Success Stories
Seniors Housing
Opportunity + Obstacles: A Non-Linear Journey to Assisted Living Acquisition
Opportunity + Obstacles: A Non-Linear Journey to Assisted Living Acquisition
Seasoned Owner-Operator Sees Promise in Opportunistic Acquisition
The Background: From Foreclosure to Financially Viable
Every acquisition has its twists and turns, but the journey from foreclosure to financially viable isn’t always foolproof. When a seasoned seniors housing owner and operator saw a 107-unit assisted living facility languishing in neglect, he saw promise in improving conditions for residents, while breathing new life into the property on the path to profitability.
In a tale as old as time, a once rosy business partnership fractured, resulting in finger pointing, lawsuits, and jeopardizing the assisted living facility’s licensure and quality of life for residents. The infighting among owners was so contentious that the assisted living building fell into disrepair, and they stopped making mortgage payments, sending the facility to foreclosure.
Navigating the financial maze of foreclosure, bankruptcy, due diligence, purchase and sale agreements, and more, sealing the deal was filled with twists and turns due to a myriad of unexpected complications. From ongoing negotiations and licensure transition to immediate capital expenditures, this opportunistic acquisition was not a transaction for the faint of heart.
Fortunately, the marriage of an experienced owner-operator with a track record of turnarounds, paired with Wilshire Finance Partners’ sage advice, entrepreneurial experience, and capital backing, made this opportunistic acquisition possible.
Opportunistic Acquisition: As the name implies, opportunistic acquisitions are marketplace opportunities representing 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 turnaround 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.
At Wilshire Finance Partners (Wilshire) we are in the business of financing opportunities, whether that’s to acquire a single facility or several facilities. We provide bridge loans and capital strategies from $1 million to $10 million to finance opportunistic and value-add acquisitions, specifically when an acquisition may have twists and turns that do not meet traditional lending requirements.
The Challenge: A Soured Partnership Sends Facility Spiraling
A trio of business partners envisioned a CCRC (continuing care retirement community) that would span across multiple parcels of land. An initial 60,859 square foot building was constructed, straddling several parcels, offering 107 assisted living units. Their once chummy partnership sours, leading to disputes in ownership and allegations of financial mismanagement, along with stalling future development phases. The owners stopped paying on the mortgage and the property was in foreclosure. The assisted living facility’s license was suspended and after bankruptcy was filed, a receiver was appointed to replace the owners as debtor in possession and maintain operations. During that multi-year transition, the facility’s equipment was not maintained, nor were any improvements made, and occupancy dipped to 68%. Several air conditioning units were broken and an unrepaired hole in the roof created extensive water damage and mold. The main phone system was inoperable, along with a sewage grinder in disrepair. The outdoor pool languished in a perpetually closed state due to a broken pump.
Each day navigating the acquisition presented new challenges. In another unexpected twist, the land parcels were all under different ownership, further complicating an already convoluted ownership agreement, with ongoing lawsuits between owners creating noise in the background. The licensure transfer was also stymied at varying points due to liability concerns, with the receiver unwilling to enter into an operations transfer agreement.
While the owners bickered, employees were left to fend for themselves without adequate direction and oversight, resulting in ineffective operations and apathetic attitudes.
Creative Capital at Work
The Solution: Persistence Pays Off
Wilshire’s senior housing expertise and smart capital enabled this seasoned owner-operator’s vision to make it over the finish line. The path to closing the deal was peppered with surprises and turns at every juncture, but because of the new owner-operator’s positive perspective and unrelenting persistence, those challenges became opportunities. While the winding path was less than ideal, most traditional lenders and banks would have run for the hills. Wilshire was crucial in navigating the winding path to ownership, offering sage counsel and insights, as well as executing strategies to overcome the acquisition’s challenges. This is one of many situations where bridge capital can provide flexibility in unconventional circumstances.
For the new owner-operator, there was an urgency to rectify languishing problems to provide residents and their family members with a community that was clean and safe, while also restoring trust. After working closely with regulators to obtain licensure, new leadership was appointed and sprung into action implementing long-overdue changes. Fortunately, the new owner-operator’s team already had extensive in-market experience, owning and operating three other assisted living facilities nearby. This knowledge allowed the team to rapidly implement changes yielding the biggest impact for residents and occupancy rates.
The first order of business was assessing staffing capabilities and changes, while mold remediation was underway. Replacing broken air conditioners and an out-of-order pool pump were immediate wins. During the foreclosure process, several vendors went unpaid and became disgruntled. This was another area where the new leadership team prioritized paying outstanding bills and worked to repair strained relationships. Deferred maintenance that was deferred for too long was corrected, while new capital improvements are underway. From enhancing resident programming and refreshing the building’s look and feel, occupancy has already started to increase in a few short months.
“The challenges don’t stop when you close, that’s actually when the real work begins,” Wilshire’s CEO Don Pelgrim said. “In this deal, there were challenges before and after closing. Backing a talented assisted living owner and operator with a tenacious vision, years of experience, and the drive to do right by residents is what made this acquisition worthwhile.”
Regional teams with in-market experience have the best success rates in senior living and seniors housing. It underscores how crucial it is for owners to have in-market expertise or to integrate knowledgeable operators from within that market.
Wilshire’s flexible financing facilitated an $13 million bridge loan with reserves for capital improvements, outstanding vendor payments, interest reserves and operating reserves. The new owner-operator also contributed $5.64 million of their own capital to the acquisition. With all the positive change underway, and the opportunity to create approximately 40 additional independent living units, the community is positioned on the path to profitability.
Financing Focus
As an experienced capital partner, Wilshire’s entrepreneurial approach and smart bridge loan solutions helped this owner-operator navigate unexpected challenges, funding their path forward to an opportunistic assisted living acquisition.
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 the twists and turns of financing. 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.
To learn more about Wilshire Finance Partners call us at (866) 575-5070 or visit www.WilshireFP.com
