Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.
Issue link: https://seniorshousingbusiness.epubxp.com/i/484276
ACTIVELY INVESTING IN SENIOR LIVING H A R R I S O N S T R E E T Focused Investments in Education, Healthcare & Storage Real Estate 71 SOUTH WACKER DRIVE, SUITE 3575 CHICAGO, ILLINOIS 60606 W W W.HARRISONST.COM | 312.920.0500 Since 2006 we have acquired or developed over $3.0 billion in senior housing properties nationwide. As one of the largest private equity investors in the senior housing space we continue to actively seek acquisition and development opportunities. "The value of the portfolio was never down more than 10 per- cent," says Levy. "We never had distress and never breached a leverage target." In other words, the prices for seniors housing properties never dropped to the point that the debt equaled more than 60 percent of the value of the properties. The assets continued to produce fairly steady income throughout the crisis, enabling them to maintain their value. "[Fund III] distributed income all the way," says Levy. "The fund provided its investors with an internal rate of return and mul- tiple in excess of anything else they invested in commercial real estate over that time." Seniors housing has also ben- eftted from rich data collected by organizations like NIC, which makes seniors housing invest- ment more transparent to inves- tors, including vacancy rates, property sales data, demographic trends and new construction fgures. So far, the balance between demand for seniors housing and the supply of new seniors projects looks positive for many private equity investors. "We are going to see our customer base grow pretty rapidly in the next 15 years," says Prudential's Levy. The supply under construction now is likely to be absorbed, say industry experts, even though data from NIC counts a growing number of units under construc- tion in many markets. "The supply of new units does not even come close to the demand," says Matthew Whit- lock, executive vice president for the CBRE National Senior Housing Group. Private equity fund managers need to be armed with this kind of data to justify their strategies to investment committees. The positive data on seniors housing is drawing managers of KAREA + Discovery: A formidable partnership Kayne Anderson Real Estate Advisors (KAREA) forged a strong relationship with Discovery Senior Living in October 2013 when it paid $404 million for a controlling interest in Aston Gardens, a portfolio of six seniors housing properties in Florida total- ing 1,930 units. The properties are primarily independent living communities. Before the sale, Discovery had kept the portfolio fully occupied with its old equity partner, GE Capital. Kayne Anderson replaced GE and also bought some of Dis- covery's equity in the property — returning some capital to the operator. Because portfolios of fully occupied seniors housing properties like Aston Gardens are diffcult to fnd, many private equity funds are investing in seniors hous- ing projects that are not yet stabilized. "Competition has skewed private equity more toward development and value-added projects than fve year ago," says Alan Ursillo, senior vice president for JLL Capital Markets. In February 2014, KAREA and Discovery partnered to add value to a portfolio of 1,053 units in fve properties in Texas that were 76 percent occupied, paying $290 million for the Conservatory Senior Living portfo- lio. The average occupancy across that portfolio has risen to 86 percent, says Max Newland, KAREA's managing director of healthcare real estate. KAREA executed both of these giant deals via its third real estate fund, which by the second quarter of 2015 will have committed all of its $750 million to a mix of niche property types, including seniors housing, medical offce and student hous- ing. Together, KAREA and Discovery also plan to undertake ground-up develop- ment projects. "Our pipeline is a mix of development and acquisitions of value-added and stabilized properties," says Newland. "As a frm, we have quite a bit of in-house development expertise." — Bendix Anderson "Competition has skewed private equity more toward development and value- added projects than fve years ago," says Alan Ursillo, senior vice president, JLL Capital Markets. 34 www.seniorshousingbusiness.com Seniors Housing Business n February-March 2015