Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
Even before they became deadly petri dishes for the worst pandemic in generations, many nursing homes were struggling to stay afloat and provide quality care.
Revenues down, expenses up
Revenues have shrunk because they are admitting fewer new residents in hopes of reducing the risk of infection.
The pandemic has caused problems in another way too. Many hospitals are postponing elective procedures that usually require short rehabilitation stints, taking away another source of clients. A very large fraction of a nursing homes most profitable business is post-surgical rehabilitation. And most of that business is now gone.
Since the start of the coronavirus outbreak, nursing home operators have also had to spend more money on protective equipment for staff. Technology to connect residents with relatives who are no longer allowed to visit…also required an investment.
The result is that some nursing homes, which often run on razor-thin profit margins, may be unable to pay their rent and other bills without government help.
It’s likely some nursing home chains will go bankrupt.
A struggling industry
Nursing homes care for about 1.5 million people in the US. 70% of the 15,400 facilities are run for profit.
While the financial picture for the industry, which also includes homes run by government agencies and nonprofits, was hardly rosy before the virus struck…it was especially precarious for many for-profit nursing homes.
Reimbursements from government programs like Medicaid are a main source of revenue for nursing homes, but operators have long complained those payments have not kept pace with the cost of care.
Quality of care falls with profits
Care inevitably suffers when nursing homes face financial trouble. More than a half-million nursing home residents lived in facilities rated “below average” or “much below average” in the federal government’s five-star rating system.
The lowest-rated homes were disproportionately operated for profit. Nearly half the residents in for-profit nursing homes lived in facilities where the federal government found below-average staffing levels, compared with 23% of the residents of government or nonprofit facilities.
For-profit nursing homes often rent their properties under long-term leases with annual increases.
Genesis HealthCare, one of the country’s largest for-profit operators, exemplifies many of the financial pressures.
It rents 70% of the 357 nursing homes it operates in the US. Genesis’ shares trade for under $1, in part because of investor concern over its $1.6 billion in debt and the $5 billion outstanding on its long-term leases. And nearly half the properties operated by Genesis scored two stars or lower in the government rankings.
More than 4,000 nursing homes across the US had coronavirus cases. More than 36,500 residents and staff members at those facilities have contracted the virus, and more than 7,000 have died.
Conclusion
Nursing home properties have been one of the few asset types that have lost value over the last few years…the virus is sure to drive sale prices even lower.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com