Nursing facility operators don’t always see eye-to-eye with their landlord, which can (and sometimes does) lead to conflict. It is something Cambridge Realty Capital President Jeffrey Davis sees frequently. “Conflict” can range from minor disagreements to full-blown disputes and even contract termination threats. “Neither party wants to have conflict. All that each one wants is to be heard and to be able to run their business efficiently,” says Davis.
After 30 years in the business of funding the senior living industry, Davis has acquired an intricate understanding of what makes both operators and owners “tick.” Says Davis, “When you each understand how the other thinks and know what drives them, you can use that information to your advantage.”
The SNF landlord, Davis contends, “is not a lot different from a lender. They typically have little or no experience with operations.” Conversely, operators may understand the nuances of operating a SNF, but they don’t fully appreciate the pressure that a landlord is under.
SNF landlords may seem to hold most of the cards in the game, so to speak. Davis’ experience shows that landlords are not always eager to reveal those cards to the other player: the operator. The “contract termination” card is often the most frightening to the SNF. The landlord knows this and so he may use this to try to get what he wants from the operator. But according to Davis, operators may not need to feel threatened by this. More often than not, “they have no backup operator, or even a backup plan to secure an operator in a timely manner.” At the end of the day, the landlord doesn’t want to lose money, nor does he want to deal with the potential fallout from a terminated contract, including relocating patients or closing down altogether. This means there is still a great deal of room for negotiation.
The fact that a SNF landlord may have little to no operating experience themselves can be a source of frustration for the operator, but it can also be used to the operator’s advantage. Part of getting what you want or need as an operator is educating the landlord on issues relating to SNF operation, particularly those issues which are intertwined with the interests of the landlord, such as building code and maintenance issues. What is advantageous to the operator is beneficial to the landlord too.
Perhaps the best bargaining tool of all though, according to Davis, is to always be a model tenant. “Understand what makes them happy and what makes them unhappy,” he states, “and what makes them happy is satisfying their business goals.” No matter what your landlord’s management style, at the end of the day all landlords just want to get paid, in full and on time, more than anything else. Anytime an operator fails to pay in full or on time, he loses some of his ability to negotiate.
In addition to being a model tenant, Davis also has this advice for SNF operators:
* Know your lease cold and what needs to be reported to your landlord. Make sure that your reports are meticulous in content, to the point without being unnecessarily wordy, and that you always deliver them by the designated deadline. “The landlord has certain responsibilities when it comes to reporting to his lender, so anything that gets hung up at the operator level affects the landlord’s ability to conduct business, pay his own bills on time and maintain a good credit rating.”
* Know what happens in your building and what happens to your landlord if you are late reporting certain covenants the landlord has agreed to tell his lender by a certain date. This may require some research, clever digging or pointed dialogue and questioning with the landlord. Getting disclosure may also require a sense of trust on the part of the landlord, so, again, always paying rent and delivering reports on time can help build that trust and open up lines of communication.
* Know what happens between a monetary default and a non-monetary default. Again, this may require some question-asking, or some independent research on your part. Whatever time it takes to get this information will be worth it, especially if you learn something you didn’t know before which you can use to your advantage when negotiating.