A Santa Ana-based skilled nursing facility has traded hands for $65 million, generating a blockbuster price of $907 per square foot, despite lingering occupancy headwinds for the sector.
Records indicate the seller, Orange County Royale Convalescent Hospital LLC, is an affiliate of Kandu Capital, a private Michigan-based healthcare operator. It sold the South Coast Post Acute facility, a 71,674-square-foot facility that provides post-hospital nursing, rehabilitation therapy and memory care services.
The building at 1030 W. Warner Ave. is just off of Bristol Street, a couple of miles north of South Coast Plaza.
The seller, together with its operating company Bloom Senior Living, sold the facility last month as part of a portfolio sale to exit the skilled nursing business, reports indicate.
The sale of the 255-bed Santa Ana facility works out to about $255,000 per bed. The portfolio sale also included the leasehold in an 80-bed mental health rehabilitation center in Mission Viejo and an additional skilled nursing property in Los Angeles, reports note.
Property records indicate the buyer to have ties to Los Angeles-based skilled nursing facility operator NewGen.
The property was built in 1965 and last underwent significant renovations in 2014 when it rebranded from the Royale Health Care Center into South Coast Post Acute. The company was founded in 1974 and serves more than 2,500 patients each year.
Skilled Nursing Shift
The Santa Ana deal is the priciest healthcare real estate transaction seen in Orange County since mid-2022 on a total price basis. While medical offices, hospitals and specialized healthcare facilities have generated investor interest over the past few years following an increase in consumer emphasis on wellbeing, skilled nursing facilities have faced their own headwinds during the pandemic.
Bradley Dubin, a principal of Kandu, told Skilled Nursing News the company’s decision to exit the skilled nursing business was not a result of those headwinds, but rather a shifting focus on senior housing.
The pandemic devastated the skilled nursing and assisted living sectors, due to declining occupancy levels and staffing shortages. The business is still recovering, as operators look to regain occupancy losses.
One such local operator on the mend is Sabra Health Care REIT Inc. (Nasdaq: SBRA), which is in the process of relocating its headquarters from Irvine to Tustin.
The nearly $2.5 billion-valued investor in skilled nursing, assisted living and other healthcare properties expects to regain its earnings growth next year, as it continues to diversify its portfolio like other healthcare operators in the country.
“The business is still recovering, with occupancy levels on the rise since the end of omicron in early 2022,” Chief Executive Rick Matros told the Business Journal last month. “It’s just been a bit slower than anyone would like.”
Headwinds, Tailwinds
Skilled nursing facilities are projected to post the highest cap rates and lowest rate of stabilized occupancy among all senior housing property types in 2023, according to a report from commercial real estate services firm BBG.
Active adult communities are expected to have the highest occupancy levels and lowest cap rates, the report said.
The pandemic also decimated the development pipeline for skilled nursing facilities, which will serve as a tailwind in the coming years due to supply and demand.
“We have the same increasing demographic but no new supply coming online in the next five years, which will significantly impact existing supply,” Matros said.
