protecting the benefits of seniors and operators alike, keeping the senior housing industry strong and productive. Most importantly, they fought to keep value and money where it’s needed most.

The Senior Housing Industry Retains Medical Expense Deductions

Seniors originally faced a 2.5 percent tax increase, changing their current 7.5 percent to 10 percent of adjusted gross income. Under this tax raise, households would need to meet a higher income threshold to benefit from available deductions. This would be additionally problematic for those on long-term care insurance.

While a 2.5 percent increase may seem nominal relative to income, most seniors would be left pinching pennies.

Instead, the senior housing political action committee succeeded in keeping the current 7.5 percent tax break, protecting seniors from a burdensome increase. In doing so, seniors are better able to spend their money on necessary treatments and services within their healthcare communities.

The Senior Housing Industry Qualifies Under the Passive Activity Loss Rule

The senior housing industry had another win with the exemption clarification of the passive activity loss rule under the Limitation of Business Interest Deductibility section.

The bill offered a 100 percent deduction for any real estate properties for business interests. However, complications arose when the technicality of the passive activity loss rule came into question.

Under closer inspection of the rule, those in the senior housing industry were concerned that the services provided in their facilities fell outside of the passive activity definition. If this were the case, businesses and facilities within the senior housing industry would no longer qualify for a 100 percent deduction, instead they would be limited to a mere 30 percent deduction.

It remained unclear whether or not properties within the senior housing industry met the requirements for exemption under the passive loss rule.

By definition, passive activities are “any real property, development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage, or trade of business.”

The senior housing political action committee and ASHA successfully set out to clarify that CCRCs, independent and assisted living communities were part of that definition and therefore eligible for full deduction.

The Senior Housing Industry Receives a New Tax Deduction for Pass-Through Entities

Finally, ASHA and the senior housing political action committee also won a new tax deduction for owners of pass-through entities. Pass-through entities include partnerships and partners, shareholders in S corporations, members of LLCs and sole proprietors.

This new tax deduction offers up to 20 percent for owners of pass-through entities with qualified business income, which is subject to certain limits and restrictions. Qualified business income is defined as the net income from a business without counting amounts in the nature of compensation.

While these three changes in the tax reform may seem small to some, they do benefit those working in the senior housing industry, and ultimately, senior citizens themselves.

ASHA and the senior housing political action committee continue to fight for positive changes to ensure that the senior housing industry receives what it deserves and needs.

Make Your Place in the Senior Housing Industry with the JCH Group

While the climate within the senior housing industry may change, there remains great value and opportunity. The JCH Group leads all brokerages in the senior housing industry. Our investments specialists are absolute experts at assembling and closing the best senior housing investments.

No matter if you are a veteran investor or a green operator, the JCH Group has the information you need to succeed. From free business valuations to exceptional insight, we are your top resource in the senior housing industry.

To learn more about the tax reforms within the senior housing industry, contact the JCH Group today!

Labor in the Senior Housing Industry

Attracting labor in the senior housing industry has become a pressing issue. The senior housing industry currently cares for hundreds of thousands of seniors in the US every day. Not only is it a booming industry, it is one that is absolutely necessary to help senior citizens maintain their health and quality of life. Yet, there are not enough willing people to work in these healthcare properties.

With more and more seniors needing care and a robust construction cycle in play, labor issues within the senior housing industry are rising to the top. While people are living longer and longer, and with more people consuming the senior housing product, there are not enough willing caregivers for these residents. With shortfalls in staffing both skilled and un-skilled, the quality of care in the senior housing industry can suffer which everyone wants to avoid.

Operators and managers are now left with a big puzzle. Where do they find enough labor? How can they attract strong talent?

The JCH Group recently attended a round-table discussion at the American Senior Housing Association and found that this topic dominated 80 percent of the conversation. These are the possible solutions operators brainstormed during the discussion.

