After the American public spent much of 2012 contemplating the uncertainty in Washington, President Obama and Congress were able to engineer a last-minute deal that addressed the President’s campaign to raise tax rates on wealthy Americans and avoided the revenue side of the Fiscal Cliff.
Tax rates were raised on incomes above $400,000 for single earners and $450,000 for married couples, which I will define as the “top tax bracket”. It also blocks spending cuts, also known as “the sequester” for two months, which sets up a whole new negotiation at the end of February. How that might affect Medicare and Medicaid reimbursement is a topic for another time.
What does this mean to the senior housing M&A market? For earners in the top tax bracket, capital gains tax rates will increase from 15% to 20%. As of now, there will also be a 3.8% tax on capital gains for the Affordable Care Act, which is more commonly known as “Obamacare”. These increases in capital gains tax rates led to a flurry of transactions being completed in the fourth quarter of 2012.
This uptick in activity has led to very little senior housing inventory being on the market currently, with many sellers opting to list their properties in the latter half of 2012, as opposed to wait until 2013 in order to lock in more favorable tax treatment.
How can this help sellers of senior housing facilities? The change in tax treatment for sellers has not affected buyers’ appetite for acquisitions, as there is still a great deal of equity and debt financing available for strong operators throughout the country. With many aggressive buyers at the table and little inventory available, simple supply & demand economics would suggest that the first half of 2013 will see an increase in pricing for senior housing facilities.
As a potential seller, what should I do? While there is still a lack of quality inventory on the market, it might make sense to pull the trigger on selling your senior housing asset. I believe that as the year goes on, more owners will try to take advantage of strong pricing multiples, which will lead to a greater supply and less attention to each specific listing.
If you are interested in selling or are just curious of your facility’s value, Senior Living Investment Brokerage, Inc. provides non-binding marketing proposals.
We sold over $260 million in senior housing facilities in 2012. We would be privileged to work with you in the sale of your facility.
Contact me via email at firstname.lastname@example.org or phone at (630) 858-2501.