29-Property Skilled Nursing Portfolio Deal Closes at $36K Per Bed

More than two-dozen skilled nursing facilities in Iowa are under new ownership, following the closing of a historic transaction this month.

The sale is the largest SNF deal ever recorded in The Hawkeye State, according to Marcus & Millichap, which closed the transaction.

ABCM sold its skilled nursing and assisted living assets to Chicago-based private equity firm Cascade Capital Group at $36,000 per bed, after deciding to exit the senior care market, according to a statement from Marcus & Millichap. The portfolio is made up of 29 properties, with 2,346 SNF beds and 326 assisted living units. That puts the overall acquisition at roughly $85 million.

The ABCM properties were marketed amid an evolving debt landscape before eventually going under contract with Cascade in the fourth financial quarter of 2023. Cascade manages 300-plus facilities across 19 states, or about 30,000 total licensed beds, working with 23 independent operators, according to the company’s website. The firm has transacted over $2 billion of real estate to date.

“We initially underwrote the deal close to Q3 of 2022, there were market changes that we had to weather, with the debt markets adjusting throughout our marketing process,” said Justin Knapp, first vice president of investments for seniors housing at Marcus & Millichap. “We had some good initial activity from a number of different investor groups, but the climate in the industry as a whole was not super positive based on evolving debt markets that weren’t working in our favor.”

Iowa specifically has a lot of impending reimbursement adjustments which at the time only contributed to volatility in the market, even though it ended up being a positive, Knapp said.

Hampton, Iowa-based ABCM is one of the highest-rated operators in the state, the brokers said, with all but two of its properties being 4- or-5-Star properties on the Five-Star Rating System. ABCM offers skilled nursing and long-term care, therapy services, independent and assisted living, along with home care and specialized services.

ABCM and Cascade had not replied to requests for comment from SNN as of press time. While it’s unclear what the operating structure will look like moving forward, Knapp mentioned that Cascade has their own operating entity.

Deal slowdown

The deal faced delays, brokers said, with Iowa implementing a new state Change of Ownership (CHOW) process.

Under the new state law passed in June of last year, a new owner must submit documentation showing that they meet a certain set of requirements before a license to operate is issued.

“It was a fairly lengthy process … it was a learning curve for [the state] as well,” said Knapp. “The state is now potentially requiring some hold back monies and some form of escrow more specific to distressed assets, the concern being what form of escrow is requested. It was more of a concern on the due diligence process phase.”

New owners must provide information regarding all related parties with a 5% or greater controlling interest in the applicant organization, including the related party’s relationship to the applicant organization, according to a review of Iowa’s new process from law firm Hall Render Killian Heath & Lyman.

Information regarding related party transactions and associated reimbursement structures needs to be provided as well, along with documentation showing financial suitability to operate a nursing facility, including financial projections for operational expenses and revenues.

Two more items needed under Iowa’s CHOW process: information related to the applicant’s regulatory history with any other state or licensing jurisdiction, and documentation relative to any other health care operations under the control and management of the applicant or related parties.

On top of all these new requirements, Iowa’s licensing department could request additional information like verification of cash or liquid resources to maintain nursing home operations for at least two months. The buyer may also need to create an escrow account to sufficiently fund operations for at least two months, something mentioned by Knapp. 

Reforms, staffing mandates and M&A

Iowa’s new law follows the Biden-Harris Administration’s announcement in November, requiring nursing homes to disclose additional ownership and management information. Under the final rule, facilities need to submit ownership disclosures within a year of the rule becoming effective – within two months.

The rule also established definitions for private equity companies and real estate investment trusts, setting the stage for identifying ownership types.

Last year, Iowa experienced a rash of nursing home closures, as operators struggled with headwinds such as inflated costs and lagging reimbursement. Rural states have also been hit especially hard by the staffing challenges plaguing the sector.

Other players looking to divest of nursing home assets, including Ventas (NYSE: VTR), have said certain markets have proven to be challenging due to state-specific staffing mandates. The real estate investment firm (REIT), also in Chicago, plans to sell $150 million in nursing home assets located in Pennsylvania.

So far, 24 of Ventas’ SNF assets have been sold or are under contract for sale with 3,719 SNF beds for a price of $94,000 per bed, and around 10% cash cap rate. This has led to a total of $350 million in gross proceeds with $200 million closed, and $150 million that are pending. Ventas is working on “de-risking” its SNF exposure due to a challenging Pennsylvania market, BMO’s investment analyst, Juan Sanbaria, said in an investment note.