With federal relief propping up nursing home operations during the ongoing COVID-19 crisis, the mergers-and-acquisitions market has remained relatively stable over the past year — but buyers and sellers are already starting to adjust to a world where the full licensed bed capacity is more of a pipe dream than a realistic benchmark.

Amy Sitzman, senior director at the Chicago-based Blueprint Healthcare Real Estate Investors, said she’s fielded numerous calls from potential post-acute and long-term care investors looking for turnaround opportunities amid the upheaval of the pandemic. But so far, they’ve been disappointed to find a lack of suitable transactions.

“I’m not seeing people taking things to market that are in a dire need to sell thus far,” Sitzman said during SNN’s virtual Payments, Policy, and Capital summit earlier this month. “Not to say I don’t have any — I do have some — but the amount of interested people that want to see these facilities that are falling apart, or they think they’re going to fall apart, come to market haven’t really been happening.”

The federal government’s distribution of billions in aid to skilled nursing facilities, through the CARES Act and other programs, has generally scrambled operators’ and investors’ ability to accurately put a dollar value on nursing facilities. Expenses for personal protective equipment (PPE) and staffing remain elevated, and record-low census means that providers’ primary income stream will be depressed for some time.

Though the stimulus funding helped keep both stable and faltering facilities afloat, there have been some emergency situations where payroll and other expenses were in jeopardy — and the support hasn’t been enough to completely obscure long-standing operational problems.

“For the most part, the deals I’m taking to market — if they were hurting before, they’re still hurting now,” Sitzman said.

Colleen Blumenthal, chief operating officer at HealthTrust, has seen similar trends in her real estate valuation and advisory practice. The sellers in 2020 consisted of smaller firms looking to exit the space before a change in federal administration, and to potentially take advantage of low capital-gains taxes, Blumenthal said; buyers might have included strong operators exercising purchase options with landlords, as well as limited attempts at stabilizing wobbly portfolios.

But while deal volume was lower, according to HealthTrust data, per-bed pricing remained in excess of $100,000 — not a record, but an improvement over 2019, according to Blumenthal.

“For those that are committed to the industry, this is a great time,” she said.

In terms of evaluating a given building’s financial health, Sitzman and Blueprint have begun to rely on an internal metric they’ve deemed EBITDARC — the traditional earnings before interest, taxes, depreciation, amortization, and rent, plus a C for COVID-related relief.

“Do we think that the expenses will ever 100% go away? No,” Sitzman said. “There’s this new normal, but when you try and project ahead, you have to take out — or do your best to normalize — the expenses and the revenues to try and make sure that they are somewhat back to 2019 levels.”

The question of per-bed pricing will likely take on even more complexity over the coming years, as governments and operators start to question the utility of large nursing facilities.

One nursing home consultant made a splash earlier this year by encouraging operators to voluntarily relinquish bed licenses in order to create private rooms and potentially save on expenses based on overall capacity; the state of Ohio is mulling a plan to dole out a total of $50 million to owners in exchange for about 5,000 bed licenses as officials look to encourage investment in home- and community-based alternatives.

It’s a trend that Sitzman has seen in her work at the Chicago-based Blueprint, with deals increasingly underwritten to the perceived right-sized bed count and not the legal capacity of the facility.

“If something was 100 beds, but they really believe that this model, this facility is probably best at 75 beds, that’s what they’re going to underwrite to,” she said. “I actually find that in some of the facilities that I have, they’re not utilizing their licensed bed capacity.”

Blumenthal went a step further and predicted that census is unlikely to return to pre-pandemic levels unless operators reset the denominator and embrace lower-capacity buildings. Potential residents and their families have avoided nursing homes during the pandemic for a host of obvious reasons, from the very real risk of COVID-19 transmission to concerns about strict lockdown policies that have indefinitely separated loved ones.

But even after the crisis ends, demand for private rooms is unlikely to abate, and states could increasingly consider the outright ban of three- and four-bed wards.

That said, the traditional economics of a nursing home might not work at that lowered capacity. Blumenthal gave the example of a 120-bed facility with all double-capacity rooms.

“Does it still work at 60? I don’t know; maybe you keep it at 75,” she said. “I think that’s going to be the challenge, because I don’t think the census is going to come back to pre-pandemic levels unless you reduce bed capacity.”

But as with other observers of the bed-reduction trend, Blumenthal provided a caveat: Limited capacity could potentially serve the population of seniors for the next five or 10 years, but the swelling ranks of baby boomers aging into the need for more intensive post-acute and long-term care could create an access crunch somewhere over the coming decades.

“When we have a really large baby boomer population that didn’t save for private-pay seniors housing and has acute needs, I don’t know what we do then,” she said. “That’s a can that we’ll kick down the road for now, I suspect.”