Management Contracts in Seniors Housing
The seniors housing industry is full of opportunities, as many new investors have just purchased their first assisted living facility. They will soon learn that the most essential part of thriving in the industry is building and maintaining a solid management team.
This advice rings true for any asset class within the seniors housing industry. Not only should owners find the right team, but they must build the right type of management contract.
Management Team Responsibilities
New owners know how much a business is worth based upon the concrete amount paid to acquire the seniors housing investment. However, they might be less familiar with the best practices in maintaining profitable operations. Because of this, new owners may rely on their management team after they buy healthcare properties as seniors living property investments.
There are a variety of third-party management companies that most investors tend to choose from. Each one has its own specialty, whether it be by asset type, region, or market.
Managers’ main responsibility is to oversee daily operations such as implementing initiatives to reach goals and budgets.
Because they work so closely together, the owner and manager of the facility must enter into a management contract. This contract is not a lease as much as it is an agreement that states the facility’s goals, management responsibilities, and explains compensation.
The Management Contract
The management contract plays an important role in motivating the manager to perform well. The industry-standard management contract states that managers must be paid five percent of gross monthly revenue. However, as a skilled nursing and assisted living brokerage, The Stahler Group does not recommend this contract model.
Under this original model, managers are often driven to fill the facility with as many residents as possible to increase revenue for a bigger cut on their paycheck. In this model, there is no motivation to manage expenses. Even though revenue would increase, spending may increase as well, leaving little profit for the owner.
Owners are advised to build a contract where the manager receives a lower percentage of revenue, as well as incentivizing operational goals. These incentives could be pay bonuses or profit-sharing. By following this method, the manager is more motivated to increase revenue. In addition, the manager would be held accountable if profits decrease. The interests of the owner/investor and the management company should align in order to maximize the profitability of the facility.
Work with the Top Skilled Nursing and Assisted Living Brokerage
A seniors housing brokerage can work alongside an owner to negotiate the management contract. It is advised that an owner consults an investment specialist before finalizing and signing a management contract to make sure that the owner’s interests are protected through a checks and balances system. Experienced legal counsel is also important before finalizing the contract.
The Stahler Group is a premier nursing home brokerage specializing in senior living investments, assisted living homes for sale, seniors housing valuations, and contract negotiations. Our team of experts is available for acute insight and advice, no matter your level of experience in the housing business.
To speak with your investments specialist at The Stahler Group, contact Nick Stahler at (949) 419-3200.