Selling an Independent Living or Continuing Care Community

Occupancy is the first number

Occupancy tells a buyer more than any other single figure. They will ask for it by month, by unit type and by level of care, going back several years, along with move-ins and move-outs for each period. A community that sits at a steady level with a waiting list is a different animal from one that swings with each season. The pattern of who leaves and why matters as much as the headline rate. A resident who moves to a higher level of care inside the same campus is good news. A resident who leaves for a competitor because of staffing or food is a warning.

Buyers also want to see the pipeline. Lead sources, tour counts, deposits held and the time between first call and move-in all show whether the community can fill its units after the current residents leave. The person who runs sales and marketing is often central here, and a buyer will ask how much of the lead flow comes through that single person.

Average length of stay is a quiet driver of value. Longer stays mean fewer vacant units to fill and lower marketing cost. A community that has residents who have lived there for many years has a stability that a buyer can count on, and one with high turnover has to keep replacing them.

What the buyer is paying for

Buyers in this industry usually price the community on operating earnings after a management fee, then compare that to what the property would cost to build or buy. If you run the community yourself, a buyer will deduct a market management fee from the earnings, even when you pay yourself differently. Our post on SDE versus EBITDA describes why larger operations get valued on the second measure.

The mix of revenue shapes the price. Independent living units bring rent and meals with a lighter staffing load. Assisted living and memory care bring higher fees and a heavier load of staff, training and oversight. Continuum communities that offer several levels on one campus can keep a resident for the rest of life, which buyers like, and they also carry more regulatory attention and more things that can go wrong. Buyers will ask how much income comes from each level and what share of beds are in each.

Rate history is part of the story. A community that has raised rents each year in line with its costs, without losing residents, shows pricing strength. One that has held rates flat for years may have room to raise them, or may have a market that will not take it. A buyer will test both readings against nearby competitors.

Resident agreements

The agreements residents sign are among the most closely read documents in a sale. They set the monthly fee, what services are included, how fees can rise, what notice is needed to move out, and what happens when a resident needs more care. Some continuum communities collect an entrance fee at move-in and refund part of it later. Those fees are a liability that a buyer takes on, and they are priced into the deal.

Buyers will want a sample of each form of agreement in use and a list of every resident with their unit, their fee, their start date and their level of care. They will check whether any agreement has terms unlike the rest, such as a locked rate or a guaranteed unit. Rules about resident contracts, deposits and entrance fees differ by state, and your attorney confirms what applies to your community.

Resident privacy deserves care. A buyer does not need names and health information at the early stage, and we usually share unit-level data without names until a buyer is well along in the process.

The property

The campus is worth a great deal and can also hold the largest hidden costs. Buyers inspect roofs, elevators, boilers, air systems, fire alarms and sprinklers, kitchens and laundry, resident rooms, common areas, parking and grounds. They will order a property condition report and often an environmental review. A building with a long list of deferred repairs lowers the price by the cost of fixing them, and often more, since the buyer bears the risk of surprises.

Ownership structure matters. Some operators own the real estate, and some lease it from an investor who owns the building. A buyer may want to buy the operation and the property together, buy the operation and lease the property, or buy only the property. Our guide on real estate attached to the business explains how those choices affect the price and the structure. If the community is on leased land or in a building owned by someone else, the lease and its remaining term become central, and the landlord's consent is needed. See the lease is part of the deal.

Debt on the property also matters. Many senior communities carry loans that need the lender's approval for a transfer, or have to be paid at the closing. A buyer and their lender will want payoff letters and loan documents early.

People, licenses and quality

Staff turnover is a leading concern. A community depends on caregivers, cooks, maintenance workers, activity directors and a nurse or wellness director, and each of them has a relationship with the residents. Buyers will ask for an organization chart, tenure, pay rates, agency staffing costs and open positions. A high number of agency shifts usually means higher labor cost and weaker care.

Licenses and inspection history matter even for communities with a large share of independent living. Buyers will ask for license documents for any level of care, the last several inspection reports, any citations and the plans to correct them. Some licenses move with the business and some require the buyer to apply again and wait for approval, which can add months to the timeline. Rules vary by state and your attorney confirms what applies to your community.

Quality of life shows up in reviews, family feedback and referral relationships with hospitals, discharge planners and local physicians. Keep those records current. Residents' families often talk to each other, and a sale announcement handled badly can unsettle a whole building.

What tends to sink a sale

The problems we see most often are a falling occupancy trend that the owner explains away, deferred repairs no one priced, a license that cannot transfer on the buyer's timeline, a lender whose consent arrives late, and staff who resign when the sale becomes known. Another is an entrance fee liability that the seller forgot to disclose.

Confidentiality is critical because families and staff are the first to hear rumors. We market a community without naming it, and buyers sign a nondisclosure agreement first. Read how we market a business confidentially for the steps.

Getting ready

Begin with the data. Build clean monthly occupancy and revenue by level of care. Collect resident agreements, the unit roster, the staffing roster, license files and inspection reports. Order your own property condition review so you know what a buyer will find. Work through the deferred repairs you can fix. Look at your debt and what the lender will require. Plan who tells staff and residents, and when. Our post on how to prepare a business for sale covers the general sequence.

For a closer look at how buyers see this kind of property, the page on selling a senior living community is a good place to start. At Business Advisors of America we start with a valuation built from your own numbers and stay with you through the closing.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.