Trash to Treasure: Opportunities in Senior Housing Distressed Properties

With bank lenders keeping distressed assets on their balance sheets in the wake of a financial crisis that froze credit, some in the senior housing industry are beginning to see an opportunity in those assets. But that doesn’t mean it’s an easy deal to get done.

“We’ll go after any kind of turnaround deal that is a potential target for us,” says Rick Shamberg, Managing Partner of Chicago-based Cerulean Partners, which specializes in underperforming senior living assets. “They could be owned by a mom and pop, or a large portfolio or owned by a private equity firm,” he says.

In seeking opportunities, Shamberg says his company sees a lot of bank-owned properties that are underwater and unable to write down the losses right now. The opportunity can come in the form of loan modification, or working toward foreclosure to change ownership and then turning around the property to fill vacant units.


However, while there have been success stories, they may not be indicative of the larger trend, says Bobby Guy, a Nashville-based attorney specializing in distressed acquisitions and author of “From Distress to Success.”

“Traditional banking is not really backing distressed properties,” he says, noting that those who can work with those properties almost require apex financing, represented by extremely healthy balance sheets.

“It has gotten easier over last year or two,” he says, “but it’s nothing like it was before.”


With so many troubled properties on banks’ books, some operators are willing to explore the opportunities.

“There’s a lot of product out there that has been neglected,” said Matt Peponis of Greenfield Senior Living before attendees of the National Investment Center for the Seniors Housing & Care Industry conference in Washington D.C. this fall. “The banks have it on their troubled asset lists, they’re willing to work with us to make them performing.”

Greenfield recently closed on two of those distressed properties in Memphis, after two-year-long wait for the bank to move on the properties. Ultimately, he says, the bank was willing to work with the operator to turn the properties around.

“Even our major bank has done a full circle to be much more reasonable about what they expect and are looking for,” he says.

Some banks may be starting to move once again when it comes to these properties that remain on their books, but it doesn’t signal an overall shift, says Guy.

“We’re now at a point where there’s word that some covenant-lite loans are back, but it’s only at the upper end of the market,” Guy says. “In the mid-market, credit is still really tight.” Covenant “lite” loans, or those with limited restrictions on the debt-service capabilities of the borrower, were popular during the construction boom, but have all but vanished, Guy says.

Finding the right opportunity is important, but for those willing to put the time and effort into turning the assets around, there are plenty of deals out there to be had. Those who have been successful in the past may have some time to continue reaping the benefits.

“For those who can afford to play in the distressed market and have balance sheets to support bank underwriting, this time is a huge opportunity—the best in our lifetimes,” Guy says. He estimates it will be three to four more years before banks can write off losses and clear their distressed assets.

Shamberg says his company will be waiting on the sidelines in the meantime.

“A lot of investors thought it would be a mad rush to distressed assets. It’s more a trickle down approach over a longer period of time,” he says. “For the next five years this will be a desirable space.”

Written by Elizabeth Ecker