1. The appraiser should ask the broker or principal about whether the sale is an asset sale or stock sale, as asset sales only transfer certain property rights while stock sales transfer all assets and liabilities. 2. They should inquire about the various entities involved in ownership of the property and whether the sale price incorporates contributions from all entities such as the real estate owner, operating entity, and management company. 3. Important factors that could impact the sale price above or below market value include any distressed conditions of the seller, unique market advantages of the buyer, or the seller being a nonprofit losing money.

2. What Should the Appraiser Ask the
Broker or Principal of the Sale When
Confirming a Transaction?
Presented By
Jeff Binder, MAI
Senior Living Investment Brokerage, Inc.
binder@seniorlivingbrokerage
(314) 961-0070

3. Is the Sale an Asset or Stock Sale?
Asset sale transfers the (1) real estate rights, (2)
FF&E and (3) some of the intangible assets.
•Most transactions are asset sales
•They exclude accounts receivable, cash, and other
assets on the asset side, and usually all liabilities.
•SNFs are more complicated transactions since licensure,
Medicare and Medicaid certifications, employment and
third-party contracts, and successor liabilities, among
other issues may be transferred to the buyer and affect
price.

4. Few sales are stock sales, whereby the buyer
acquires the entire set of assets and liabilities of the
ownership --- these sales are rare beyond one
shareholder selling their interest to another or the
sale involves a much larger acquisition or merger of
a public company.
Multiple entities are typically involved with the
ownership of a senior housing property -- does
the sale price incorporate their contributions
from these various entities?

5. Multiple entities are typically involved with
the ownership of a senior housing property --
does the sale price incorporate their
contributions from these various entities?
What are the various entities that may be
involved in the going concern of a senior
housing or skilled nursing facility?

6. Ownership divisions often include:
Real estate owner – leases property to an operator
Operating entity, which runs the frontline business, holds
the licenses, certifications, and enters various employment
and vendor contracts to operate the facility
Management company – often a separate ownership and
used as a vehicle to siphon some profits from the real estate
and operating entities. Buyers will typical push
management profits back into the operator NOI when
pricing their bids – many lenders and REITs place restrictions
on management fee.

7. Other related party providers may include therapy, home
healthcare and pharmacy companies that provide
“ancillary” services to the “subject” as well as other
facilities controlled by the same ownership as well as
unrelated clients – individual patients and facilities. The
prospects of a buyer growing their “ancillary businesses”
may get priced into the valuation property.
These various ownership silos may have the same or
different shareholders and/or proportions of ownership in
each entity.

8. Were there extraordinary motivations on the part of the
seller or buyer?
What factors could create extraordinary motivations, i.e.
cause the sale price to less or more than market value?
1. Distressed conditions, including forced sales through
financial distress or licensing and certification
pressures from regulators
2. Buyer having unique market economies of scales by
achieving more efficient labor conditions,
marketing/advertising, continuum of care, etc., reduce
competiveness in the market and other factors.
3. Seller may be a non-profit that has been losing money
for some tim

9. How are senior housing and long-term care facilities
typically marketed?
•Sellers marketing their own property
•Buyers making unsolicited offers
•Brokerage companies – typically firms that specialize is
this property type
From a high level, describe the brokerage process
Qualifying prospective buyers
Confidentiality agreements in place before issuing detailed
property and operational information
What information is typically supplies to the prospective
buyer

10. From a high level, describe the brokerage process
1. Qualifying prospective buyers
2. Confidentiality agreements in place before issuing
detailed property and operational information
3. What information is typically supplied to the
prospective buyer
4. Other issues

11. Importance of maintaining confidential
marketing
If a property is known to be for sale, the
facility may lose staff, find staff recruitment
more difficult and competitors will present a
possible ownership transition as a negative
when competing for prospective residents.

12. What are the major value drivers, or elements of comparisons
NOI per unit or bed ---- but what drives NOI?
Traditional real estate factors — location and physical aspects
(underlying land value, building quality, age, condition, size,
functionality), etc
Occupancy – both for the subject and the competitive market
Resident mix– this is especially important for nursing facilities as the
payor source (Medicare, Medicaid, private-pay and commercial
insurance) pay at different levels and create different profitability
profiles.
In some states Medicaid rates made be affixed to a property in a
manner that creates a long-term profit or loss condition that will
extend to a buyer – i.e. capital reimbursement

13. Let’s talk NOI or EBITDAR (earnings before interest, depreciation,
amortization, rent – or EBITDARM – “M” for management
NOI = EBITDA?
Learn the story about regarding the trailing, in-place, or pro forma
revenues, expenses and NOI
What NOI does the market use to set price or bid – trailing, in-place or
pro forma?
What is the relative importance of the seller’s actual historical revenue
and expenses vs. the buyer’s pricing and cost structures?
What adjustments, if any does the market apply to expenses for
changes in property taxes, cap-ex and management fee/expenses?
Similarly, regarding nursing facilities, do you see prospective buyers
adjusting revenues for probably changes in Medicaid reimbursement
levels that are result from a change of ownership?

14. Finally, what can you discuss the market’s prospective in purchase price
allocations between real estate, FF&E and intangible values?
Do buyers and seller actually think in terms of pricing the various assets
separately, or do they simply think in terms of a single price for the going
concern or property?
Do buyers and sellers actually agree to an allocation of price between
these assets?
If so, are these allocations spelled out in the purchase agreement or
a side agreement?
Are these allocations primarily based on tax issues, such as
depreciated cost basis, property tax assessment reporting, divisions
among the seller’s realco, opco and manco entities, or for financial
strategies?

15. This is a legal-type question, but answer if you can: When the transaction
is an asset purchase and the seller has various entities, (realco, opco,
manco, etc.) is the entire price or consideration to the seller typically
placed specifically into a purchase agreement of the real estate entity or
does the contract and price extend to cover the operating entity?
As you see the market relative to asset price allocation, do you see any
preferred allocation techniques, for example:
Depreciated costs?
Capitalized management fee?
Capitalized market rent?
HUD’s proprietary earnings approach
Allocation of certain soft costs to intangibles, e.g. absorption or start-
up costs and developer’s profits to intangibles?