Downturn Forces Non-Profit Senior Living Communities to Find Alternatives to Survive

Unable to ride out the challenging market, an increasing number of non-profit senior living providers are seeking out a broader, more mission-compatible solution to serving their residents according to a report from Ziegler Senior Living Investment Banking.

“While in the past any number of for-profit companies likely would have been the acquirer of troubled or challenged non-profit communities, an increasing number of non-profit organizations have become actively engaged in reaching out to offer affiliation opportunities,” said Ziegler.

Data from the latest LeadingAge Ziegler 100 shows that from 2000-2004, 58 senior living communities were added to the portfolios of the LZ 100 through acquisition or affiliation.  Over the last five years, the number has increased by more than 25%, with 73 communities added to the LZ 100 portfolio. In 2009, growth by M&A surpassed growth by construction during the same five year period prior.


“This was the first time that affiliation has exceeded new community growth since the [lists publication],” said the report.

The downturn has had an impact on a range of property types, especially in the non-profit Continuing Care Retirement Communities according to Nick Gesue, senior vice president of Lancaster Pollard Mortgage Company.

“There has been a lot of pressure on operations and occupancies have been down,” said Gesue.  “Some properties are just struggling and it’s driving an increase in partnering with other organizations in join ventures or outright sales.”


Organizations that have a strong national presence are fairing better than the smaller regionals operations.  “They’re not in a position to weather the storm alone,” he said.

In order for the affiliation deals to work, the goals of all the organizations need to be aligned to ensure each organization and its residents would be enhanced by the affiliation.

Ziegler says that other factors like the need for capital to renovate aging campuses, increased competition, and operating efficiencies will lead an increasing number of non-profit organizations to realize they can’t ride out ongoing challenges alone and will consider affiliation as an option.

“The earlier the process begins to explore affiliations, the more likely a partner can be found that fits the hand-raiser’s mission, purpose and vision,” said the report.

Don’t expect for profit companies to remain on the sidelines completely.  During a call with analysts, John Thomas, executive vice president of Health Care REIT said healthcare reform and an incentive to consolidate has driven the non-profits to look for private capital in order to develop integrated facilities.

“[Non-profits] have not gone very active in selling their buildings as much as you would think, but the cost of capital between the tax-exempt municipal market where that has squeezed very narrowly to our cost of capital,” he said.  As a result, the company has had “a lot of opportunity and we see a lot more in the pipeline.”