Installation #3 – Acquisition Criteria

(In response to many questions recently about what we do. H/t to @AdamB1438 for inspiring this series, particularly this post.)

We're on the market for two particular categories of senior housing assets. Note for the lay participant, senior housing refers to independent living, assisted living, and memory care facilities. These do not include skilled nursing facilities (SNFs) - different product altogether.

1. Semi-stabilized buildings w/in-place cashflow. Fairly agnostic on vintage (we recently bid several portfolios of 30yro Midwest assets in good condition). Primary & secondary markets. Qualify for GSE financing (right now most comfortable with Freddie requiring 85% occ, Fannie is bidding to lose). Minimum $20MM total capitalization. Pricing at an 8-9% cap on in-place, leaving room for a slight lift with remaining occupancy bump and new operator efficiencies.
2. Distressed, new vintage (<5yro) buildings. Typically opened before/during COVID and lease-up stalled. Can have negative CF, but we require an all-cash purchase for these with, therefore, a much higher return threshold. Not willing to take on debt service risk for a turnaround with an indeterminate timeline (these are slow ships to turn and don't flip like, say, strip malls with a few tenant changes). Must have a very high level of conviction in the market w/little/no new supply nearby. "Discount to replacement cost" is meaningless today.

Exclusions:

1. No buildings under ~80 units. Some on here have figured that smaller unit count out (respect), but we need to be able to amortize director-level costs across a health unit count.
2. No standalone MC. A) the market frowns on these - even if you can arm twist a lender today (good luck), odds are the exit opportunities are small/non-existent down the road. B) The reason for A is the lower margin combined with higher volatility (one resident = greater % of census, shorter stay times).
3. There are geographies that are fundamentally harder. Hurricane territories are an operational nightmare. Some states are lawsuit-happy. <- FL meets both of these criteria rn. That said, we look at deals anywhere in the lower 48. Notwithstanding the above, we're looking at ~every deal right now b/c the only deals that approach making sense have a story to them. But don't expect me to jump up & down over a standalone MC in Palm Beach. 

These are point-in-time criteria and subject to material change. The macro outlook and industry evolve, and we flex with it while not sacrificing fundamentals.