“If you have considered expanding your portfolio of long-term care properties, there is no better time to do so than now,” said Cambridge Realty Capital Senior Vice President Brent Holman-Gomez. “Opportunistic buys of long-term care properties have become much more abundant.”
The reason for this excess is due, at least in part, to a combination of lower inflation’s more predictable business environment while there are continued high interest rates. This can open up opportunities for operators with good business plans while sellers are pressured by credit constraints. It is a good market situation for some operators who are in a position to obtain financing for additional properties. Holman-Gomez reported that sale prices are well below cost or average values per unit, with the most striking opportunities being underperforming communities and even those losing money on operations. A low price is an absolute benefit throughout the lifecycle of your business plan: it’s permanent, while interest rates are temporal.
Of course, these properties are priced lower because they are more of a challenge for raising capital. Additionally, current capital markets make all deals difficult due to negative leverage on many properties. Nevertheless, assured Holman-Gomez, “sponsors with experience and some equity capital are set to take advantage of this dislocation in the market,” he conjectured, adding that experience with similar types of business plans for opportunistic deals in the past is a critical factor.
He also stressed that working with the right lender can be the key to taking advantage of the current situation and obtaining a deal on a property. “Borrowers need knowledgeable mortgage banking partners that have contacts at a wide variety of lenders to find the opportunistic best fit.” He added, “Experience with similar types of business plans for opportunistic deals in the past is a critical factor.”
Finding the best financing is crucial in these types of situations, and mortgage leverage is always key to equity investors’ goals. “Cambridge is successfully sourcing mortgages for properties, even for these opportunistic situations not supporting debt service,” Holman-Gomez stated. “Banks are selectively able to offer funding, particularly when there is some positive cashflow or cross-collateralization with other properties,” he acknowledged. “However, Cambridge is seeing specialty and private lenders offering very compelling financing that can be competitive with banks and yet offer more flexibility that is frequently needed on opportunistic acquisitions.”
While attitudes suggest interest rates may fall, with credit markets anticipated to remain tight this year, there isn’t any advantage to putting off buying. In fact, dropping interest rates could result in many of these opportunities disappearing. “2024 may be your best year to build up your portfolio, as sellers have their motivations forced by credit,” Holman-Gomez postulated. “Cambridge is excited about these opportunities and how the current market situation is proving to be advantageous.” He also reminded that Cambridge’s experience in the senior living industry means borrowers have the advantage of working with a lender who thoroughly understands the industry and has a vested interest in creating a successful, mutually beneficial partnership.