Assisted Living Broker Opinion of Value: How Development and RCFE Licensing Can Transform a 114-Bed Los Angeles Opportunity

For owners considering the sale of a larger assisted living facility, determining value involves considerably more than applying a price per bed or capitalization rate to current operations.

Real estate value, existing cash flow, resident contracts, licensing, physical plant, expansion potential, entitlement risk, construction costs and the facility's future licensed capacity can all materially affect what a sophisticated buyer may ultimately be willing to pay.

This is particularly important with assisted living and Residential Care Facilities for the Elderly (RCFEs) in the 50-to-200-bed range.

Matthew Hustad of The Hustad Group was recently sought out to provide a Broker Opinion of Value and strategic consulting for a unique assisted living development opportunity near USC in Los Angeles. The assignment illustrates an important question that many assisted living owners eventually face:

Is it better to sell a facility in its current condition, or complete additional improvements and licensing work before going to market?

A Potential 114-Bed Assisted Living Offering in Los Angeles

The opportunity consists of two assisted living properties being evaluated as a combined offering. Based upon the owner's current development objectives, the properties have prospective target capacities of approximately:

• Facility One: 64 beds
• Facility Two: 50 beds
• Combined prospective capacity: approximately 114 beds

These figures represent prospective target capacity and should not be interpreted as currently approved or licensed capacity. Final capacity remains subject to the applicable governmental, building, fire-life-safety and licensing approvals.

That distinction is critically important when valuing an assisted living development.

A property that has the physical potential to accommodate 50, 64 or 114 residents does not necessarily have the same value as an operating facility that has already completed the improvements, governmental approvals and licensing necessary to legally operate at that capacity.

Understanding the difference is one of the reasons specialized assisted living brokerage experience can become particularly valuable.

Sell Now or Complete the Development?

The owner originally considered selling the real estate and assisted living operation with the licensing and improvements in their existing state.

Following Matthew Hustad's valuation work and consulting with ownership, another strategy is now being carefully evaluated: advancing the project through additional development, construction, approval and licensing stages before offering the completed opportunity to the market.

Why?

Because eliminating development uncertainty for the next buyer can potentially change both the buyer pool and the manner in which investors value the opportunity.

An investor purchasing an unfinished assisted living development must account for remaining construction costs, approval risk, licensing risk, time, carrying costs and uncertainty regarding the ultimate resident capacity.

A substantially completed project presents a different investment proposition.

If an owner can successfully move a project closer to its intended capacity, establish the necessary approvals and demonstrate sustainable operating revenue, the property may eventually be evaluated more like a stabilized assisted living investment and less like a speculative development opportunity.

The difference can be substantial.

Why an Assisted Living Broker Opinion of Value Is Different

A conventional commercial real estate Broker Opinion of Value may analyze comparable sales, capitalization rates, price per square foot, replacement cost and prevailing market conditions.

Those metrics remain important, but assisted living valuation can require several additional layers of analysis.

For larger RCFE and assisted living properties, Matthew Hustad evaluates factors such as current and prospective licensed bed capacity, resident revenue, payer mix, operating expenses, staffing, licensing status, fire clearance, physical configuration, development costs, change-of-ownership requirements and the potential value created by completing improvements before a sale.

The objective isn't simply to answer, "What is the building worth today?"

The more important questions may be:

What is the enterprise worth today?

What could it potentially be worth after additional approvals and improvements?

How much capital and time will be required to reach that point?

What execution risks remain?

And does the potential increase in sale proceeds justify completing the work rather than transferring that opportunity to the next buyer?

Those questions can completely change an owner's exit strategy.

The Importance of Revenue Quality and Payer Mix

The Los Angeles facilities are particularly interesting because they serve a population that includes programs and payer sources associated with veterans, CalAIM and California's Assisted Living Waiver (ALW).

The operation also has existing contractual relationships that can contribute to a more predictable revenue model than an entirely private-pay facility starting without an established referral or reimbursement structure.

This is another area where a simple price-per-bed calculation may fail to tell the entire story.

Sophisticated assisted living buyers frequently examine not only how much revenue a facility generates, but where that revenue originates, how repeatable it is, reimbursement characteristics, occupancy stability and the likelihood that the revenue can continue following a transaction.

A facility with established referral channels or contractual revenue may therefore require a substantially different analysis from a vacant building that simply has the potential to become an RCFE.

Real Estate Value and Operating Value Must Be Analyzed Together

Larger assisted living transactions frequently combine several distinct components of value.

There is the underlying real estate.

There is the operating business.

