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
• Speed • Creativity • Certainty of Execution • Ease of Interface www.berkpoint.com A History of Excellence. A Future of Distinction. Leading the way in Seniors capital solutions. b e r k e l e y p o i n t ® New York • Chicago • Atlanta • Irvine Los Angeles • San Francisco • Dallas Miami • Seattle • Bethesda • St Louis Boston • Columbus • Detroit • Nashville Fannie Mae • Freddie Mac • FHA Life Company • Bridge • Conduit real estate private equity funds to consider seniors housing invest- ments, even if their funds aren't targeting niche properties. "We take those calls weekly," says CBRE's Whitlock. A good yield is hard to fnd About two-thirds of fund managers indicate it is more diffcult to source attractive invest- ment opportunities in the current environment compared to a year ago, according to Prequin's most recent annual fund manager's survey. Three-quarters of fund managers say there is more competition for core real estate assets than a year ago, with a similar percentage expressing the same sentiment toward value-added and opportu- nistic assets. Prices continue to rise for seniors housing properties. "Real estate investment trusts (REITs) are driving yields so low that it is diffcult to compete on acquisi- tion," says Alan Ursillo, senior vice president for JLL Capital Mar- kets. REITs have such a low cost of capital, they can often afford to pay more for real estate properties than private equity buyers. The aggressiveness of REITs on the acquisitions front has worked to the advantage of private equity. Once a fund reaches the end of its approximate fve-year hold period and it's time to sell proper- ties and return funds to investors, the REITs are ready and willing buyers. However, private equity has had a more diffcult time fnd- ing properties to buy. "With so much transaction volume, a lot of the high-quality stuff has been gobbled up," says Ursillo. "It's so frothy on the acquisition side. Buyers compete heavily for prop- erties that have a lot of cash fow." All about the operator To get access to properties, private equity frms are form- ing long-term partnerships with operating companies. These relationships can sometimes lead to opportunities to buy properties that have not already turned into bidding wars. Private equity funds like KAREA typically spend a great deal of time selecting their operat- ing partners, who often become equity partners for a long series of deals over many years. "It's a lot of work to put together one of these partnerships. Neither party wants to do that for just one deal," says Richard Swartz, executive manag- ing director and national head of senior housing for Cushman & Wakefeld. "It's rarely a one-off." Private equity encour- ages its operating partners to hold an equity stake in seniors housing properties to help motivate the opera- tor to succeed. Appetite for development Private equity funds are becoming much more com- fortable plowing capital into new development projects. "There are more groups today that will do ground-up development," says Cushman & Wakefeld's Swartz. "Money is stretching out to fnd yield." Prudential is also investing signifcant capital in new seniors housing development through PREI's Senior Housing Partners Fund IV, which made approxi- mately $500 million in new invest- ments in 2014. About 10 percent of the fund is allocated to development. The rest of the fund's investments will be focused on stabilized and value-added investments in relatively new assets that can be upgraded to include better exer- cise rooms or other amenities. Other private equity funds add value to seniors housing properties by converting some of the units to a different type of seniors housing. For example, a private equity fund might buy an independent living property and add licensed assisted living and memory care units to the property. "The continuum of care model has resonated within the invest- ment community, as well as with residents and their adult children by allowing residents to age in place within the same campus," says Aron Will, executive vice president for CBRE's Capital Mar- kets Debt & Structured Finance Group. "Communities with a continuum of care trade at the tightest cap rates." A number of private equity funds now spend about 25 per- cent of their capital on develop- ment projects. A few years ago, Prudential's 10 percent target was much more common. "We never had distress and never breached a leverage target," says Noah Levy, managing director, PREI. www.seniorshousingbusiness.com 35 February-March 2015 n Seniors Housing Business