Strategic Acquisitions: Value-Add Opportunities
$5.4M Assisted Living Facility
The Background: How small to medium-sized operators leverage acquisitions for dynamic growth
Strategic and value-add acquisitions can take on many shapes and sizes in the seniors housing real estate industry, from an experienced operator looking to expand their business footprint with new facilities to an owner that sees potential to enhance a facility to increase revenue. In both examples, these are strategic business decisions made to enhance growth and ultimately enhance services to seniors.
Strategic acquisitions are part of an acquisition strategy to purchase another property because the combined properties or the consolidation of the properties becomes more profitable together than alone (i.e., an assisted living owner acquires a another facility to gain economies of sale and enhance its portfolio and revenue).
A value-add acquisition is an acquisition involving 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 focus on providing bridge loans and capital strategies to finance these acquisitions by providing capital in the $1 million to 10 million range, specifically when a project may not meet traditional lending requirements.
The Challenge: Acquisition + Reposition
Wilshire helped an experienced Florida operator finance the strategic acquisition and repositioning of a Senior Living Facility, resulting in improved occupancy and growth. As a strong operator in the Florida market with a stellar regulatory reputation and a history of turning around problem-laden facilities, they saw an opportunity to acquire an underutilized assisted living facility and reposition the existing footprint.
The operator’s vision, combined with Wilshire’s creative financing strategies, capitalized on an opportunity that few others saw. While it involved some regulatory hurdles, the operator knew this acquisition represented an opportunity to bring value to the facility’s business model, and the customer too. Rather than being the most expensive option in the market with all private suites, the operator converted private units in the facility’s existing footprint to accommodate semi-private units. This reconfiguration decreased the revenue-per-bed but increased the overall cost-per-room, thereby expanding services to more seniors in the market as a moderately priced option and increasing the facility’s gross income. Seniors who otherwise would not have been able to afford such a nice community, can now enjoy this community at a reasonable cost of entry. Additionally, the operator was undaunted by the regulatory changes that required capital improvements, such as changes to the safety and security systems.
Capital to Capture an Opportunity
The Solution: A capital partner that saw the potential
Because of this operator’s stellar reputation and track record on previous projects, Wilshire knew it was partnering with a solid provider who could get the job done. That track record and industry prowess created confidence in the lending process for the acquisition. Due to the nature of this deal and the regulatory approvals required, the operator knew traditional financing would be unavailable under the circumstances (which included an acquisition, repositioning, capital improvements and regulatory approvals). As a result, the operator needed a capital partner that saw that potential and had a balance sheet that could infuse quick capital into the acquisition and repositioning.
With Wilshire’s sage advice and entrepreneurial approach, Wilshire became a one-stop-shop for all the capital requirements needed, and in turn, was able to quickly close the deal in 45 days. From a financing perspective, Wilshire structured the deal as a first lien bridge loan and a second lien participating bridge loan with deferred payments, which allowed the operator to use cash flow from the building to execute on the transition plan.
The Impact: Execution Certainty
The assisted living facility was purchased in 2018 for $4.3 million. In 2020 it was valued at $6.6 million and today the current valuation is approximately $11 million. This acquisition represented a savvy operator who saw an opportunity to not only create cash value but provide much-needed services to seniors of moderate income. Shifting from initially 54 licensed beds to 80 licensed beds and increasing occupancy to 89%, the community is on the cusp of stabilization and is well positioned to receive permanent financing in the coming months.
If you are an owner or operator that sees potential 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.