Senior Living Companies Seek New Funding Sources to Accelerate Middle-Market Growth Plans

Senior living operators are seeking out a variety of additional funding sources to make the math work for new middle-market models.

Senior living companies must keep the cost basis of such projects low enough so they can charge rates affordable for the millions of people who want and need senior living but will not be able to afford it at today’s rates in the years to come.

The current cost of development and inability to obtain equity for projects is a thorn in the side of growing senior living companies in 2025. Acquisitions are another avenue for growth, but middle-market companies must compete for those opportunities against potentially bigger, more deep-pocketed real estate players.

That is why some in the senior living industry are exploring new funding sources, such as six figure donor advised funds and working with Medicaid and Medicare waivers, to make the math work for middle-market senior living projects.

For example, Dallas-based CP Senior Living is working with multifamily investors looking to get into senior care. CP is targeting distressed communities with a combination of its own capital and “distressed/opportunistic funds,” according to CEO Andrew Oksner.

“We have seen some family office groups that are keenly interested. To us, that’s a more efficient way to obtain a $1 million to $3 million type equity investment, which is more usually suitable for middle market type deals,” Oksner told Senior Housing News.

Untapped funding sources

Senior living operators with middle-market ambitions don’t have to necessarily rely on traditional funding sources to make their plans reality.

Donor-advised funds, or funds raised via a giving account through an established charity, are one such source of capital. In the U.S., operators can potentially access funds from two million donor advised funds, with payouts typically averaging  “between the low and mid six figures,” according to Aaron Conley, president and founder of senior housing real estate development and capital advisory firm Third Act Solutions. Conley noted he has worked on raises ranging from $100,000 up to $4.5 million.

Because donor advised funds can be used as part of the capital stack for developing affordable housing, Conley said their use for senior living is “agnostic,” and senior living operators can use them as loans due to their use in sheltering low and moderate income residents. Those sources of funding offer a lower cost of the capital, making them more amenable for middle-market projects.

”In terms of donor advised funds being used as a possible capital source for real estate development, and potentially loans and investment for operation, I don’t think it’s something that’s really on anyone’s radar, especially as it relates to middle market type and affordable type housing and operations for seniors,” Conley told SHN.

Conley recommends operators seek out donor-advised fund aggregators before going to the entities that control the funds. He also encouraged operators to work with community foundations on the locales in which they hope to develop.

Donor-advised funds are not without drawbacks. Borrowers typically can only raise smaller amounts than they could with traditional capital sources, creating a need for more piecemeal capital stacks, according to Conley.

Senior living operators with residents who qualify for affordable housing may also have additional funding sources they can access, such as tax credits, according to Joe Mulligan, managing director at Cain Brothers, a firm that focuses on healthcare investment banking and is a division of KeyBanc Capital Markets.

Nine states have an integrated program in place that covers both services and shelter, with the Centers for Medicare and Medicaid Services paying for services routinely not covered by Medicaid, according to Mulligan. These integrated programs are becoming more popular and have the potential to be adopted in more states, Mulligan said.

Cain Brothers is also in the process of working with an organization that is converting 115 skilled nursing beds to independent living units in order to qualify for Missouri’s Medicaid waiver program, which will bring in between $3,000 and $4,000 per month.

“That’s sustainable,” Mulligan told Senior Housing News. “We’re seeing different models evolve, unpacking and repacking the shelter and services in one place.”

He added states have an obligation to care for seniors, particularly with residents aged 65 and up being the largest voter block in the country.

“They’re starting to realize this is not an addition to Medicaid. This is a smarter spend on Medicaid,” he said. “There are several people that are going and advocating for this because it just makes a ton of sense and it’s proven highly effective.”

How CP is accessing growth funding

CP Senior Living is an operator focused largely on growing in rural and suburban markets in Texas and Alabama, where it is finding success “outside the Austins of the world.”

CP Senior Living hasn’t looked at donor-advised funds because Oksner believes they’re not yet a meaningful contributor to the market.” But he sees the appeal of using them.

CP Senior Living’s current growth funding stems from new investors from the family office sector, which often have an informal network of private family offices to bring in the required levels of capital needed, according to Oksner.

CP Senior Living has considered using private placement markets by going through a broker dealer, but the primary drawback to the approach is how expensive it is up front, alongside having to work with “lots of individual investors.”

“It’s much easier to work with a select group who might put in a minimum of a $1 million dollar contribution each, versus a large number of high net worth individuals who put in lower checks,” Oksner said. “There’s all types of issues, especially if a deal goes sideways or something that is off a pro forma for whatever reason.”

The operator has found success in bringing small to mid-sized private equity groups onboard for smaller portfolios ranging from two to five assets. In the instances of equity groups having an interest in a single asset, there is an expectation for repeat deals.

As a privately owned operator, Oksner said CP Senior Living will co-invest where it can, but it “doesn’t have the balance sheet depth to expand to the scale that we want to be able to provide all the equity ourselves.” Joint venture structures are incredibly attractive in those instances so the company can maintain property management and asset management.

The operator also works with the Texas STAR+PLUS program, a Medicaid-managed care program, which has been a “good and viable business.” In addition, CP Senior Living promotes an assisted senior benefits program for veterans that qualify, bringing in up to $2,795 for married veterans, to cover the cost of care.

Given the tailwinds the senior living sector has right now through shifting demographics, there is even more potential to bring in new investors.

“There’s a lot of groups out there,” Oksner said. “There’s a lot of entrepreneurs out there who are looking to get involved in the sector.”

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