The Los Angeles metropolitan area, with a population of over 18 million, has the largest number of assisted living facilities of any area of the United States. By 2030, California’s population aged 65 or older will double, the Stanford Center for Longevity predicts, and the number of people living in some kind of senior housing is expected to double by that time as well. This will create unique opportunities for developers and owners of these facilities. Certified Development Companies (CDCs) like TMC Financing are playing an important role in the development of the assisted living industry.
Getting an SBA 504 Loan for a Special-Purpose Property
The 504 Loan Program is specifically designed for purchasing property or equipment with a low, fixed interest rate and as little as 10% down. However, the SBA classifies some properties, such as assisted living properties, as “special purpose or single-use properties,” which requires a 15% down payment. The SBA defines a special purpose property as “a property that is appropriate for one use or limited use: a building that cannot be converted to another use without a large capital investment.”
Special use properties are considered higher risk than other loan projects, so many banks are hesitant to provide loans for them. With an SBA 504 loan, however, the bank shares the risk with the SBA. This is a more palatable option for many banks, and a great option for business owners looking to land a loan to buy property.
When you buy an assisted living facility, you can operate it under the previous owner’s license while you are in the process of obtaining your own. To sweeten the deal even more, assisted living facilities are great candidates for the SBA’s Green Energy Program because, as heavy users of utilities and air conditioning, there are often multiple opportunities for them to increase their energy efficiency.
When a borrower includes Green Energy Program measures in the project, special conditions apply to the loan:
- No limit to the number of 504 projects
- No limit to the amount of total financing – projects in excess of $25 million qualify
- The SBA/CDC portion (2nd mortgage) maximum is $5.5 million per project
- Cost of renewable energy equipment can be added to the loan amount to save working capital
A Case Study For Buying an Assisted Living Facility in Los Angeles County
Operators of assisted living facilities are often medical professionals. They may own more than one establishment, as their experience in the industry is valuable, and these facilities, like hotels, are subject to economies of scale.
Jennifer Davis in TMC Financing’s Southern California office recently helped one of their clients purchase a 25-year-old, 340-bed independent living, assisted living, and memory care community in La Habra, CA. They received a total of $13 million in financing to purchase the property, of which TMC Financing helped them secure $3.25 million from the SBA. This is the doctors’ fourth location: they had previously purchased facilities in Anaheim, Carson and Garden Grove.
Often, new owners carry out renovations or expand their new facilities, creating added value with new amenities, as well as increasing the number of beds and potential revenue. For example, these clients initiated extensive changes at all of the locations. Their assisted living facility now offers services including round-the-clock professional staffing, an emergency response system, daily bed making and trash pickup, weekly housekeeping and linen service, three meals a day and scheduled transportation.
With over 35 years of experience providing financing to businesses through 504 loans, TMC Financing is able to help borrowers receive the funding they need to buy assisted living facilities with as little as just 15% down. TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. Contact a TMC loan expert to find out more about the 504 loan.