Senior housing needs vs. "the market" and government involvement: Part 1 - assisted living facilities in Montgomery County
The Gazette ("Assisted living centers in Silver Spring, Bethesda to close by June") and other media have reported that two senior care living facilities located located in the Bethesda and Silver Spring conurbations in Montgomery County, Maryland will be closing because the properties are owned by a health care related real estate investment trust, HCP (Health Care Properties) and they have been put up for sale.
Both of these facilities are centrally located and the amenities of the respective commercial districts are close at hand, which is a plus.
From the Springhouse of Silver Spring website:
Location, location, location. Springhouse is located near downtown Silver Spring minutes away from Washington, D.C. Our community is located near several neighborhood restaurants, banks, churches, synagogues, health and medical offices. Everything you want in an apartment building plus the knowledge that a licensed nursing staff is there for you 24-hours-a-day.The operator is independent of the property owner, and so they have notified residents and the State of Maryland that they will be closing their facilities.
Note that it would be possible for the operator, Springhouse, to remain in the facilities. They are choosing not to do so by taking advantage of the future sale of the real estate to shut down the two facilities. Normally, the sale of the properties could be facilitated by having a long term tenant.
Financial engineering, real estate investment trusts and business vulnerability. Note that this is but another example of how the disconnection of property ownership from business operations can have negative impact on business operations, although mostly we have seen this effect in the retail sector.
Real Estate Investment Trusts (REITs) are a preferred vehicle for owning real estate because they enjoy advantageous tax treatments not available to companies that integrate business operations with real estate ownership.
At one time the company called Manor Care, based in Silver Spring, owned and operated nursing home and other senior care facilities. After (1) a merger and consolidation with another similar firm they became NCR Manor Care, (2) relocated to Toledo Ohio, (3) and were bought out by Carlyle Group--based in DC--about 8 years ago, (4) later, Carlyle sold the underlying real estate holdings of HCR Manor Care to an independent real estate investment trust, HCP, based in California, (5) while still operating senior care facilities in those locations, (6) but leaving the senior care company HCR Manor Care exposed and vulnerable to any changes in the real estate markets where its businesses operate.
Carlyle sold the real estate to HCP for more money than it spent buying all the stock of NCR Manor Care.
NCR Manor Care financial and legal issues. Nursing home and other senior care facilities are being buffeted by changes in the health care industry, including payment rates for what is called post-acute care--when people are released from hospitals but still need ongoing care.
According to the investment website Seeking Alpha, there are 50 HCP properties operated by NCR Manor Care that have been deemed underperforming financially and/or operationally, and so it may be that these particular properties in Montgomery County are not generating the financial returns the company prefers. Plus the firm is being investigated by the government, although this may come to naught.
It appears as if these two properties in Montgomery County are the first of the 50 properties to be readied for sale.
Alternatives. I'd argue that public ownership of the land/buildings of senior living facilities could be in the public interest as a way to maintain the provision of such services without necessarily requiring the facilities to also be publicly owned.
Were there a wide ranging senior care/health and wellness plan for the area which provided guidance and recommendations concerning the provision of various types of care facilities, it would be possible for the state/county to step in, even use eminent domain authority to buy the properties to ensure the continued operation of the care facilities operated there.