October 1, 2014 Leave a comment
I recently looked at contributing to a bridging loan to a company to complete a residential care home for the elderly. I’ll keep the numbers round for confidentiality reasons.
The key financials seem fine, with the facility sited in a demographic sweet spot and forecast to command above-market fees of £600/resident/week due to positioning as a high end option.
But the low operational costs – 90% of which are wages and food – startled me.
Food and drink is budgeted at under £4/person/day. I swapped a few messages with a relative who manages food operations for a budget restaurant chain. Choice quotes:
“Three meals a day? They don’t eat that much I suppose”
“Drinks too? Haha. You’d struggle with that big time”
Back-calculating on staffing costs gives 3 hours of work by a minimum wage employee per resident per 24 hrs. Well, I guess they won’t be spending much time cooking food.
With the loan paying at 10% and secured with a first charge against the property itself at 50% LTV, I’m not sure I’m out. But I definitely wouldn’t want my mum to be in.