Current interest rates and operating costs are affecting every business, with senior housing and skilled care being no exception. These factors can make property ownership cost-prohibitive and opportunistic growth difficult. However, there is still a viable avenue for those who want to grow in the senior housing/skilled care market when existing cash flow isn’t sufficient to finance a purchase, according to Cambridge Realty Capital Senior Vice President Brent Holman-Gomez. “Contracting can help business credit options to grow portfolios.”

Implementation of new service contracts can help realize much-needed financial relief. “Many long-term care businesses are making big changes to re-align their businesses for profitability in the current economy,” he noted. “Operational changes can take time for cash flow and financial statements to reflect their full value. Contracting is a helpful solution, as contracting those same changes can immediately deliver a plan that is financeable.”

Not only that, but “contractual changes can generally be underwritten by lenders the day they are effective,” Holman-Gomez declared. Other immediate benefits include:

  • Expense management for food service, environmental services, utilities, pharmacy, insurance, IT, ancillary services.
    • Monthly expenses with wide variances can be averaged into an annual contract with regular monthly payments.
    • Changes today that will save money mid-year might be averaged to evidence the overall benefit.
    • Cambridge has seen customers reduce electric costs $10-30k per facility using alternative suppliers and renewables with contracted discounts on historic spend.
  • Revenue increases to Medicaid, managed Medicare, PACE, and insurance rates, which can immediately increase debt sizing.
    • Daily rates have gone up significantly as cost reporting reflects the inflationary environment. Using historical occupancy data, lenders can apply the new daily rates for underwritten income.
  • Management company service changes reducing expenses of facility operations, making them the responsibility of the management company.
    • Marketing, IT, payroll servicing, regional nurse, etc.

Other strategies for increasing cash flow and realizing the full annual value of operational changes include:

  • Leasing out a portion of the building for other use or master leasing beds.
  • Creating an ancillary business to address the aspect of operations that is changing and contracting that entity to the operator/property.

“At the end of the day,” Holman-Gomez concludes, “there are many methods to contractually lock in the results of your operational changes and goals. If you are seeking more options on your debt, and increased cash flow, working with an experienced long-term care finance provider can help you achieve your goals. Long-term care financing experts like Cambridge Realty Capital with deep senior housing and skilled nursing knowledge can help you get the proceeds and resources you need.”

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