Seniors Housing Business

APR 2018

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

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24 www.seniorshousingbusiness.com Seniors Housing Business n April 2018 By Jane Adler Back in 2016, foreign capital made a big splash in the seniors housing market as over- seas investors inked blockbuster deals for U.S. portfolios. For example, New York-based NorthStar Realty Finance Corp. entered into an agreement to sell a joint-venture interest in its healthcare real estate portfolio for $1 billion to the Chinese Taikang Insurance Group. Meanwhile, the Canada Pension Plan Invest- ment Board in a joint venture with Welltower bought a 97.5 percent interest in six Discovery Senior Living-operated communities in Florida for $555 million. Chinese investor Fosun International also owns a 5.1 percent stake in Brookdale Senior Living, the largest owner and operator of seniors housing in the United States. Fast forward two years and foreign mega- deals have become scarce for a variety of reasons. Most notably, investment money from China has slowed. A government crackdown on risky financings by Chinese conglomerates is prompting a decline in property deal making. The EB-5 visa program, used by foreign investors to fund new developments, has come under wider scrutiny and interest in the pro- gram is waning. At the same time, some foreign investors, especially European funds, are wary of the U.S. market because of a perception of overbuilding. Cyclical factors are having an impact too. Fewer big U.S. portfolios of seniors housing are available for sale now, sources say, since many large portfolios have already been sold. The big deals, however, are being replaced by a relatively steady flow of significant, yet smaller transactions ranging anywhere from $2.5 million to $200 million. The aging population is a big plus. Many foreign investors have a long investment time horizon. They have the patience, and the money, to tough out the next few years while awaiting the wave of aging Baby Boomers that will eventually need seniors housing. Also, seniors housing still offers a relatively high rate of return of investment capital when compared with other commercial real estate categories. This calculation, of course, depends on a good operating partner that can fill a building amid increased competition. "Foreign capital is interested in seniors housing if the opportunity is right," says Ryan Maconachy, senior managing director at HFF, a commercial real estate services com- pany. His office is in Dallas at the company's headquarters. Foreign activity falls In the broader U.S. commercial real estate sector — including office, hotel, retail, indus- trial and multifamily properties — foreign investment dropped by 23 percent in 2017 to about $51 billion, according to New York-based Real Capital Analytics. The deal volume rep- resented 11 percent of all direct acquisitions in the United States for 2017. Canadian investors topped the list of buyers, followed by Singaporean investors. Despite the headwinds from new government restrictions, Chinese investors still accounted for the third largest cross-border investment group. In seniors housing and care, foreign capi- tal represents a relatively small portion of the acquisitions, currently about 6 percent of vol- ume, according to Real Capital Analytics. For- eign buyers accounted for about $1 billion of acquisitions in 2016, and $900 million in 2017. Aron Will, vice chairman, National Senior Housing at CBRE Capital Markets, Houston, says the global real estate services firm is buck- ing the trend. "We've had a tremendous num- ber of transactions with international capital." CBRE has completed six sizable debt place- ments with foreign investors over the last 18 months, he adds. "We've seen more global cap- ital flows lately." Much of the overseas investment money in Foreign Investment Decelerates n Investment As the biggest players pull their foot off the gas, smaller groups are picking up some of the slack. Selection Panorama is a new 30-story high-rise under construction in Laval, near Montreal. It is a project prototype that Canadian developer and operator Réseau Sélection plans to export to the United States.

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