The population in the United States is aging fast. In 2009, the percent of people over the age of 65 was about 13%. The HHS (Department of Health and Human Services) has predicted that seniors will comprise about 19% of the US population.
Additionally, people are living longer and also having and expecting a higher quality of life and activity at later stages in life. What this converts to, in terms of businesses, real estate and other products and services related to senior health and living, is a growing demand and an expanding market for not just senior housing, but senior housing with demands for quality lifestyle and supplemental amenities.
While many people think of the obvious necessities they will require in terms of food, health and qualified lodging services, some investors and entrepreneurs are looking at alternative projects and businesses to serve the lifestyle demands this growing population will require. Creative entrepreneurs and investors will, no doubt, create new technologies, entertainment, and other leisure services and products to serve this expanding market.
While many family offices, hedge funds, advisors and speculators are investing in paper founded on senior and assisted living facilities, fewer are positioning themselves to develop or acquire competitive senior housing or assisted living projects as a solid, direct source of income or long-term investment. And while diversification is always a key to stabilizing and mitigating risk for an entrepreneur’s portfolio, ALFs (Assisted Living Facilities) are still predicted, by many experts, to be a very viable investment for the next few decades, as it is still an under-served market.
What does it take to develop or acquire an Assisted Living Facility?
There are many ways to structure a project for either acquiring an Assisted Living Facility or Senior Housing Project, and there are also many legal hurdles, depending on the kinds of services offered, the State, County and City in which the Facility is developed, and the kinds of tenants that are served in the facility. The purpose of this article is not to give legal counsel or to cover the technicalities of developing, acquiring or rehabbing an Assisted Living Facility, but is a general guideline for getting private financing or funding for a Senior Housing Project or ALF.
First, get your management team assembled.
In medical arenas, not just anyone is qualified to own a dental office because of licensing and legal barriers. In the Assisted Living space, there is more flexibility as long as your compliance issues are covered. If you are considering building or acquiring assisted living facilities or senior housing projects, one of the first things you’ll want to assemble is a management team.
Your management team is the #1 key to getting funding, as well as building a stable and compliant senior housing business once the project is developed or the business is acquired. Begin your process by interviewing several owners and managers from different counties and states, as well as those nearby if they are willing to speak with you. Investing some time networking and interviewing these individuals will reveal not only great information to help you become equipped, but will often lead you to other relationships who can become long-term resources or team-members for your business.
Included in these valuable, collateral relationships might be architects, lawyers, accountants, insurance agents, business brokers, private investors, hedge fund managers, family office investors, commercial real estate brokers, other ALF owners or senior housing managers, etc. Building a network of professionals who serve the assisted living market can be one of your most valuable resources along the way, as well as after your business is well established.
Next, get your first project or acquisition aligned.
While you are researching possible Assisted Living Facilities and locations to purchase, rehab, or develop, you will gain a great education around the industry as a whole. This will require you to tap into the relationships you have begun to develop in the previous step on building your management team. Sometimes business brokers can be a great resource, and sometimes they can be a bit of a hindrance, especially if they have no experience in the ALF or Senior Housing market. Be sure to vet your brokers thoroughly to be sure they have experience and resources, and are focused on not only helping you attain financing for your assisted living facility, but are also interested in seeing the financing structured properly so that your business will thrive once it is funded and operational. A good broker will be interested in a long-term relationship as well as helping you to become successful in the long run. If you get the intention or impression that your broker contact is more of a “deal junkie” and is just interested in moving as many projects to funding so he or she can collect a fee, then you may want to consider working with a different broker who is more of a relationship builder. In the private funding arena, as well as the assisted living business market, great relationships with the right people can literally be worth millions.
Get ready for project funding. . .
While you are building your possible project portfolio and management team, you will want to speak with as many professionals in the private and conventional banking arena as you can, in order to figure out the best financing structure and resource for your first Assisted Living Project. In most cases, you may have to me much more flexible in terms of splitting equity, incurring fees, financing costs and corporate structures to get your first project under your belt. The education you will gain on the way to successfully funding your first Senior Housing Project or Assisted Living Facility can literally add millions of dollars to your next project and your long-term net worth.
Be willing to invest thousands and tens-of-thousands now in order to learn and gain millions long-term. If you do not have those kinds of personal funds, consider finding a personal, private equity partner who can help in the up front costs. Considering that the average in-state annual public college cost averages about $23,000 to $33,000 (depending on the statistical source), and that many college students do not have a job secured after 4 years, but do have significant 5 to 6 figure debt, what makes more sense? Many of these students will also require 10 to 25 years to repay all of their college debt.
Now, consider that it takes $30,000 to $100,000 to gain an education and fund an assisted living facility that will cashflow, depreciate, and will also be a possible leverage asset for future business development or acquisitions. Yet, very few people balk at sending their children to college for 4 years at an expense of $100,000 on average, with absolutely no guarantee of a career or degree that will lead to a viable career, but will guarantee a very sizeable and often life-long debt to you or your child. Financial common-sense would tell you that investing in your own professional path to funding a successful senior housing facility will not only build your net worth, but will put cashflow into your pocket each month if structured properly and will position you to springboard into many future quality investments and projects.
There is a Pareto principal or sometimes called an 80/20 law (developed by Vilfredo Pareto – Italian Economist and Engineer 1848-1923) that applies to nearly everything in nature, including human behavior and business, economics and finance. Essentially, it states that 80% of people will be employees, while 20% will be entrepreneurs, business owners, etc. That is a generalized split of course, and in different industries, those figures may actually be closer to a 95% / 5% split or even a 99% / 1% demographic. Only 5% will take the less common route toward wealth development, while 95% will walk the employee route for life. This is not a negative assertion about being an employee, as without employees, most businesses could not be successful or operate i.e. without dedicated, viable employees who serve and are paid for their time and expertise.
There is also a Pareto principal that applies to projects and entrepreneurs seeking funding for projects.
In other words, there are quality clients as well as clients who should not be seeking funding for one or more legitimate reasons. Many people who are in the process of seeking conventional or private funding are not at a place, either experientially or financially, to be a qualified client for a private investor. In other words, with private capital and equity, the source of funds acquires most of the risk (i.e. the investor). By educating yourself as an entrepreneur / business owner, surrounding yourself with a great team, developing solid business plans and equipping yourself to persist through the private capital funding process, you can be far more likely to attain funding and developing a successful business or portfolio of businesses.
With which demographic will you aspire to affiliate yourself?
5th Avenue Capital is in the business of funding projects and acquisitions ranging from $1M to $1B in the United States and throughout the world. To begin your relationship with our team, contact us here.
