The senior housing market is a rapidly-growing commercial real estate (CRE) sector with historically solid returns. Year over year, investors have seen returns as high as 13% or more, even in the midst of economic downturns. So it’s no surprise that investors and developers are attracted to senior housing opportunities.
The demand for senior living communities is expected to accelerate over the next 20 years due to the aging senior population. People are living longer thanks to advancements in healthcare and technology. As a result, the number of seniors is rising, and the demand for designated housing arrangements with amenities that serve this population is growing. And since senior activity is a “needs-based asset”, meaning the people who live there rely on the services and amenities it provides, it’s not impacted by the ebbs and flows of commercial real estate. Thus, demand will only continue to rise.
Although senior housing projects are good investment opportunities, there are common challenges in creating and managing senior housing entities that must be considered. For example, licenses are typically valid only for a specified timeframe and must be periodically renewed. Licenses are usually non-transferable, and in most cases, a new license must be obtained by the purchaser of a senior housing facility before operating the facility, regardless of whether the purchaser acquired the facility through a stock purchase or an asset purchase.
Read ahead to learn more about some of the challenges in creating and managing senior housing entities.
Forming Senior Housing Entities
For each senior housing project, separate entities must be created. The type(s) of entity depends on the classification of the senior housing project. For example, assisted living, independent living, and 55+ communities each have unique entity formation requirements.
Often, investors and developers, especially those entering the market for the first time, face challenges with entity formation. These challenges can stem from not knowing the legal requirements involved in the creation process, the types of entity they need to form, or where and how to begin forming the entity.
To identify the type of entity needed for your project, you must first be aware of the different types of legal entities: business corporations, nonprofit corporations, limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs). Because setting up an LLC protects you from personal liability, most senior housing facilities operate under an LLC. Unlike with sole proprietorships and partnerships, in the event of an accident, only the amount of money you put into an LLC is at risk. Additionally, with an LLC structure, owners/operators have the flexibility to offer investors a larger portion of the profits, creating a more attractive opportunity for potential investors.
Adhering to Senior Housing Licensing Requirements
Similar to creating entities, each senior housing project will have its own licensing requirements based on the entity type. There are also some requirements that apply across all entities. For example, before opening, all assisted living communities must have a license from the proper state agency. The agency will then inspect or survey communities on a routine basis, usually annually or when someone files a complaint.
Abiding by Senior Housing Care Regulations
In addition to the licensing requirements, each state has unique regulations that govern the standard of care required at senior housing facilities. This standard of care includes resident rights, admission agreements, resident funds, abuse prevention, mandatory resident services, and staff qualifications. Investors must be aware that these regulations can evolve with changes in state and federal government, so operators must stay up to date on changes to avoid liabilities.
Investors could be impacted by the failure to abide by senior housing care regulations. For example, fees are often incurred as a result of non-compliance. These fees could impact the bottom line and add to increasing operating costs. Additionally, lack of compliance could create distrust amongst investors, which could impact future deals.
How Can an Entity Management Solution Address These Challenges?
As the senior housing market spikes and investors and developers venture into the market, the investor, its counsel, and other advisors must consider the legalities of the investment. From ownership structures to licenses to insurances, a series of legal matters, deadlines, and documentation must be addressed.
An entity management software, like EntityKeeper, helps you manage entities, build and maintain complex ownership structures, and track filing deadlines in one secure platform. For investors juggling the many requirements and legal entities that accompany senior housing investment and development, a tech solution can simplify the process by providing tools to monitor and stay up-to-date on upcoming deadlines.