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Irving Levin Associates, Inc. • 268 1/2 Main Avenue, Norwalk, CT 06851
Toll Free: 800-248-1668 • Phone: 203-846-6800 • Fax: 203-846-8300
Toll Free: 800-248-1668 • Phone: 203-846-6800 • Fax: 203-846-8300
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© 2012 Irving Levin Associates, Inc. All Rights Reserved
© 2012 Irving Levin Associates, Inc. All Rights Reserved
Steve,
Thanks for your kind words. While retiring as a publishing analyst, I hope to remain involved in the senior housing and care industry.
Jerry
Steve: You are right on. The low interest rates paid at the banks, credit unions, etc. are going to have to place considerable pressure on rental increases.
I've heard some banks are giving new desopitors microscopes instead of toasters when opening a new account, so they can see there interest rate.
Yes, Medicare is not there to compensate for a shortfall in Medicaid, but a Vladeck successor was known for admitting that it was a necessary thing to do. But I doubt many Illinois providers have "spectacular" profit margins, and they are only going to get worse there without some changes.
Illinois nursing homes are still selling and leasing at respectable prices. Of course, late payment of Medicaid monies is an issue, but that is a cash flow problem. Since public aid reimbursement in Illinois is the lowest in the nation, I can only conclude that for the independent and regional SNF operators, margins are sufficient to make the business worthwhile. By the way, I seem to recall that former HCFA honcho Bruce Vladeck once remarked (in the mid-1990's) that the purpose of Medicare reimbursement is not to compensate for a shortfall in Medicaid.
I haven't seen too many SNF defaults lately, for-profit or not-for-profit, but there have been more NFP defaults in the CCRC side of the business because of higher leverage (I know, Erickson is a for-profit, and excessive leverage didn't help there either). Good point on the not-for-profits holding out longer while for-profits seem to be able to react to change faster.
Steve,
Great post. You are spot on. An additional comment...I often find that the for-profit providers are the first to react to reimbursement changes (i.e. Medicare/Medicaid cuts). When providers are forced to make changes/cuts, obviously it will impact direct care. Not-for-profit organizations are less inclined to react to changes by cutting costs. This tends to lead to a larger problem of bankruptcy and default. In the current environment, do you see more for-profit or not-for-profit organizations financially fail?
Very interesting take on the senior housing industry... Great interview.
Great blog, and I agree with the last comment. All we can do is sit & wait since nothing will be done until after the next elections.
Yes, I think the buyers will be ones comfortable with an entrance-fee model.
Nothing will happen with this do nothing Congress until after the elections next year. More and more I think that one term limits should be set up because none of them have the stomach to make tough decisions because of the next election.
Thanks again, Steve.
A strong operator with a strong marketing orientation will be able to turn the trick by re-setting the debt. However, I still suspect that the auction may be chilly because the $60 million liability will most likely limit the field to prospective purchasers who are interested in the entrance fee model. Do you agree or are there other ways of retiring this debt?
best,
Dan
I am not sure the issue with The Clare will have a "chilling effect" on prospective purchasers because it had already defaulted once and I said a year ago that it was not enough of a write-down and they would go through the exercise again. I agree that the $60 million (or more) in entrance fee refund liabilities will significantly impact the price, but the main concern will be how long it takes a buyer to change the image and gain the confidence of the local market, which will be easier with a stronger (little debt) capital structure. And I don't think it will impact the lending/investing community because it was one specific asset with many problems all at once. Just a big asset with too much debt.
Thanks again for a good post, Steve.
My wager is that that any potential buyer for The Clare will have to incorporate the $60 million as a liability that will survive bankruptcy. The net effect will be to reduce the purchase price by $60 million, reducing the amount creditors will recover.
Two questions: 1) what kind of chilling effect do you think this latest bankruptcy will have on prospective purchasers? and 2) what kind of chilling effect to you think it will have on the lending/investing community?
Love your commentary every week. Keepp up the great work and happy Turkey.
Thanks for sharing information.This is something very new and interesting.
Well, that was my point, that property values are relatively stable, and in the case of quality assisted/independent living, they are strong and rising, while stock prices have tanked...thus the valuation disconnect between public equities and properties. But it was more than that because the public equity values made no sense. Investors apparently have agreed with me since October 4, and the price surge has been helped a bit by the recent market increase, but the market isn't up 20% in a week! The correlation occurred in 2006 but not in 2007, great across the board correlation in 2008, not so much in 2009.
The surge in the market today is also helping. Good call....so far. Steve, I always wondered if you have ever seen any correlation between stock prices and market values for properties or portfolios?
Steve, nice segment. I could not agree more. 2011 has been a record year so far for Senior Living Investment Brokerage and things are not slowing down! Fourth Quarter is also set to be a record. If any of your listeners/readers are considering selling, they should give me a call for a valuation. It is an excellent time to take advantage of the booming market and current capital gains rate. 630-858-2501.
Ray, for high quality, insitutional Class A IL properties we are beginning to see prices in the $200,000 to $300,000 per unit range, but these obviously have high cash flow and often have AL units as well. In North Carolina specifically, there may be some news next month.
Can you share with me the recent sales rices per unit you have seen on stand alone independent living apartments and assisted living beds, preferably in North Carolina.
Thanks
Thanks Steve for being willing to cite the "instituitional bias against corporate America".
The good news is that anyone with any intelligence would know this is a flawed comparison. The person just hurts their company by making such obviously incorrect statements.
Great commentary and an important reality check.
I noticed in the last three years that the Hyatt name for senior living has go down.. The meals are not the same the quality is not the same. The employees are not the same, the cleanliness is not the same,,, all around I beleive thats why they changed the name.. I am glad someone bought the Hyatt name it is like a motel 6 here in Florida... Carpet tiles looks like a airport not swenior living, after i brought my mother in ,6 years ago it turned into a nursing home not senior living... Thank god somone bought them
I am totally behind you on this. Home Health Care (non-health care) can NOT be compared to AL or NH services because they don't cover the same services, apple to apple. By trying this in their marketing to sway prospects, they will ultimately be shooting themselves in the foot when the prospects finally do the math. Sadly, it usually isn't until after they've signed on for care that realize their mistake.