The impact of the closure of the care group Southern Cross announced this July will be felt across and have wider implications for the whole care home industry, including those owners running individual and small multiples of homes warns Marcel Bradbury, solicitor specialising in the sale and purchase of care homes at Adams & Remers LLP.
Marcel Bradbury comments: “Whilst the outlook has remained bright for the small, independent care home sector and banks were keen to lend to the right business people operating them, we have already seen this week that Santander is pulling back from lending to the sector which will leave a major funding gap.”
“I have been approached by a number of clients this week who have expressed an interest in buying some of Southern Cross’s failing homes, but they are going to find funding these purchases impossible unless they have significant assets and can afford to service a higher cost of borrowing.”
“They are also very worried that there may now be a perception of a problem in the care home market as a whole which will affect them and business opportunities such as expanding and buying more homes in the future.”
“We know already that Lenders are not keen to lend money for the purchase of care homes with a low occupancy level or regulatory problems. Prospective buyers could have previously considered a leasehold arrangement where they were able to take over the home and make the necessary improvements with a contract in place to allow them to buy the property after a couple of years. Such arrangements may now be more difficult to fund.”
Marcel Bradbury concludes: “There are now likely to be some of the Southern Cross homes sold off for other uses and I think this whole episode has potentially set the industry back a couple of years. It will certainly make an unsettled climate and life more difficult for care home owners looking to expand for the foreseeable future. Frustratingly the majority of care homes are run by individuals and small groups and the top four care home groups including Southern Cross only account for around 10% of the market.”