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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www.seniorshousingbusiness.com 45 August-September 2018 n Seniors Housing Business clockwise from top left: Robb Chapin r.chapin@bridgeig.com Phil Anderson phil.anderson@bridgeig.com Blake Peeper b.peeper@bridgeig.com seeking better, always CAPITAL HUMAN making bridgeig.com | 407.999.2400 ORL ANDO | SALT L AKE CIT Y | NE W YORK | ATL ANTA | SAN MATEO Investing in your success isn't just about dollars. It's also about sense – helping you make sense of the challenges you face every day. We partner with seniors housing owners, operators and developers, providing quick access to capital as well as the wealth of our human capital. So whatever your challenge is, let's cross that bridge together. 2018, effectively raising the cost of capital for the REITs. For example, shares of Welltower traded for $66 per share at press time, down from $74 the year before. Ventas traded at $59, down from $67. HCP Inc. traded at $27, down from $29. At the same time, falling occu- pancy rates and slower rent growth this year have reduced the income generated by seniors housing properties. That makes it harder for REITs to make the num- bers pencil out when it comes to acquisitions. If the share prices of REITs rebound, that could pose a com- petitive threat to private equity funds looking to buy properties. "If REITs return to fair valuation… that could shrink private equity's share of the market," says Andrew Rybczynski, senior consultant at research firm CoStar Group. A few large acquisitions by REITs have accounted for the lion's share of their activity this year. Welltower, for example, closed a $1.95 billion deal to acquire Quality Care Properties, also a publicly traded REIT. Largely because of portfo- lio transactions such as this one, REITs still accounted for 45 per- cent of the dollars spent on seniors housing acquisition year-to-date through early August, according to RCA. If not for the Quality Care Properties transaction, that fig- ure would drop to 30 percent. By comparison, REITs accounted for roughly 25 percent of the total dol- lars spent to acquire seniors hous- ing in 2016 and 2017. "The story on REIT acquisitions is boosted by portfolio transac- tions," says James Costello, senior vice president for RCA. The activity of private equity funds is best represented by the "Institutional" category in RCA's data. That category shows private equity accounted for 33 percent of the dollar volume of closed deals in 2017, up dramatically from 6 percent in 2016. Year to date through July, that percentage dropped to 14 per- cent. But once again, that num- ber is artificially depressed by a few large portfolio deals like the giant Welltower transaction, says Costello. Impact of pension funds felt Private equity funds are also now sometimes able to hold the seniors housing properties they invest in for longer periods than the typical five years. That's because a significant number of private equity funds have raised money from institutional investors with varied investment needs. "There has been more interest from pension funds than there has been in the past," says Beth Burn- ham Mace, chief economist for the National Investment Center for Seniors Housing & Care (NIC), a nonprofit data and analytics orga- nization based in Annapolis, Md. Some private equity funds now raise upwards of 70 percent of their capital from pension fund investors, says Joel Mendes, senior vice president for JLL's seniors housing capital markets team. Pension funds are especially interested in seniors housing prop- erties because they become better investments as people live longer on average. As demand for seniors housing increases in the coming years, that is likely to help coun- teract the strain on pension funds as their pension holders age and draw on benefits. Fueled by pension money, these private equity funds could poten- In July, Bridge Seniors Housing Fund II acquired the Village at Keizer Ridge, an assisted living and memory care community in Keizer, Oregon.

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