Financial leaders were generally more optimistic at the beginning of the year in terms of capital market forecasts. But now, the outlook has changed with economic instability and the perception of potential threats of federal Medicaid reduction.
Now, given the ongoing roller coaster of policy and reimbursement uncertainty, liquidity and possession of professional services are more important than ever before for facilities to successfully raise funds for additions or improvements.
Executives in the nursing home sector have characterized the sector's capital markets as uncertain despite the census recovering. Suburban markets are generally better at attracting capitals than urban and rural markets, a partner at Plante Moran, who specializes in senior care and living, told Skilled Nursing News.
Suburbs across the country are better at building census, especially since there are more wraparound services in these regions, and more visits are possible for families in these markets, McCormick said. Meanwhile, both urban and rural markets have issues with staffing, including shortages in transport staff, affecting census in these sectors, which are considered more risky investments.
“(Operators) are beginning to plan more about capital-related projects, looking at debt capabilities and items like that,” McCormick said. “But the tone changed, especially last month.”
Currently, there are potential concerns about the economic instability and the federal government's contribution to Medicaid, as evident from the recently passed budget adjustment laws. McCormick said changes to federal games with Medicaid or provider tax changes could reduce potential tax rates if funding was reduced.
This leads to more attention to lending, McCormick said. And it focuses on strong liquidity from bankers and other clients at Plante Moran.
According to Josh Vanderplaats, managing director of Vium Capital, unique services will also be more important, along with federal policy incentives and broader impacts such as tariffs and inflation.
Furthermore, technology appears to be of different importance to lenders in today's skilled nursing capital market.
McCormick and Vanderplatt said Oklahoma Operator Diaconos Group and COO Kimberly Greene are a big question between lenders.
All this is against the background of uncertainty with the new federal administration, financial experts said.
“I mostly think of this as something that was happening just before Covid hit,” McCormick said. “I didn't know exactly what Covid would look like. We had a month or two when the first case came in and this could be a really big problem. I feel that's the same.”
Policy incentives affecting capital markets
Vanderplatt said the capital markets also see the new presidential administration that controls the Senate and House, as well as one party that controls the Senate and House.
All eyes are also present in tariffs and inflation, Vanderplatt said of the current capital market landscape.
“The Fed has been cut for points last year, but I think we hope they will be in the first half of this year until they start to see inflation dropping at least within the 2% guidance,” Vanderplaats told SNN.
Still, for some providers, SNF loans are affected by other factors, in addition to their influence from federal government actions and operator financial well-being.
Federal policies, inflation and tariffs are factors that remain unknown, but Green said that the ever-evolving capital market, based on last year's lending environment, is not just looking at cash flows and census for nursing home operators.
“They are digging very deeply into our technical capabilities, our specialist programs and our environmental impact. They are willing to know before they put in the money. It's really deep diving and it's really amazing that not only my investors but banks are asking some of these questions,” Green told SNN.
Many contingency plans are ongoing, as skilled nursing operators and lenders don't know what Congress will do, McCormick said.
McCormick said having enough preparation, cash flow and liquidity to survive the storm should be the best thing for operators. They can also offer unique services such as ventilation units and obesity programs.
“The unique service definitely creates play. We were working on a due diligence project with a provider with an obesity program and vents. It was refunded at a much higher rate… a truly unique program. It was powerful and immediate cash flow.”
Also, with a very strong group of nurse practitioners, the group has stepped into today's skilled nursing capital market.
The impact of technology on capital market conditions
McCormick doesn't look much at today in terms of needle-moving techniques in the skilled nursing capital market. This is a factor in the elderly housing capital market, at least in the Midwest. But that's not what Greene saw in Oklahoma.
However, Vanderplato reflects this sentiment in technology, adding that through a joint venture with lenders, Bium has not seen the demand for deal-making technology.
“What I say is that credit committees are constantly evolving. Their hot button issues change from time to time depending on the market and regulatory factors,” says VanderPlaats. “If you are working with a lender for the first time, you need to incorporate a little cushion into your timeline just because all lenders have some questions on their hardworking checklists or because the credit committee is focused.
McCormick said residents, outcomes, and the presence of medical directors who use technology in terms of monitoring, outcomes and the drug are seen as a winning move with lenders.
Because skilled nursing is more serious than senior housing, McCormick said he hasn't actually filled the gap in providing AI at the level of need for vendors. More effective technologies — technologies that could give you an edge in today's skilled nursing capital market — deal with data analysis, he said.
If operators are hoping to fund various improvements or close M&As, they need a treasure trove of ready data, along with the expected environmental impact, from technology features to specialized programs.
“If I've done business in the past, I've now realized that it's a completely different layout,” Greene nods specifically to his specialized program. “Private equity investments in professional care, such as memory care and behavioral health, people are looking for it. They ask those questions for the data they are out there.”
