Lument: Senior Living Exit Strategies That Keep the Mission Moving: How Mom and Pop Owner/Operators Can Divest While Investing

A substantial segment of the senior living industry has always been occupied by what is often referred to as the “mom-and-pops,” the local owner/operators of one or two communities who are typically carrying on a family business. In many cases, these are faith-based, mission-driven organizations committed to the wellbeing of their neighbors and community. As such, continuing their work is a must, but that doesn’t mean the door is closed on possibly divesting of an asset and refocusing how they carry out their mission.

In fact, many mom-and-pop owner/operators may be finding that now is a good time to sell their senior living properties and retire from the industry. From staffing woes (including a looming national mandate), to rising interest rates, to keeping up with the latest state and federal regulations, there is no shortage of challenges for a sector that was difficult even before the pandemic hit. Maintaining margins as a mom-and-pop business is a Herculean effort, and those who succeed should be applauded. Those who wish to bow out gracefully, however, may find today is an opportune time to formulate an exit strategy, even with the challenging economic conditions we face.

Below, we discuss two examples of nonprofits that successfully divested of their only seniors housing and care asset. Both processes culminated with sales prices that exceeded expectations, allowing the sellers to achieve all their objectives while using part of the sales proceeds to invest in the future of their missions.

Sale of Miami Retirement Community

In the first example, Lument Securities, led by M&A Head Laca Wong-Hammond, served as financial advisor to the board of directors of nonprofit Epworth Village Retirement Community—the owner of a campus near Miami, Florida that offers the complete continuum of care—on the sale of the business to a private joint venture partnership.

Originally founded in 1948 as The Biscayne Home for Women, Epworth Village Retirement Community had deep roots in the Miami area, providing care to area seniors for 75 years. Located in Hialeah, Florida, approximately 13 miles northwest of downtown Miami, the campus consisted of Epworth Village, a 290-unit independent and assisted living (AL) community, and the Susanna Wesley Health Center, a 120-bed skilled nursing facility (SNF) that is five-star rated by the Centers for Medicare & Medicaid Services.

When the Epworth Village board of directors decided to sell, Lument Securities was designated to find a solution that would allow the board to achieve its goal of completing an outright sale for business operations for the entire campus.

The SNF enjoyed strong operations and could tout that it never had to use agency staffing, however the seniors housing portion was operating close to breakeven. There was, however, upside in the form of an opportunity for some immediate revenue capture through rent increases. Further, the property was well maintained, as the seller had invested more than $7 million in the campus in recent years.

The community’s appeal to buyers was further heightened by solid performance and the fact that services spanning the complete continuum of care were available for residents. However, its location in the high barrier-to-entry market of Miami perhaps drove interest and pricing the most. The highly competitive sale process produced nine letters of intent, two back-up bids and one eventual buyer, which was a partnership between two private owner/operators.

“Through numerous meetings, Laca and her team educated us on the marketplace and potential investors, negotiated terms, built consensus, and executed,” said Rev. Ruben Velasco, chairman of the special committee of the board of directors. “We are delighted with the ultimate result.”

The final purchase price significantly exceeded the seller’s highest expectations for the sale and will allow them to use the proceeds to form a charitable health plan to help subsidize patients’ and residents’ care in and around the community going forward, thereby continuing the group’s mission.

“Lument worked tirelessly to make sure our legacy in the local community would persist after the sale by vetting each party and guiding us throughout the process, including negotiating the retention of our loyal staff,” said Epworth Village Executive Director Madelyn Simon Lozano.

Sale of Philadelphia SNF

A similar story can be found with the single-asset, nonprofit sale of Saunders House, a 180-bed SNF that offers a broad range of care services. Lument Securities served as exclusive financial advisor to the board of directors on the sale of the SNF to a regional private operator.

In that deal, the property generated plenty of interest for its desirable location in Wynnewood, Pennsylvania, an affluent suburb along Philadelphia’s Main Line. The process led to nearly a dozen offers and a final purchase price that far exceeded the seller’s expectations. With the proceeds, the seller also formed a health plan to help provide senior care services to those in need.

“Our intention all along was to set up a foundation that would award grants to organizations in our community providing services to seniors, and we are currently getting the foundation off the ground,” said Kevin Ross, the community’s recently retired president and CEO. “That was the reason Lument held the line in negotiations with the seller on proceeds—and it also shaped their post-closing strategy. Lument fought hard to minimize the amount held in escrow for reps and warranties and to shorten the deadlines for those escrows to be released. They wanted us to have the full value of the proceeds as quickly as possible.”

Such success stories highlight the positive aspects involved in making the sometimes-difficult decision to sell a mom-and-pop community in the seniors housing and healthcare industry. To ensure an organization’s legacy is respected and well-maintained long after the initial sale, it helps to work with a partner that understands the importance of a mission and how to enhance and sustain one. Of course, being able to collect sale proceeds that exceed initial expectations helps as well.