Asset management has a reputation for being a financial term stripped of its humanity. It’s for people in suits. What does asset management mean for the care home owner juggling the staffing of their care home with the needs of their residents? A care home is a large asset, and the care home owner needs to recognize the care home’s asset potential, and managing that potential will benefit the care home’s overall value relative to the amount of profit it generates over time.
First, you need to understand the difference between managing the building and managing the asset. There is a great deal of overlap between the two, but they are distinct. Managing the building deals with the day-to-day issues of the care home. Managing the asset takes a longer view and deals with questions like what is this care home worth, what has the potential value of this care home been in the past, and what can be done to prevent value loss in the future. Managing a care home building is a short-term, day to day task, and managing a care home as an asset is a long-term, 5-10 year task with thought of the eventual transfer of the care home from the owner.
The major point to grasp is how a care home is valued. This is different from how we value a house. A house value is determined by the likely final sale price. However, a care home value is determined by the potential income it could produce. This means it would be valued by the occupancy level, the service fees, and the CQC rating. This means that you would have to completely shift your thinking. For example, you may have a care home refurbishment in mind to offer a dementia friendly environment. This can be considered an expenditure, but it could improve the care home service fees and occupancy level. This also means that, until the care home refurbishment actually occurs, the value of the care home actually decreases. This may be noticed by potential buyers in the future.
Secondly, the big spending is the part that owners oppose most, and for a good reason. The changing of care standards means buildings must be changed to comply, rendering things like wet rooms, ceiling hoists, wider doorways, better flooring, and the well-planned layouts for dementia residents, no longer optional. The homes that try to resist these changes usually end up making the renovations anyway. The difference is that these homes end up doing it under the pressure of an inspection, after a serious incident, and at the behest of others as well. These structures need to save money on the projects like this every year and consider those savings an ongoing expense. This is the true cost of updating a care facility like this.
There is also the issue of how you are holding the home in the first place. This captures the centre of asset management and is often forgotten. If you own the freehold, the building is an asset on your books and you have control, however, a lot of your capital is tied up in it. If you hold it on a lease, your capital is freer, but you carry the rent and often the maintenance, and a full repairing lease can leave you with a dilapidations bill at the end that catches you off guard. Managing the asset, in this case, is understanding what you have signed up to. Be sure you fully understand the lease when you sign it, and have a clear picture of your position in the future, not just today, when you sign the lease, especially when you sign it for a long period of time.
So, essentially, effective care home asset management hinges on the ability to consider the care home as a long-term value protecting responsibility as opposed to a short-term weekly running obligation. Financial expertise is not a prerequisite. Many owners of care homes, for instance, engage a valuer, an accountant, and/or a property advisor for the parts of the business with which they are unfamiliar. The most important concepts are to be aware of the value of the care home, know the key drivers for increasing that value, and have an understanding of the cost of achieving the desired value. The asset will literally look after you when you decide to sell, refinance, or pass it to the next generation.