As Senior Housing Non-Profits Struggle, Are Acquisitions More Appealing?

While the economic downturn has impacted all segments of senior housing finance and construction, it has also taken a toll on a particular part of the market—non-profit institutions that run senior housing facilities.

Non-profits are struggling generally in light of the downturn, with many reporting that they have had to cut staff and resources due to lack of steady funds. Non-profits surveyed in the Washington, D.C. area in 2010 by the Center for Nonprofit Advancement noted that services provided by non-profits are in high demand, yet many have had to close down or suspend programs since September 2008.

Nearly half (48%) of those surveyed said they have experienced revenue reductions from 10% to 50%. Another 46% said they have used or lost some portion, if not all, of their operating expenses in 2010. Thus, non-profits may have more reason to put their senior housing facilities on the acquisition block.

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“You see the full range of folks looking to acquire,” says Mike Ashley, vice president, health care banker for Lancaster Pollard. “Where you’re seeing it is where you’ve got either a standalone non-profit that has one senior living facility or few and is looking to get out of it, or a non profit that has some other components to their mission besides senior living.”

The Freshwater Group, a senior housing financing group based in Tucson, Arizona, has seen more of the deals lately in light of the down economy.

“Non-profits are seeing troubled times,” says Carl Mittendorff, vice president and senior analyst. “We’re seeing more and more non-profit deals come up to the surface.”

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The deals vary greatly in what a non-profit may be looking to accomplish by becoming acquired, but often unloading the operations to a larger, more specialized organization that can manage the property to scale has some appeal.

“Often what they’ll be looking for is an opportunity to operate a facility more efficiently,” Ashley says, noting the economies of scale a large operator can provide. “A larger portfolio can operate more efficiently.”

While there may be more opportunities arising for large operators to purchase non-profit facilities, the deals require extra consideration in a few areas.

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“Transition is the important key,” says Mittendorff, noting that in some cases, taxes are not built into the non-profit structure. Freshwater, which has non-profits in its pipeline, has experience with the acquisitions, and due to its operations, has had success transitioning properties in the past, Mittendorff says.

“Sometimes staffing is mismatched,” he says. “In many cases the benefits package we bring and our support structure as a for profit, are viewed as huge resources.” Cultural differences are another word of caution, with many of the deals including post-closing terms on behalf of the non-profit, which is looking to maintain its culture.

Mittendorff notes a recent acquisition, Watermark at East Hill, which closed in 2007. “I know we were not the highest bidder, but we were the most desirable operation because the board felt confident in our ability to take care of the residents,” he says.

The timing for non-profit deals can also be very different due to the board structure.

“Timing can potentially be an issue,” Ashley says. “A non-profit might not make a decision as quickly. [There may be] layers to the decision process and to reach consensus of the board to reach a decision.”

But the benefits in the current market may make non-profits worth looking at, as traditional profit-seeking companies look to grow in light of steady demand.

“If you’ve got the for-profit side growing, they may be more aggressive in seeking out those [non-profit] opportunities,” Ashley says.

Written by Elizabeth Ecker

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