Senior living acquisition activity has been heating up in recent years. Some of this new spike in merger and acquisition activity has come from an unexpected place – nonprofit senior living organizations. In 2011, there were less than 20 transactions involving nonprofit owners or sponsors. In 2014, there were just over 50 merger and acquisition deals involving nonprofit senior living, and this year at least 75 are predicted. As the economy has rebounded from the financial crisis, merger and acquisition activity has increased, with for profit organizations quickly seizing on potential opportunities. Nonprofit senior living organizations have moved slower, as they are generally more financially conservative. However, it seems that nonprofits are now growing more confident that the economy is stable, and are looking to grow. Experts believe that nonprofit deal activity could impact the entire acquisition space.
Senior living nonprofits have been increasingly bucking the trend of when a nonprofit organization chases a potential acquisition; generally those companies seek to acquire another nonprofit organization. This makes sense, as nonprofits generally share a similar culture. The three most recent transactions involved a nonprofit acquiring a for-profit senior living community. Each of the three deals had a similar element – all three involved an acquisition by a nonprofit of a high performing for-profit senior living community with occupancy close to full capacity. This demonstrates the fact that nonprofit organizations are not in the business of risk; they generally search for acquisitions that will help the company to further its mission and provide financial benefit. This allows “the nonprofit to extend its mission within its primary market by strategically expanding its portfolio with a best-in-class facility. In addition to acquiring high quality physical plants…equally important to the acquirer that the seller was well-respected in the market in order to minimize any perception issues.”
Not only are nonprofit senior organizations working to acquire for-profit organizations, but some are even able to pay premium prices to acquire assets. For example, a Texas-based nonprofit Glen Hope Harbor recently purchased nine assisted living/memory care communities from AutumnGrove Cottage, for $29.5 million. That breaks down to $205,000 per unit, with a 7.3% cap rate. Experts say that this transaction involves acquisitions by much larger companies. The average price-per-unit for communities with less than 69 units is $124,700 with an average cap rate of 9.11%. The average price-per-unit for communities with more than 70 units is approximately $201,455, and the average cap rate, according to Lancaster Pollard is 7.49%.
Some nonprofit organizations are able to pay for such large acquisitions because of their eligibility for tax exemptions. Glen Harbor is fully exempt from property taxes for all AutumnGrove properties it has acquired. Nonprofits are also able to issue tax-exempt bonds in order to raise capital to finance acquisitions. Nonprofits also often have liquid assets available to help fund acquisitions, due to their distribution of cash flow restrictions. If a for-profit organization is looking to divest, it may make sense to start looking the way of nonprofits to acquire portions of your senior living and healthcare assets.
Contact Cambridge Realty Capital
Whether your company operates as a for-profit or a nonprofit corporation, Cambridge Realty Capital is available to assist with any merger, acquisition, or joint venture your company may plan. For any questions regarding finance and capital for your senior living initiative, contact Cambridge Realty Capital. Our experts are committed to working with you in every step of the financing process.