HUNT VALLEY, MD–Two nursing home chains have filed for Chapter 11 bankruptcy this month after restructuring deals on their unpaid rent with their REIT landlords. The nursing home chains are Orianna Health Systems and, more famously, HCR ManorCare and their landlords are the locally-based Omega Healthcare Investors and Quality Care Properties in Bethesda, Md., respectively.

According to court records cited by Reuters, Orianna, which owes $52 million in back rent to Omega as well as other debts to outside vendors, has agreed to transfer 23 facilities to a new operator and sell 19 others. In its chapter 11 bankruptcy filing HCR ManorCare agreed to transfer ownership to Quality Care, which will give up its status as a REIT. HCR ManorCare's problems had been long brewing; it owed $7.1 billion in debt, $446 million of which was rent. Quality Care and its tenant have tried for many months to work out a deal.

Skilled Nursing Woes

This is not a story about two nursing home chains that happened to be mismanaged however; rather their troubles are reflective of the pressures that the skilled nursing asset class has been experiencing for years.

Skilled nursing is suffering from an array of problems, Avison Young Principal Jim Kornick tells GlobeSt.com: lowering occupancies, falling government reimbursements, an aging inventory of facilities, the growing costs of care are just a few. “The economics of the costs and how the operations will be paid for have been real pressure points for years,” he says. “But the problem is acute now.”