Fitch: Private Equity, Foreign Investors Swoop In On Senior Housing

Non-traditional buyers are swooping in to buy U.S. healthcare real estate, including senior housing, according to a Fitch report released last week. These investors come as the largest REITs offload skilled nursing facilities in their portfolios.

From Fitch:

Foreign investors are increasingly looking to invest in US healthcare real estate, particularly those with longer term horizons such as sovereign wealth funds, pension funds and insurance companies.

Increasing institutionalization of healthcare real estate would be a credit positive for REITs to the extent it improves asset liquidity and financeability. These positive implications are tempered by the possibility that the rise of less-seasoned buyers as the highest bidders is a counterintuitive signal of peaking values and an aging cycle, as it has been in other sectors’ cycles.

REITs continued to dispose of skilled nursing facilities in third-quarter 2016 amid operator challenges, and the purchases by owner-operators and healthcare-focused funds likely reflect a disconnect between public and private market valuations.

This was a topic of discussion at the 2016 NIC Fall Conference, where one of the panelists was a senior official at PSP Investments, the $130 billion entity that manages money for one of Canada’s largest pension funds.

PSP is typically on the cutting edge of institutional investing; if it’s showing an interest in U.S. senior housing, it’s likely other mammoth institutions are thinking the same way.

Here’s what a senior VP at PSP had to say about the senior housing market at the NIC Fall Conference:

“The demographics are compelling,” said Neil Cunningham, senior vice president, global head of real estate investments, PSP Investments, a $130 billion fund that manages the pension assets of the Canadian armed services and public service employees. “We’ve made a tactical allocation to overweight U.S. seniors housing.”


Seniors housing has gained more acceptance among institutional investors, noted Cobb of Hamilton Lane, though she added that investors still need to be educated about the product. Cunningham believes that as transparency improves and the seniors housing market becomes better known, it will be a standard part of a portfolio because of the quickly aging population.

As an investor, Cunningham at PSP wants the operator to have at least a 20% investment in the property. With a stake in the project, the operator will have a solid knowledge of the market and submarkets, he said.

Institutional interest will only increase as transparency grows around performance metrics and institutional investment staff become more comfortable with the market.

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