Should You Buy a Distressed Senior Living Facility? Key Questions to Ask and How to Uncover Deal Breakers

Purchasing a distressed senior living facility can be an exciting opportunity to revitalize an underperforming property. But, like any big investment, it comes with its share of risks. 

So how can you determine if it’s the right move? 

In the following checklist, our CJBS Senior Living M&A experts will break down the critical questions you need to ask and how financial due diligence can help protect you throughout the transaction. 

Think of it as your roadmap to navigating the world of distressed senior living acquisitions.

Let’s dive in. 

Firstly, Why Buy a Distressed Facility?

Here’s why a distressed senior living property may be worth considering: 

Lower Purchase Price
Distressed facilities are often priced below market value because they’re struggling in one way or another. That could be financial difficulties, operational inefficiencies, or declining occupancy. Savvy investors can evaluate if this lower price point can present an opportunity to acquire an asset at a discount, especially when compared to well-established facilities in better financial shape.

Opportunity for a Turnaround 

Whether the issues lie in inefficient management, outdated processes, or poor marketing, there is often room for optimization with a distressed facility where you may have the chance to apply your expertise and leave an immediate impact on performance (while also reducing cost).

For example: 

• Improving staff retention
• Enhancing resident care services
• Modernizing facility infrastructure 

Increased Demand in Senior Care
Baby boomers (59 to 78 years old) represent 20.58% of the U.S. population, reports Consumer Affairs. Research by the National Investment Center for Seniors Housing & Care reveals that more than 800,000 new facilities will be needed by 2030. 

Yet, many facilities are struggling because of poor management, outdated services, and/or financial mismanagement. Senior living M&A can be an opportunity to meet that demand with a property that, with the right changes, can become competitive in its market. 

If you can successfully turn around a distressed senior living facility, you may see long-term rewards like a stable source of income for years to come. 

Here’s How Due Diligence Helps You Uncover Risks in the Senior Living Industry

Armed with the right questions and expertise behind you (such as with a specialized accounting firm like CJBS), you will be able to: 

• Spot hidden liabilities that can save you from inheriting costly surprises. 
• Avoid relying on optimistic seller forecasts and confirm revenue and occupancy projections are grounded in reality.
• Make sure the facility generates enough revenue to cover its costs or if more investment is needed to turn things around.
• Identify operational red flags like inefficiencies or overspending that could be remedied by immediate improvements.
• Verify there are no hidden violations or fines that could lead to penalties later. 

Here’s What to Ask When Considering a Distressed Facility 

Before you sign any contracts, we’ve got a comprehensive (though by no means complete) list of questions to ask yourself and the seller to figure out if this property is the right fit for your investment goals. 

1. What’s Behind the Distress? 

Is it poor management, outdated facilities, or a shrinking market?

You’ll want to understand the root cause of the distress to get a clearer idea of how much time and money you’ll need to invest to turn things around. 

2. What Does the Facility’s Financial Health Look Like? 

Are there signs of financial instability like declining revenue or high debt?

Review the facility’s financials over the past few years to see if there are patterns of losses or red flags that might suggest deeper problems. If financial issues are long-standing, the road to recovery might be tougher.

3. What’s the Market Like Around the Facility? 

Is the facility in a competitive location with other well-established senior living options?

Look at the local competition. Are there similar facilities nearby, and how do they compare in terms of services and reputation? Knowing the competitive landscape will help you decide if you can carve out a niche or if you’ll be battling for market share.

4. Are There Regulatory or Compliance Issues?

Does the facility have any pending violations or legal disputes?
Distressed properties often have regulatory problems that could make the acquisition more complicated. Check if the facility has any unpaid fines, licensing issues, or any other legal hurdles that could impact your ability to operate.

5. What’s the Condition of the Facility’s Infrastructure and Staffing?

Are there maintenance issues, and how’s the staffing situation?
Outdated infrastructure or staffing problems can add significant costs and delays to your turnaround plan. If there are major repairs needed, or if the facility is understaffed, it might take a lot of time and resources to get things back on track.

Wrapping It Up: Risks and Rewards 

Though not without its challenges, buying a distressed senior living facility can be a great opportunity to turn around an underperforming property.

If you’re considering purchasing a distressed asset in this industry, partnering with a trusted advisor like CJBS ensures that you’re equipped with the knowledge and expertise needed to make a sound investment.

Ready to take the next step? Let CJBS help guide you through the process with our comprehensive financial due diligence services.

Contact our team here to schedule a consultation.