Attorneys are among the roster of clients that GRS Group serves, and Richmond, Va.-based LeClairRyan uses the firm’s expertise in survey and title due diligence to help facilitate deals. One of the specialties in LeClairRyan’s commercial real estate practice is the long-term care sector. Joel Nied, a partner at the firm, is part of the group managing this initiative. He took some time recently to talk to us about the ins and outs of this often-overlooked commercial real estate sector.
Tell us about the long-term care initiative LeClairRyan is starting.
LeClairRyan has a long history with the long-term care industry. Within our litigation group, we have attorneys who focus on nothing but assisted living and skilled nursing facility professional liability defense. We have others who have received favorable rulings on the enforceability of arbitration provisions in residency agreements.
We also have a group of transactional attorneys who focus on LTC acquisitions and financings. They have handled HUD loans (for both borrowers and lenders) throughout the country, as well as conventional loans for owners and operators of single facilities and portfolios.
What really brought everything together, however, has been the recent addition of two attorneys: Lew Morris, the former Chief Counsel of the Department of Health and Human Services Office of Inspector General, and Ted Doolittle, who oversaw Medicare and Medicaid healthcare fraud investigations across the nation in the Obama administration.
At that point, we had all the components – litigation, transactional and regulatory – of a supremely robust long-term-care-industry practice group. We decided to solidify communications and resources among our colleagues. The results for our clients have been spectacular.
How does this sector differ from multifamily? Is operations/management more present?
The division between the operations and assets of a long-term-care facility are much more dramatic than those in a multifamily property. It is not uncommon for a third-party property management company to run a multifamily property. The property manager, however, typically oversees the property owner’s employees. The tenants, in addition, are tenants of the property owner.
In a long-term-care facility, however, it is common for a third party operator to lease the facility from the property owner, which then in turn enters into residency agreements with the residents. The operator enters into something resembling a triple-net lease with the property owner. All of the employees of the facility are employees of the operator. The structure has a number of benefits.
What is the transaction climate like right now? Is it as hot as multifamily?
One of the reasons multifamily has been hot has been the uninterrupted availability of a government-insured loan program throughout the Great Recession. The same program, with a few wrinkles, exists for long-term-care facilities. As a result, there has been plenty of money for acquisitions and refinancings. In addition, despite the existence of large national LTC operators and REITs, the industry remains fragmented, especially in the assisted-living-facility space. Over the past few years, there has been an ongoing consolidation of mom-and-pop facilities into portfolios, which have then been bought by REITs and national outfits. That trend will continue for years.
Are we seeing any new types of investors enter this product type?
Investors that have historically focused on other asset classes, such as commercial, hotel and multifamily, have gotten their arms around the LTC asset class. They have learned how to analyze and invest in them. A lot of credit goes to the National Investment Center for the Seniors Housing & Care Industry (commonly called “NIC”), which has done a great job of educating the larger investment community.
Do lenders generally view these assets as stable and favorable or is there not the level of familiarity they have with other CRE sectors?
There is a significant number of lenders who focus exclusively on the long-term-care space. In addition, a number of banks have developed an expertise in the sector. Those lenders that have knowledge of the industry find both LTC operators and property owners to be stable borrowers.
Are there parts of the country that tend to do better than others? (People might think Florida and Arizona have a lot of action because of the perception of the number of retirees there, for example?)
Popular retirement communities have a high concentration of long-term-care facilities. That being said, people get old everywhere. A prudent investor will take into consideration reimbursement rates and other factors, in addition to the concentration of potential residents.
How is Obama Care impacting the sector, if at all?
That’s an article for another time. LeClairRyan has an Affordable Care Act team. I’m sure they would be happy to tell you more than you ever wanted to know about that topic.
Tell us about your relationship with GRS Group. Why did you choose them as a firm and what services have they provided that have been helpful?
If a client plans to buy or refinance a long-term-care facility, my first call is to GRS Group. Financing long-term-care facilities can be tricky. There are unique survey and title issues. Tackling those sorts of projects without the right team won’t provide the service and results my clients demand. GRS Group is an indispensable component to that team.