Resurrection Health Care recently agreed to buy Des Plaines-based Ballard Rehabilitation, a skilled nursing facility, for $22 million at a 9.53 cap rate.
Senior Living Investment Brokerage negotiated the sale in a sealed-bid process that attracted six bidders, with Resurrection wining out with the $22 million all-cash buy. The original asking price was set at $25 million.
Ballard currently has 191 operational beds, but it is licensed for 231 beds, making the price per-bed $95,238. It is typical that hospitals and acute care facilities have more beds licensed than are operational. While the per-bed price does put the transaction in the upper echelon of recent sales, the closing cap rate of 9.53 is considerably lower than comparable sales.
“Cap rates are typically around 12-13 percent,” says Michael Cooper of Cooper Valuation Group, a firm that specializes in appraising healthcare facilities. “I have not seen anything that low. The buyer was motivated.”
Ryan Saul, managing director for Senior Living Investment, brokered the deal on behalf of Eli and Mark Pick, long-time owners of Ballard. The facility has been family-owned for 34 years.
Saul says that nursing facilities do not come on the market very often and that new construction is virtually non-existent, as all proposed facilities must be go through a certificate of need process with the state. It is difficult to obtain approval and the majority of new construction is seen as replacement product for older facilities, with no new licensed beds being added to the census.
“A lot of investors chasing available product right now,” says Saul. “Opportunities don’t come on the market that often.”
Another motivating factor in the purchase has to do with recent reimbursement changes to Medicare and Medicaid. In the Medicare system, nursing home patients are assigned a classification based on medical conditions and the resources needed to provide care. This is known as a Resource Utilization Group (RUGs) category. In October of 2010, Congress passed Resource Utilization Group, Version Four (RUG-IV), in an effort to enhance the process. In the new version, the number of RUG categories increased from 53 to 66 and Special Care was split into Special Care High and Special Care Low.
Some facilities have experienced a negative impact on reimbursement rates due to the new version of RUGs, however, because most of Ballard’s patients are high-acuity, it was not adversely affected, says Saul.
This distinction made Ballard a less risky and attractive buy.
Saul says that it would be very difficult for the Ballard facility to utilize all 231 licensed beds as it is currently set up. Resurrection could choose to sell the rights to the additional beds to other hospitals in need, but this is rarely done.
Resurrection Healthcare owns nearby Holy Family Nursing & Rehab in Des Plaines, a facility less than a mile from Ballard. Saul says that the healthcare provider may transfer some of its higher acuity patients to Ballard.