Solution 1: Use Migrant Workers to Staff the Senior Housing Industry

Operators in the senior housing industry have discovered that migrant workers are terrific as caregivers. In general, they have found that while natural born Americans tend to push their senior citizens to the sidelines, those hailing from other countries respect their elders more, providing them better care, time and attention. As a result, staffing senior housing facilities with migrant workers as caregivers would be a great option.

Many operators and mangers agree that this is a viable solution. However, though their attitude toward seniors might be different, there is no guarantee that migrant workers are skilled enough to deliver the quality of care needed in the senior housing industry or that they will stay working in the industry once they are in the US.

Solution 2: Create an In-House Training Program to Staff the Senior Housing Industry

The second solution calls upon the titans of the senior housing industry. By utilizing their presence, strength and capital, the largest operators can create in-house training programs.

This program aims to recruit new talent and train them to do exactly what is necessary to preserve the quality of care vital to the senior housing industry. Training programs would vary for each authority level, from caregivers to managing operators and executives. The benefit of this in-house training program is that staff members are educated down to the specifics of each position and are ready to work within the operator’s model.

Solution 3: Campaign to Change the Perception of the Senior Housing Industry

Recruitment, and therefore attracting new talent, is difficult because people do not make positive associations with the on-goings of the senior housing industry. Media often paints the senior housing industry to be negligent, messy, lazy and even abusive. Reporters fail to present all the good work achieved in the senior housing industry. As a result, people are reluctant to find work in this space.

To combat negative sentiment, operators thought of a “Got Milk” style campaign. By utilizing ads and broadcasts on television, radio, Internet and even paper, positive messages can shift people’s perception of the senior housing industry. Once negative stereotypes break, more and more people may be inclined to find work and contribute to the senior housing industry. While this tactic does not immediately attract labor or new talent, it is a long-term effort that will eventually make the staffing corrections needed to sustain the senior housing industry for the future.

Solution 4: Provide More for the Staff in the Senior Housing Industry

In reality, the solution to finding labor in the senior housing industry will be a combination of all of these proposed ideas. In addition, there are other complications attached to each solution.

For example, typically those who can afford senior housing come from wealthier areas. Housing costs and rent may be high. However, caregivers of these healthcare properties receive the lowest pay. Distant commutes and high rent would not make any economical sense for these workers, further dissuading them from taking the job.

Ideally, the senior housing industry would be able to provide housing for staff. Many in fact are already doing so by building tracts of low-incoming housing. This fixes many issues. First, low-paid staff members have a home close to work. Second, they can afford their homes and so have an incentive to commit to their jobs. Third, talent grows as employees of the senior housing industry compound their experience over time. Fourth, even the city receives a break by offering low-income housing.

It would also be beneficial if childcare services were provided on-site. This eliminates the issue of babysitters and conflicting schedules. In addition, seniors have the pleasure of being around children and youth, bringing new energy into the senior housing industry.

The Current Model of the Senior Housing Industry Needs Adjustments

Currently, the way the senior housing industry works now is top-heavy. Corporate and their executive officials wield too much influence over the everyday minutiae in the senior housing industry. Yet they are not the ones interacting with the residents on a day-to-day basis. The people who are paid the least are the ones who provide care and attention for seniors every single day wield the least influence.

Historically, when companies within the senior housing industry grow too large and too top-heavy, quality of care declines. The company devaluates. Overall, the senior housing industry suffers.

Instead, each facility in the senior housing industry should stand on its own. By giving more to the facility level staff members, they have more reasons to deliver better care and stay committed to the job. Seniors receive high quality attention and commit to their skilled nursing facility or independent living facility. Overall, the senior housing industry grows stronger.

Work with the JCH Group for Your Housing Investments

With the spotlight on the senior housing industry, it grows to be a more complicated place. Housing investments can be equally tricky.

The JCH Group leads the senior housing industry with smart senior housing investments. Our specialists are trained experts, working with buyers, sellers, operators and managers of all levels across the US.

We are confident in the work we provide in making and closing senior housing transactions. No matter what you need from the senior housing industry, the JCH Group is your best resource. To receive your free facility valuation or learn more about the labor issue, give one of our investments specialists a call.