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Distressed Underperforming Senior Housing Projects: turnaround management & loan workouts

 Senior housing projects are getting back on track. And it’s understandable: senior housing facilities, assisted living facilities – nursing homes should be more profitable than gold soon. The population of Americans retiring will accelerate over the next two decades, creating unprecedented opportunities for builders, developers, operators and investors to produce new senior housing projects to fulfill this group’s broad spectrum of needs.

     It’s almost impossible to find an “attractive” nursing facility project  for sale now. I’m not talking about the small projects for 10-15 bed, I’m talking about the projects with more than a 100 beds, in a good location(close to clinic or hospital  with a relatively big territory) The projects that appear on market are sold fast, because the market operators understand that although the senior people tend to delay their moving into the assisted living  facilities, the demand is going to skyrocket as soon as the economy will stabilize.

   Nevertheless, there are still facilities there that are experiencing a negative cash flow, the owners of these facilities should seriously review their business plans and implement the necessary changes to their businesses.

   Although the economy is in distress the demand is high for this type of property and if the facility is owner operated, but doesn’t bring the desirable income, then maybe the owner should consider leasing the property to a nursing facility operator, who has more experience in running this business as well as the brand name in their support.
    The healthcare reform influenced the industry a lot. The senior housing property owners have to understand the market and that the facilities that are located closer to the clinics and to the hospitals will be more valued by the senior people. So you should market your facility keeping in mind this fact as well.

    Before seeking a loan workout for any commercial real estate, including senior housing projects a turnaround management plan has to be created. Turnaround management plan is a complex strategy of getting your business back on track, producing the necessary amount of cashflow,bringing the desirable amount of revenue etc.The turnaround management plan includes:

1) Cash flow forecast that is updated regularly

2) Clear vision and understanding the difference between projected revenue and a cash flow. A significant variance can be a signal to the problem

3) Strong marketing plan

4) Plan on working with the lending and other financial institution(s)

After you have this plan (or rather set of plans), you are ready to approach your current lender to discuss a loan workout for your senior housing project. Lenders are interested in having a performing note in their portfolio, rather than a non-performing. Even if a lender has in plans to sell your note later , the performing note still costs more than a non-performing, keep that in mind.

   There may be different approaches to get a desirable workout. But the main one is to carry the negotiations with the right person decision maker in your lending institution. Your request for a loan workout may lie in a stack of paper for months if you don’t do the negotiations with the right person.

    The other important aspect is that you have to know your options:  what kind of loan workout do you want to get: note a/b split? interest only payments? etc. Before going into the negotiation process, know exactly what you want and why this loan workout scenario will be more beneficial for your project.

Of course , you may hire an attorney, a loan workout specialist etc, to handle the negotiations ,the loan workout on your behalf. But you, as a property owner, have to know, what loan workout is being negotiated for your project and why exactly this loan workout scenario has been selected,what are the advantages and disadvantages of this particular scenario, how will it influence your project.

“Before hiring any professional to negotiate a loan workout on your behalf, do the due diligence: learn more about the company you are hiring “, says Lex Gubsky, CEO of MONEY WISE Financial & Legal Services,LLC “Read the agreements you are signing and know what loan workout scenario is being negotiated for your project and why. It is a fate of your project at stake. Remember: that short-term relieve solutions are good, but how they may affect you in a long-term perspective. If you are not sure about something you can always ask your question during our #loanmodchat on Twitter every Thursday 9pm ET. It’s free, anonymous and you can hear point of view of more than one professional”

Money Wise Financial & Legal Services is a full service commercial financing with extensive expertise in capital markets, distressed commercial assets (loans and real estate) investment advisory, commercial debt restructuring and turnaround management firm.

Over the past 7 years year of providing services to our clients: representing commercial real estate and business owners in analyzing and resolving wide variety of commercial debt and equity financing issues at both, single asset and at portfolio, levels, Money Wise Financial & Legal Services has grown to become a valuable asset for borrowers and lenders alike, advising and representing clients in negotiations with their loan services and “paper note holders” on Commercial Financing issues.