Case Studies
Bristal Assisted Living
Engagement
The owners of a highly successful seniors housing property group desired to capitalize on their accomplishments while retaining management control. The 640-unit portfolio consisted of four stabilized assets of superior quality in one of the most affluent regions of the country. A fifth facility was still under construction with a grand opening scheduled sometime during the portfolio marketing process. The portfolio included independent living, assisted living and Alzheimer's facilities.
Challenge
The owners were insistent that this matter had to be kept strictly confidential and that a "typical" auction process would be unacceptable. Furthermore, their valuation expectations and desire to remain as manager suggested that this would be a logical acquisition for a platform motivated, investor entity that was seeking a dominant position in the lucrative NY metropolitan marketplace.
The Process
The marketing process consisted of a comprehensive evaluation of each facility and the portfolio's complex bond financing structure. Once this review was completed, a secure web site and marketing prospectus was prepared. The process used by SHGA was an exclusive "BY INVITATION ONLY" approach that was targeted to a handful of savvy, institutional investors that SHGA had relationships with and perceived as being appropriate investors.
Outcome
The owners realized values on a per unit basis that had never been realized in the industry. Through SHGA's efforts and with the valuation and packaging skills of our prominent transaction support consultant, HealthTrust, the portfolio was under a Letter of Intent within a matter of weeks. The transaction closed at $290 million including the fifth property that was not stabilized prior to closing. The international investor consortium that bought the portfolio retained the existing management.
Sunshine State Portfolio
Engagement
The owners of a 460-unit IL/ AL/ MC four-asset portfolio of older properties wanted to retire and consider liquidation of their business interests. SHGA was selected to assist the partners and come to a resolution on whether to attract new capital and a new operator for the venture or to proceed with the disposition process. Ultimately, the right decision was made when they told us, “After 25+ years, we’ve had enough. Get the job done!”
Challenge
Good news. Bad news. These IL/ AL/ MC assets, while strategically situated in prime locations within one of the deepest seniors housing markets in the US, were classic under-achievers. Low occupancy rates, physical plants and common areas in dire need of upgrade, and the non-existence of financials that would support a realistic market valuation were just a few of the hurdles.
The good news was that the supply of new competition in the market was limited. Due to high development costs and the barrier to entry for entitlements, the portfolio was prime for a value-add investor. SHGA needed to present a compelling case to investors for the infusion of significant capital given the likely inability to initially attract financing.
The Process
The client was concerned about confidentiality and did not want their legacy assets being “shopped” to the market. With less than 60 percent overall occupancy and cash flow limited by an underachieving management team, SHGA structured a “By Invitation Only” process to attract the most viable acquisition candidates. We offset the lack of historical financials or projections with a comprehensive portfolio overview and a thorough market study.
Outcome
With compelling demographics and reasonable pricing expectations from the client, the sales process was initiated. Five strategically qualified investors were identified and invited to consider the opportunity. Within weeks, one entity was vetted and decisions were made to proceed with a value-add investor who was aligned with an exceptional management team.
The $56MM transaction was concluded in a mere 120 days from start to finish. The change in management and the infusion of capital has resulted in substantial investment returns to the private equity buyer.
European Advisory Services
Engagement
SHGA was selected by a European real estate investment fund to explore the acquisition of private pay seniors housing facilities in their region and, potentially, in the United States. The client’s overall knowledge of the industry was limited, so interaction with senior-level acquisition and investment management executives was important.
Challenge
The market-rate seniors housing industry in Europe is not concentrated in any one country. This makes it difficult to acquire sizable portfolios and to also comply with regulations and licensing requirements. Compounding the problem was the limited number of high-caliber operators throughout the region who could potentially improve operations and thus achieve investment expectations. Transaction data for the European seniors housing industry is sparse and thus the ability to secure financing is difficult for new industry participants. Our client is affiliated with a major financial institution, which greatly enhanced their ability to secure financing.
SHGA initially provided the client with a baseline of overall US seniors housing trends. Lessons learned, success stories and realistic investment parameters were detailed for the client.
We were then asked to review European market and industry information compiled by the client and to explore potential acquisition opportunities. One country was selected for initial consideration.
Outcome
As a result of our efforts, the client made a portfolio investment and is considering additional acquistions on the continent and selectively in the US. In the US they are seeking off-market acquisitions for both their value-add and core investment funds.
Merrill Gardens
Engagement
One of the largest international seniors housing owner/operators was looking to expand its US portfolio with a high-profile acquisition capable of accretive growth for its shareholders from day one. Their interest was to identify potential acquisition candidates with a critical mass of stabilized assets and a brand name that would complement the client's prominent US seniors housing operations. SHGA was retained on an advisory basis to identify specific entities that might consider an "off market" transaction without going through the auction process and to provide guidance in negotiations.
Challenge
SHGA identified several possible portfolio investment candidates of which the Merrill Gardens portfolio was one. Merrill has a stellar reputation among both consumers and the financial community. Their platform is solid and they are developing new projects primarily in the western US. SHGA suggested that the southern portion of Merrill might be an interesting investment play given the synergies of operations between the companies and the potential to integrate a portion of the non-strategic Merrill assets into the client's portfolio. It was imperative that the principals on both sides establish reasonable expectations and a significant level of trust. The numbers would have to be very aggressive for the Merrill principals to consider a transaction involving choice assets while they were still growing.
The Process
SHGA facilitated a trusting dynamic between the principals. From opening dialogue to initial documents, the process was accomplished in a matter of several months. Once the principals agreed to the terms of a transaction, the due diligence efforts commenced with a focus on the financial viability of this multi-facility acquisition. No on-site inspections were allowed until Merrill had received assurances that the deal was financeable and approved by our client's Board.
Outcome
Through everyone's good will and perseverance, this $347 million transaction of 31 choice independent living and assisted living facilities closed quickly and satisfactorily, increasing our client's US asset base by more than 40 percent.
Western Regional Portfolio
Engagement
SHGA was retained to evaluate the investment alternatives for a portion of their portfolio and recommend an approach to maximizing partnership investment returns. Of paramount concern to the owners was how a "process" would be orchestrated given that the owner would continue to own and operate other senior facilities in the region. Their reputation in the marketplace was of the highest caliber with operating performance well in excess of industry standards. Accordingly, there was no margin for error in handling the disposition of these institutional-grade facilities.
Challenge
The client invested many years in refining an operating platform that resulted in high consumer satisfaction levels and a staff of professionals that was a model of excellence in the region. SHGA had to skillfully work below the radar screen to protect the integrity of the portfolio.
In addition, while there was favorable assumable financing in-place for a new investor to obtain, the process with a GSE lender would need to be adeptly handled for a transaction to be concluded. While SHGA took the lead on the real estate component, the owner's financial advisor assumed the responsibility for the financing assumption. The tandem process was challenging at many levels and through a coordinated strategy the end result was successful.
The Process
Because of the unique circumstances, SHGA limited the exposure of the portfolio to a pre-selected group of seven new investors; several with their own operating capabilities. The process involved extensive discussions with principals of the potential acquiring entities to determine their level of interest and ability to execute in a timely manner.While value was an important consideration, if the acquirer was also an operator, SHGA's client needed to carefully evaluate a new competitor entering the regional seniors housing marketplace. Every effort was made to vet their potential impact on the remained of our client's portfolio.
Outcome
Within three weeks of initiating the “By Invitation Only” process, our client received five acquisition proposals. A well-capitalized, publically traded Asian investment fund was selected along with their experienced US seniors housing operator. Once the financing assumption process was completed, the transaction successfully closed at $76 million.
