Case Studies

Seniors Housing

Patience and Persistence Pay Off with Opportunistic Acquisition

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$5.6M How one operator overhauled staffing to create value

 

The Background: A Seasoned Operator Sees Potential  

Over the last two years the senior living and seniors housing industry has been pummeled throughout the pandemic. Workforce retention and dwindling occupancy, along with exorbitant costs for PPE (personal protective equipment) and added infection control measures created a perfect storm of profitability problems.

Now, owners and operators are faced with rising inflation costs and sustained staffing shortages. For those operating assisted living facilities, where Federal relief has been slow to gain traction, some are deciding to close the business altogether. For other owners and operators, these types of challenges also create opportunities in the marketplace—specifically, opportunistic and value-add acquisitions.

Opportunistic Acquisition: As the name implies, opportunistic acquisitions are marketplace opportunities that represent risk and challenges, but simultaneously have tremendous potential for the right operator and management team. These acquisitions are the most complicated projects and may not see a return on investment for a few years. To be successful, an experienced owner or operator must helm an opportunistic acquisition with a talented in-market management team to make the turnround possible. Opportunistic facilities often have little to no cash flow at acquisition and low occupancy, but present potential to produce a tremendous amount of cash flow once changes are made.

Value-Add Acquisition: A value-add involves a facility that may have poor occupancy and little cash flow at acquisition, but strong upside potential once the issues are addressed by the buyer (i.e., value-added to the facility or business model).

At Wilshire Finance Partners (Wilshire) we are in the business of financing opportunities. We focus on providing bridge loans and capital strategies to finance opportunistic acquisitions in the $1 million to $10 million range, specifically when an acquisition may not meet traditional lending requirements.

The Challenge: Regulatory Delays & Status Quo Staff

A seasoned operator in Northern California saw an opportunity to acquire two assisted living facilities that were struggling with senior-level mismanagement and regulatory ramifications. Not only were operational practices in question with citations for poor care, but unsurprisingly occupancy was floundering too.

With 30 years’ industry experience, this operator knew that with the right staffing members and the right plan, these facilities could thrive once again. For senior living and seniors housing providers, staffing challenges are nothing new, but in a poorly managed facility during the peak of the pandemic, the right staffing can prove even harder to come by.

The best leaders and operators know how integral staff are to the success of any seniors housing community and how those same individuals can make or break the quality of resident care. Even with thorough due diligence and strategic analysis, it can still be hard for experienced operators purchasing a facility to know which staff members are worth keeping and which individuals need to go. Opportunistic acquisitions where problems persist are akin to peeling back the layers of an onion. Once ownership officially changes hands, the immersion process begins to fully understand the most pressing issues and how to create operational alignment.

Aside from staffing challenges, and continued citations, the licensure process was taking longer than expected due to pandemic-related pressures on regulatory systems, creating delays and a backlog of paperwork.

Patience and persistence can create successful turnarounds

The Solution: Patience & Persistence Pay Off

As an interim step after acquisition, the new operator created a transitionary period of licensure until a new license could be obtained. During this time the team focused on rectifying regulatory citations and evaluating existing staff. A few months in, it became clear that added staffing cuts were needed to eradicate persisting problems. Unfortunately, some existing staff members were unable to embrace the recent changes. As a result, the operator brought in one of their trusted Administrators from an existing facility to transform staffing; that decision proved pivotal as shortly thereafter citations ceased, and a new license was granted.

These difficult, but necessary changes paved the way for new licensure and brought the facility another step closer to stabilization. The path to profitability isn’t always a straight line of progress, sometimes it requires twists and turns along the way to realize the vision.

“While this was a highly structured deal in partnership with an experienced operator who also contributed their own money to make this transaction happen, it reiterates the reality that patience and persistence can create successful turnarounds,” Wilshire’s CEO Don Pelgrim said.

Wilshire’s creative and entrepreneurial approach enabled this operator the time necessary to course correct an often-cited facility and embark upon the path to stabilization. From a financing perspective, the $5.6 million bridge loan was structured with capital improvements, a payment reserve, and an added reserve for 15 months’ worth of operating deficits.

The Impact: Creative Capital & Growth

First lien bridge: $5.6 million
Unit Count 121 units, 167 beds
Pre-Acquisition Occupancy:  54%  
Post-Acquisition Occupancy 72%+ growing 

This operator’s vision needed time and patience to come to fruition, something that many lenders aren’t willing to negotiate on. However, Wilshire saw a solid plan with a savvy regional operator well-versed in seniors housing and healthcare administration and knew that patience and persistence would pay off.

Today, the facility is approaching 72% occupancy and is climbing. Management continues to generate net additions to occupancy each month while controlling operational costs. Stabilization is anticipated by year end.

If you are an owner or operator that sees opportunities in the marketplace, you need a capital partner that can help make your vision a reality and creatively solve financing challenges. Wilshire is a leading private debt fund delivering capital solutions from $1 million to $10 million for seniors housing and healthcare real estate. As a boutique firm that combines institutional sophistication with an entrepreneurial edge, we’ve got you covered. 

Let’s talk today about how Wilshire can help you achieve your goals.