Purchasing an Aged Care Facility in Malvern East

Aged care facilities represent one of the most specialised categories within commercial property finance.

Acquiring an aged care facility requires a finance structure that accounts for both the property asset and the operational business it supports. Most lenders assess these transactions differently from standard commercial property loans because they're evaluating two distinct elements: the real estate value and the ongoing revenue from residential aged care licensing. In our experience, buyers who understand this dual assessment secure more appropriate loan structures and avoid underestimating the documentation required.

Commercial Property Loan Structures for Operating Facilities

When you acquire an operating aged care facility, lenders typically structure the funding as a combination of commercial property finance secured against the real estate and business finance secured against the operational assets and licensing agreements. The loan amount is determined by both the commercial property valuation and the facility's earnings before interest, tax, depreciation, and amortisation.

Consider a buyer acquiring a 60-bed aged care facility near Central Park in Malvern East with an asking price of $12 million. The property itself might be valued at $8 million, while the business goodwill and licensing account for the remaining $4 million. A lender structures this as $6.4 million in commercial property finance at 70% commercial LVR against the real estate, and $2.4 million in business property finance against the operational component at 60% LVR. The buyer provides $3.2 million as equity. This structure recognises that the building has standalone value, but the business component carries different risk.

Interest rates on the property component typically align with standard commercial real estate financing, while the business component attracts a margin reflecting operational risk. Variable interest rate options provide flexibility if you're planning operational improvements, while a fixed interest rate on the property portion protects against rate movements during your establishment period.

Due Diligence Requirements That Affect Commercial Finance

Lenders require extensive operational due diligence before approving finance for aged care acquisitions. Beyond standard commercial property valuation, they assess occupancy rates, resident agreements, staff employment contracts, regulatory compliance history with the Aged Care Quality and Safety Commission, and forward projections based on the facility's revenue per available bed.

You'll need to provide at least three years of audited financial statements showing consistent occupancy above 85%, evidence of current accreditation, details of any refurbishment requirements, and projections demonstrating debt servicing capacity. Lenders also examine the property's zoning to confirm aged care use is permitted and assess whether the building meets current design standards for residential aged care facilities.

This level of scrutiny affects timing. Where a standard commercial property loan might settle in 30 to 45 days, aged care facility acquisitions often require 60 to 90 days to complete due diligence and obtain formal approval. Build this timeframe into your contract terms.

Loan Structure Options When Acquiring Land for Development

If you're purchasing commercial land in Malvern East to develop a new aged care facility rather than acquiring an operating one, the finance approach changes entirely. Land acquisition for future development typically requires a commercial bridging finance structure or a progressive drawdown facility that transitions from land purchase to construction phases.

As an example, acquiring a 3,000 square metre site on Waverley Road with development approval for an 80-bed facility involves several funding stages. Initial land acquisition might be funded through a 12-month bridging facility at 65% LVR against the land value, providing time to finalise design, obtain building permits, and secure pre-sales or forward rental commitments. Once construction commences, this converts to commercial development finance with progressive drawdown aligned to construction milestones, typically at 60% to 65% LVR against the end value including the completed building.

Development finance for aged care projects requires evidence of demand in the local area. Lenders examine population demographics within a 5-kilometre radius, existing aged care bed ratios, and waitlist data. Malvern East benefits from an established older demographic and proximity to medical services along Wattletree Road and Dandenong Road, factors that support financing applications for new facilities in this precinct.

Strata Title Commercial Considerations and Leasehold Structures

Some aged care facilities, particularly those integrated within retirement villages or mixed-use developments, operate under strata title commercial arrangements or leasehold structures rather than freehold ownership. These configurations affect both loan amounts available and lender appetite.

Under a strata arrangement, you might acquire the aged care component of a larger retirement living development, owning the specific building and common areas under a community title scheme. Lenders typically apply a 10% to 15% reduction in commercial LVR compared to freehold properties, reflecting the additional complexity and potential restrictions in the owners corporation rules.

Leasehold sites, where you acquire the business and improvements but lease the underlying land from a third party, require lenders to assess the remaining lease term and renewal options. Most require a minimum 20 years remaining on the lease with clear renewal rights before they'll provide commercial finance. The land lease payments also factor into debt servicing calculations, reducing your borrowing capacity compared to freehold acquisition.

If you're considering a leasehold or strata structure, prepare for a smaller pool of lenders and potentially higher interest rates reflecting the security limitations.

Working with a Commercial Finance & Mortgage Broker

Aged care facility acquisitions sit at the intersection of commercial real estate financing and business lending, requiring a broker with specific experience in healthcare property and operational businesses. Access commercial loan options from banks and lenders across Australia specialising in this sector rather than approaching mainstream commercial lenders who may lack appetite for aged care transactions.

A broker familiar with aged care can structure your application to emphasise the factors lenders prioritise, such as demonstrating revenue stability through resident agreement structures, highlighting your operational experience or management team credentials, and presenting financial projections that align with industry benchmarks. They can also navigate alternative structures like mezzanine financing if your equity position is below the required threshold, using subordinated debt to bridge the gap between senior commercial finance and your available funds.

For Malvern East buyers, understanding local commercial property investment patterns matters. Properties in this area often attract buyers seeking established facilities in high-demand locations close to Caulfield Hospital and the Monash Medical Centre precinct. This demand supports valuations but also creates competition, making pre-approval essential before making offers.

The operational complexity of aged care facilities means your finance structure needs to support not just acquisition but also working capital for the transition period, potential refurbishment of resident rooms to current standards, and funding for any licensing upgrades required. A revolving line of credit alongside your primary commercial property loan provides this operational flexibility without requiring separate applications each time you need to access funds for improvements.

Whether you're acquiring an established facility, developing a new one, or expanding an existing aged care business into the Malvern East area, having the right finance structure in place before you commit to a purchase protects your ability to complete the transaction and operate successfully from day one.

Call one of our team or book an appointment at a time that works for you to discuss your aged care facility acquisition and the commercial loan structures available for your specific situation.

Frequently Asked Questions