There may be licensing and going-concern value.

There may be development or expansion potential.

There can also be significant value associated with improvements already completed to satisfy accessibility, fire-life-safety or assisted living requirements.

Understanding how these components interact is particularly important when transactions reach the $5 million, $10 million, $20 million, $50 million range and beyond.

The highest value does not necessarily come from simply placing a property on the market.

Sometimes the better strategy is completing a specific improvement.

Sometimes it is increasing licensed capacity.

Sometimes it is stabilizing occupancy.

Sometimes it is restructuring the transaction so that the real estate and operating business are presented appropriately to qualified buyers.

And sometimes selling immediately is the correct decision because the additional capital, execution risk and time required to reach stabilization do not justify the potential increase in value.

The analysis should come before the marketing strategy.

Specialized Representation for 50–200+ Bed Assisted Living Facilities

Matthew Hustad brings more than 25 years of real estate and business experience to the valuation, acquisition and disposition of senior housing and assisted living assets.

His specialization in California RCFE and assisted living transactions provides an additional perspective for owners whose properties cannot be adequately evaluated as conventional multifamily or commercial real estate.

This becomes increasingly important with 50-to-200-plus-bed facilities where a transaction may involve sophisticated investors, experienced operators, lenders, attorneys, licensing professionals, contractors and multiple governmental agencies.

For an owner, the brokerage assignment should therefore begin well before a property is advertised for sale.

The first step should be understanding exactly what is being sold and determining how the property and business can be positioned to maximize value.

Preparing a Larger Assisted Living Facility for Sale

Owners considering selling a larger California RCFE or assisted living facility should consider conducting a pre-sale valuation and operational review before establishing an asking price.

That analysis should address the current real estate value, operating performance, licensed capacity, potential capacity, necessary capital improvements, licensing status, resident revenue, payer mix and likely buyer profile.

It should also evaluate whether completing additional work before marketing could generate an adequate return on the owner's additional investment.

The USC-area Los Angeles project is an example of precisely why this process matters.

What initially could have been marketed as an as-is assisted living and real estate opportunity is now being evaluated against the potential economics of advancing two facilities toward prospective capacities of approximately 64 and 50 beds, creating an approximately 114-bed combined offering.

The ultimate decision will depend upon construction requirements, governmental approvals, licensing, timing, capital investment, operations and market conditions.

But that decision is now being made with a clearer understanding of both present value and prospective value.

That is the purpose of a specialized Assisted Living Broker Opinion of Value.

Considering Selling an Assisted Living Facility in California?

Owners of larger assisted living properties often begin preparing for a sale months or even years before the actual transaction.

For owners of 50-to-200-plus-bed RCFEs, assisted living facilities, memory care properties or senior housing developments, early planning can provide time to address licensing, improve financial performance, complete strategic capital improvements and position the asset appropriately for sophisticated buyers.

Matthew Hustad and The Hustad Group provide specialized brokerage, valuation and consulting services for California assisted living and RCFE owners, including transactions in the $5 million-to-$50 million range and beyond.

Whether an owner is considering an immediate sale, evaluating a future exit, completing an assisted living development or deciding whether additional licensing and improvements will create sufficient value before selling, the process should begin with an informed analysis of the real estate, business and regulatory components of the opportunity.

For owners considering their next step, a confidential Broker Opinion of Value can provide the starting point for determining whether to sell today, improve and stabilize the operation first, or position the facility for a larger institutional or experienced-operator transaction.

Considering Selling a Larger Assisted Living Facility in California?

Owners of larger assisted living properties often begin preparing for a sale months or even years before the actual transaction. For owners of 50-to-200-plus-bed RCFEs, assisted living facilities, memory care properties and senior housing developments, early planning can provide valuable time to address licensing, improve financial performance, complete strategic capital improvements and position the asset for sophisticated buyers.

Matthew Hustad, founder of The Hustad Group, provides specialized assisted living brokerage, Broker Opinion of Value, valuation and consulting services for owners throughout California. With more than 25 years of real estate and business experience and extensive specialization in RCFE and assisted living transactions, Matthew works with owners evaluating transactions ranging from $5 million to $50 million and beyond.

If you are considering selling an RCFE, assisted living facility, memory care property or senior housing development in California, contact Matthew Hustad and The Hustad Group for a confidential discussion regarding valuation, market positioning and your potential exit strategy.

Matthew Hustad
The Hustad Group
California Assisted Living & RCFE Brokerage, Valuation and Consulting

https://matthewhustad.com/california-rcfe-assisted-living-broker