Case Studies

Seniors Housing

Creating Successful Turnarounds with Opportunistic Acquisitions

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$8.2M A REIT-to-REIT Transaction: Portfolio Prosperity with Opportunistic Acquisition

When a portfolio sale creates opportunity for both the seller and buyer

The Background: Portfolio Repositioning 

Mergers and acquisitions in seniors housing is nothing new, but financial constraints throughout the rise of COVID-19 caused several owners and operators to reevaluate. Sometimes, shedding an underperforming property or facility is the gateway to financial health and stability. Conversely, acquiring an underperforming facility can also represent that same goal. 

During a growth phase, or when market opportunities abound, it can be enticing to acquire properties that may fall outside the typical geographical territories owners and operators specialize in. Initially, this decision may seem like a strategic investment, until that outlier property becomes the portfolio problem child. Logistically, it may mean that management and owners are less present because of the physical distance, or because the business model of that property is significantly different from the others in the portfolio. These scenarios allow a variety of operational challenges to creep in, often leading to decreased revenue and occupancy.

As the seniors housing and senior living landscape continues to shift post-pandemic, owners and operators are contemplating portfolio opportunities with an eye to remain competitive in the marketplace, and position themselves for financial health.  

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 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 are cash flow constrained at acquisition due to lower occupancy and higher relative expenses, 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 with a shorter timeline 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 and value-add acquisitions in the $1 million to $10 million range, specifically when an acquisition may not meet traditional lending requirements.

The Challenge: Underperforming Outlier

A large public REIT (real estate investment trust) was saddled with an underperforming assisted living facility that fell outside of its primary geographical footprint. Within their portfolio of properties, this facility was consistently struggling with census and operations, averaging 45-50% occupancy during the peak of the pandemic. With a desire to return to their core market, the sale of the assisted living facility was an opportunity to right-size their portfolio.

Enter Wilshire’s client, a private REIT with in-market expertise interested in adding that assisted living facility to their portfolio. From a strategic standpoint, this type of opportunistic acquisition aligned with this owner’s existing brand and market experience. With seasoned management and business development teams in that market, they could directly influence the turnaround of that assisted living facility and position it for positive cash flow.

When the assisted living property was acquired, it was quickly met with eight resident move-outs, dipping census from 50% to 43%. The next blow was the rise of a new COVID variant, further threatening occupancy. The new owner recognized that expediting the implementation of their strategic plan would be critical to positioning the facility for new residents and the greatest gains.

Creative Capital Through COVID

The Solution: Value-Add Acquisition

The smaller, private REIT was poised for success because of an opportunity to be competitive in the regional market by repositioning the facility at the right price point, with a building refresh.  Even before the plans to implement a facelift were fully realized, census began climbing as the broader community welcomed the ownership change.

The rebranding and refreshing included new paint, carpeting, furniture, fixtures, and more were upgraded, along with a new HVAC system, kitchen appliances, IT infrastructure, and security equipment.

“The larger REIT was very successful with their overall portfolio over the years, but this assisted living property became an outlier,” Wilshire’s CEO Don Pelgrim said. “For our client, the smaller, private REIT, the facility represented an opportunity.  Acquiring it at the right price provided the foundation necessary to refresh and reposition the facility as an addition to their portfolio with a prosperous future.”

Wilshire’s sage guidance and entrepreneurial approach enabled this private REIT to implement a plan to reposition and refresh an assisted living facility struggling with stabilization. From a financing perspective, the $8.2 million bridge loan was structured with holdbacks and reserves for payment, capital improvements and operations.  

The Impact: Sage guidance and entrepreneurial approach

First lien bridge $8.2 million
Unit Count 100 units, 109 beds
Pre-Acquisition Occupancy:  43% 

Post-acquisition the new management team focused on raising occupancy and began to generate several move-ins per month.  Once the value-add is fully realized and stabilization is obtained, the facility will be on target to generate a 56% gain over the client’s basis. This scenario highlights how the sale of a property benefits both parties for different, but equally important, reasons. In this case, both REITs walked away happy, and Wilshire saw the opportunity to provide debt capital to an experienced private REIT with the knowledge and knowhow to improve the facility.

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.