Licensing

 

 

If you offer a certain level of medical care to your senior residents (e.g, assisted living and memory care), most states require you to obtain a state license to operate your senior living community.  Because of the fragile nature of senior residents, there historic susceptibility to abuse, and because medical care is rendered at these senior living communities, the state wants to ensure the medical and care services offered to residents meets state mandated minimal levels.

 

Different states have different licensing requirements.  In some states, passing your licensing inspection is very difficult.  And in some it is relatively easy.  For example, Texas has a very difficult licensing process, while neighboring Oklahoma’s licensing process is very easy.

 

How stringent a state is on their licensing requirements is loosely correlated to how populous the state is.  California, Texas and New York being examples of states that have a high population and very strict licensing requirements.  My theory is that high population states have experienced a lot more problems with their senior living communities just because they have a lot more people in senior living communities.  Every time there is a problem (e.g., abuse, fire, evacuation, falls, elopement, etc), a rule is put in place by the state licensing agency to try to ensure that problem does not happen again.  Next thing you know, after dozens of reported problems to the state, the licensing agency creates a thick rule book, which makes it difficult to get a license.

 

Also, the state licensing requirements are generally broken our between the real estate, and the operations of the facility.  On the real estate side, a state inspector will inspect the building and grounds to ensure it is constructed to meet all of the state requirements.  On the operations side, the state inspector will review the operator’s operating procedures and practices.  Although meeting those operations requirements are essential to get your license, they are beyond the scope of this website.  Your operator should be well versed and experienced in meeting operational licensing requirements of the state.  If not, find one that is.  Also, don’t just trust that your operator will take all the steps to ensure they will put all the proper operating procedures in place to get your license.  You, as the develop/owner of the facility, have too much time, money and effort invested the project to leave this to trust.  Review the state operations licensing requirements yourself and have your operator brief you on their detailed plan to meet all those licensing requirements. 

 

Now lets talk about the real estate licensing requirements.  If you are only developing an independent living community, you usually don’t have to meet any state licensing requirements.  It is only when you offer medical care to higher acuity residents in assisted living, memory care and skilled nursing that you need to get a license from the state.

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Passing your licensing inspection so you can start that revenue quickly huge.  If you fail your real estate inspection, it is usually because something was not constructed properly.  Fixing a deficient construction issue usually takes a lot of time, money, and effort.  After you fail your inspection, you have to fix your deficiencies.  Then you have to call for a re-inspection.  And government employees and agencies being what they are, it could be some time before they can schedule you for a re-inspection.   All this time you are losing out on revenue, and delaying your lease up.

 

During your lease up period, you are bleeding negative cash flow until the rental revenue exceeds your costs, and you start becoming cash flow positive.  You budget for this negative cash flow period in your development budget.  This is shown as the “Operational Reserves” line item that I discuss here.  I have heard horror stories of developers failing multiple state inspections, delaying the opening of their facility for almost a year.

 

 

3rd Party Licensing Consultant

Ensuring your building is designed and constructed properly to meet the state’s licensing requirements can be very challenging in some states.  You can usually find a third party consultant that has experience navigating the real estate licensing requirements in the state.  This independent and extra set of eyes over the design and construction is usually well worth their consulting fee.

 

Have this licensing consultant review your plans before bidding the plans out to your GC to ensure the GC prices plans that will comply with the licensing requirements.  Also, this consultant should visit the project site periodically during the construction effort to ensure everything is being built so that it will pass the state licensing inspection. 

 

The importance of these construction inspections are invaluable in states that have difficult licensing requirements.  In my home state of Texas, which has some of the most difficult licensing requirements in the nation, this consultant will walk your construction site before you cover up walls to ensure all fire/smoke walls are constructed properly.  The chances of you passing your state inspection the first time through go up significantly if you have this experienced independent set of eyes reviewing the design and construction.

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Next Page: Turn-Over from Construction to Operations