Seniors Housing Business

OCT-NOV 2017

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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www.seniorshousingbusiness.com 31 October-November 2017 n Seniors Housing Business Helping communities thrive. In a shifting marketplace, demand for quality seniors housing remains high. With decades of dedication to the sector, KeyBank has the expertise and integrated platform to provide innovative solutions for generations to come. For more information, visit key.com/healthcareREC. Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. Key.com is a federally registered service mark of KeyCorp. ©2017 KeyCorp. KeyBank is Member FDIC. 170918-293759 erty that has not been designed appropriately for the market, such as an assisted living building that needs memory care units. Prior to the formation of this most recent fund, other Focus enti- ties had already made investments in these value-add types of seniors housing properties. The new fund has its first build- ing under contract, a Class B facil- ity in a growing Southeast market that is 100 percent occupied. The plan is to bring in a new manage- ment company and invest capital to improve the property to a Class B-plus level, says Schaller, who declined to pro- vide the prop- erty's name. With pre- mier properties trading at high prices, those seeking some upside are now willing to take on the lease-up risk. Investors can buy a new property still in lease-up mode for less than it would cost at 95 per- cent leased, sources say. Property broker Marcus & Milli- chap recently sold a new indepen- dent living building near Philadel- phia for $220,000 a unit. (Marcus & Millichap declined to provide the names of the parties involved.) At the time of purchase, the devel- oper owned the building, which was 75 percent leased. The inves- tor was a private equity fund new to the seniors housing sector. When occupancy stabilizes at the market average of 90 to 92 per- cent, the property will be valued at 25 percent more than the pur- chase price, predicts Joshua Jan- dris, senior managing director of the seniors housing group at Chi- cago-based Institutional Property Advisors, a division of Marcus & Millichap. CA Senior Living is taking a sim- ilar approach. "We see opportunity in buying new product with lease- ups going slower than expected," says Ben Burke, president of CA Senior Living, Chicago. The firm, which owns 14 build- ings with its limited partner, the investment firm Goldman Sachs, recently purchased a three-build- ing portfolio in the Dallas area. The properties are about two years old on average and 50 per- cent leased. Integral Senior Living of Carlsbad, Calif., manages the properties. CA Senior Living is bullish on the Dallas market, in part, because its parent, CA Ventures, a $7 bil- lion real estate fund, owns office properties there providing insights into the market. "Jobs are grow- ing there," says Burke, noting that a quickly expanding area will attract more senior living custom- ers. The deal gives CA a foothold in a strong market without having to develop a new building. Burke declined to provide the portfolio's purchase price, but says it was no more than what it would have cost to develop the proper- ties. He adds that other investors bid on the portfolio. New development is always an attractive draw to consumers, and CA believes in the long-term strat- egy of developing Class A projects in high barrier-to-entry markets. But Burke cites several trends making new development less attractive to investors. Construc- tion prices are rising due to mate- rial cost increases, he says, and it's taking longer to build new projects and lease them up. "Those factors are a meaningful hit to returns." n Russell Dey Walker & Dunlop

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