Seniors Housing Business

AUG-SEP 2018

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

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44 www.seniorshousingbusiness.com Seniors Housing Business n August-September 2018 Blue Moon Capital Partners has started construction of Belmont Village Aliso Viejo, a 156-unit infill community in California. By Bendix Anderson In July, Bridge Seniors Housing Fund II acquired the Village at Keizer Ridge, an assisted living and memory care community in Keizer, Oregon. "Irreplaceable real estate and strong opera- tor performance" drew Bridge to invest in the property's 104 units of assisted living and 22 units of memory care, says Robb Chapin, CEO of Orlando-based Bridge Investment Group, a private equity fund manager. The value of seniors housing properties like the Village at Keizer Ridge helped Chapin attract investors to Bridge's $1 billion Fund II. Despite the overbuilding taking place in some markets, investors with a strong appetite for seniors housing continue to plow billions of dollars into private equity funds, which these days are dominating the business of buying and building seniors housing. As real estate investment trusts (REITs) con- tinue to struggle with low share prices, private equity fund managers are taking over as lead- ing buyers of seniors housing. They are also investing in new ways, such as creating funds that can hold properties for longer periods than the typical five years. "Private equity is currently the most influ- ential capital source in the seniors housing space," says Matthew Whitlock, vice chairman and partner at the CBRE National Senior Hous- ing Group. Quite simply, private equity buyers are more likely than any other kind of investor to lead the bidding in today's market, he says. Active fundraising period As of August, Bridge Investment Group had already deployed roughly one-third of the $1 billion raised in Bridge Seniors Housing Fund II, which closed its fundraising in 2017. Private equity fund Kayne Anderson also announced May 30 that it had closed the fund- raising for its fifth opportunistic private equity fund with $1.85 billion — a big number even for the world of private equity real estate. The fund will focus on seniors housing proper- ties, medical office and student housing, with seniors housing accounting for roughly one- third of its investments. "The $1.85 billion raised for Kayne Ander- son's opportunistic Real Estate Partners V is evidence of experienced firms' ability to cap- ture the attention of investors," says Oliver Senchal, head of real estate products in the London office of Preqin, a data firm focused on private equity. Closed-end private equity funds focused on real estate raised record-breaking totals of $40 billion in the fourth quarter of 2017 and $38 billion in the first quarter of 2018. Fundraising slowed down in the in the second quarter of 2018 to just $23 billion, according to prelimi- nary numbers tabulated by Preqin, which notes that figure could rise by around 10 percent as more information becomes available. "[The second quarter] was by no means a bad quarter so much as it was a return to more typical levels," says Senchal. He also expects fundraising to increase later this year. Armed with these billions of dollars, private equity funds now have to find appropriate deals to invest in. "Many funds are sitting on record levels of dry powder," says Senchal. Having that much cash on hand puts pres- sure on private equity funds to buy properties, even if prices are high. "This, in turn, creates a more competitive bidding environment and keeps pricing aggres- sive," says Whitlock. The average capitalization rate for prop- erty and portfolio sales in seniors housing, not including skilled nursing, was 6.4 percent dur- ing the 12-month period that ended June 30, according to New York-based Real Capital Analytics (RCA), based on sales of properties and portfolios worth more than $2.5 million. That's slightly higher than the 6.1 percent recorded in the year that ended in first-quarter 2016, when cap rates hit their most recent low. By comparison, the average 12-month trail- ing cap rate prior to 2015 was more than 7 percent, according to RCA, which includes assisted living, independent living and mem- ory care — but not skilled nursing — in that calculation. Private equity establishes pricing With ready cash and an urgency to invest, private equity buyers can set their own terms. "Not only can they act quickly, but they also can effectively drive negotiations for attractive assets," says Senchal. Private equity has taken over this leading role from the REITs, which historically have been top buyers of seniors housing. "The pullback by the REITs has allowed pri- vate equity to snap up more market share," says Max Newland, managing director in the Boca Raton office of Kayne Anderson Real Estate. The stock prices of leading publicly traded REITs have continued their multi-year slide in Private Equity Flexes its Muscles n Investment Funds are reshaping the business of buying and building seniors housing. Blue Moon Seniors Housing Fund I funded the development of Cedarbrook of Northville, a 201-unit independent living, assisted living and memory care community in Plymouth, Michigan. Claire's Café is among the community's features.

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