For operators feeling the excruciating slowness of the certificate of need (CON) route to expansion, or are hitting a roadblock with moratoriums on new skilled nursing beds, many are opting to acquire bed licenses from other operators.

The option offers another way to grow across state lines, or in an existing market.

Still, bed license transactions need to be approved through each state’s Department of Health or CON program before the deal can go through, said Ben and Brandon Bohland, managing partners at Toledo, Ohio-based Senwell Senior Investment Advisors.

The brothers focus a lot of their time brokering bed licenses between operators. The Bohlands discussed what transaction trends they’re seeing at this point in the pandemic, and challenges to getting the deal done.

Senwell is a mergers and acquisitions investment advisory firm specializing in the skilled nursing and seniors housing industry; the team has experience with licensed transactions as well as facility and portfolio transactions.

This conversation has been edited for length and clarity.

So the majority of operators opt to expand via license transactions?

Brandon: If you’re acquiring the bed licenses from another operator, you’re essentially on an equal playing field. Meaning if someone were to call us and say they’re interested in moving into a new state and they want to develop a new nursing home or several new nursing homes within that state, they could go about it one of two ways — they could acquire bed licenses from an operator or they could file for a CON through the state.

Ben: This isn’t for every state because every state has different laws on how you can transfer beds and even if you can transfer beds. For example, it’s very rare that a state will actually issue new beds … It’s very rare. There’s a difference between CON law and a moratorium on beds. If there’s a moratorium on beds, that state generally will not issue any new beds so the only way that you can build a new nursing home is acquire them from another operator.

If everyone’s trying to acquire facilities this way it’s likely a competitive endeavor, right?

Ben: It’s very competitive. And, in fact, that’s why people work with us to try to identify what beds are in fact available. We’ve been working with a lot of buyers who are coming to us saying ‘I need beds and I need to expand in this market.’ However, we’re finding it more and more difficult to actually find sellers, where these buyers are actually looking. If we do find a seller, especially post-COVID, we’re seeing multiple buyers come to the table, where we may not have seen multiple buyers in particular markets before — we’re seeing those today.

So a more diverse buyers market?

Brandon: We’ve seen a pickup in the diversity of clients we work with.

Ben: We’re hearing from buyers that we haven’t heard from in the past. If you have a traditional operator that only acquires existing properties, that price-per-bed transaction amount has increased so much that some of these buyers are now considering building new. We’re getting calls from people that are seeing such higher transaction costs, that they’re now considering building new and having a brand new product in the market to compete when they might have been traditionally Medicaid operators but now they’re considering the Medicare side because transaction costs have been so high. We’ve gotten several calls just within the last few months alone, hearing from those operators and giving us specific requirements on where they would like to build.

How does this different buyer mix affect types of deals?

Ben: You’re seeing the operators that are traditionally buying existing assets looking to build new, but also the volume of transactions have increased so much that when you acquire an asset, everybody has a different strategy.

Where does Senwell come in, with these differing strategies?

Ben: You have some Medicare operators that like the private rooms, and with some Medicaid operators, the more beds the better. I’m working both sides of that equation right now in Kentucky and both sides in Ohio and both sides in Indiana. These are all situations where the buyer recently closed or they’re about to close, they’re saying, ‘hey, [this facility] has 100 beds and I want to add 20, or I want to take away 30 — whatever their strategy is we’ll work with them on that. If it’s a new construction project, they’re typically looking to acquire that for a brand new, private room [facility].

We’re seeing an uptick in the amount of calls that we’re getting because incoming buyers have different strategies than the sellers had with that particular asset.

Brandon: Maybe they have rooms that they’re using already but they choose to do semi-private for Medicaid or maybe they have assisted living that they’re converting to skilled nursing.

Any other factors at play when it comes to acquisition strategy?

Brandon: There’s typically more staffing requirements for Medicare; a Medicare patient, they’re going to see more touches throughout the day than a Medicaid patient. And so, if staffing is a concern, then you might have some operators willing to add more beds just for Medicaid-type patients.

Ben: Bed taxes come into play in several states, where those can get extremely expensive, where if your occupancy is 50% and you’re paying half the bed tax bill, it makes sense to sell because that’s going to help your bottom line.

What challenges are you seeing to completing bed license transactions?

Brandon: State requirements say that you can’t, the seller can’t sell the beds to someone else as long as they’re not moving to an area that would provide a disservice to the people where the beds currently reside. So for example, if you’re selling if you’re serving a Medicaid population, and then you sell the bed to someone who’s going to do short-term rehab, the state may or may not approve that.

Varying state laws complicate deals too?

Brandon: There’s some states where if you acquire a facility, you acquire that CON with that facility. Some states, you can’t sell a portion of those beds. So you can’t sell 20 of those beds to an operator, to a buyer.

Everything has to be done through the state and get approved. There’s some states where you can take a smaller amount of the beds that are tied to that CON and sell a portion, but then there’s other states where you can’t. Sometimes, the CON is tied to that real estate, and in some states you can move that CON, but it’s got to be the entire CON and you got to move it somewhere else, to another location. If it comes with 147 beds, you can’t sell a portion of it, you need to move that 147 beds to a new site, and that amount can’t change.