Out with the old… in with the new. Are you in or out?

By Steve Moran

While at NIC I had a conversation with Southern California senior living real estate broker Shep Roylance from JCH Senior Housing Group, a Senior Housing Forum partner. JCH specializes exclusively in the sale and lease of healthcare facilities throughout the nation.

Out With the Old

I know Shep best for his work brokering nursing homes in California, more specifically his ability to help sellers and buyers with distressed properties. During our chat, Shep explained that up until about 2-3 years ago assisted living comprised almost all of his business. But after getting one skilled nursing bankruptcy deal, it has snowballed from there and he has been getting a lot of California skilled nursing bankruptcies, including a couple of large portfolios. Last year more than 3000 nursing beds.

So the obvious question I asked Shep was that if he has been involved in so many bankruptcies, does that mean the skilled nursing industry is in trouble, or at least in trouble in California?

“No,” Shep stated. “What I see happening is there’s a lot of new rules and regulations coming down nationally in the skilled nursing industry. And there’s a lot of older skilled nursing owners and operators, mom and pop operators, and even some national chains that are over-leveraged, under-capitalized, and not keeping up with the changes in the industry. It was just a matter of time until there was either claw backs or what not within their operations that would hit them or lawsuits that drive them into bankruptcy because they were under-capitalized.

“Because of the new rules and regulations, especially just talking specifically about California, and the dual eligibility. Plus we’ve got the Affordable Care Act, we’ve got  readmission issues. Yeah, there’s a lot of mom and pop operators that are out there, there’s a lot of large companies that are under-capitalized and they can’t weather the storm. I mean, if there is a glitch or there’s a delay in payments or any type of clinical issue these companies they’re pretty fragile. They miss a couple of payments here and there and on a company-wide basis.”

In With the New

Shep and I talked about some of the development that Mainstreet is doing. They’ve become this huge, huge player. They will open something like 30 new buildings this year and 50 the year after. I was curious as to what Shep thought about companies like Mainstreet as he looked at the skilled nursing marketplace. Are they going to be a major disruptor? Won’t they make it a lot harder for the small mom and pops?

“I don’t think that what they’re doing is terrible at all. I think it’s really exciting and, of course, I’m a big believer in the marketplace.” Shep emphasizes, “Often times one of the things that brings the changes we need is a disruptive player like Mainstreet coming in and, it sounds cruel to say, forcing out the old or bad or old-time operators. But it’s kind of like Uber and taxis right, should we really be protecting taxis if Uber is doing a better job at a lower cost? I’m not sure we should.”

It’s Not About Location, Location, Location Anymore

“In real estate you always are told that it’s location-location-location, but that’s not our industry. It’s the care that we provide.” Shep clarified, “I have seen some of the most beautiful places in the most beautiful locations and they provide terrible care. And I have seen some locations that should not be doing well and they provide amazing care.”

Shep is right. At the end of the day, it’s not necessarily about the location, or even the building, it’s really . . . ultimately . . . about the care.