Sometimes the best opportunities can be found when you’re not proactively looking for them. That’s certainly been the case for JER Partners in terms of its existing healthcare assets, after spending the past year in aggressive asset management mode.
Today though, as the McLean, Virginia-based firm continues “blocking and tackling” its legacy investments, JER is also eyeing the potential for new deals in the senior living sector.
“Our number one job has been to focus on investments,” said JER chief executive officer Barden Gale. “However, as we worked through our investments, we recently started saying to ourselves we also couldn’t overlook some of the opportunities we’re beginning to see in some sectors. Healthcare is one of them and it’s pretty compelling.”
Led by managing director Frank Small, JER’s healthcare team has already closed on one deal, the acquisition of a six-building portfolio of skilled nursing facilities in Florida and Pennsylvania, which will be leased back to the operator. The deal, valued at $50 million and with a cap rate of nearly 12 percent, is not a one-off event though. JER currently has a potential pipeline of $300 million worth of other healthcare-related transactions it is conducting due diligence on.
Of course, JER won’t close all those deals, Small said, but he said the skilled nursing sector – where medical and nursing care is provided to residents – “jumps out as the most interesting opportunity from a risk-return perspective”. Even during the recent recession, occupancy remained constant, Small said, due to the sector’s “needs-based” demand and the high percentage of revenue derived from the government. It was, Small said, a sector that provided an attractive and stable cash flow for many investors.
|  As we worked through our investments, we recently started saying to ourselves we also couldn’t overlook some of the opportunities we’re beginning to see in some sectors. Healthcare is one of them and it’s pretty compelling.
Gale |
“When you look at the demographics you can see demand is set to grow, however new supply is not necessarily coming online,” he added. Throw into the mix the recent US healthcare overhaul legislation, which extended health insurance coverage to more than 32 million people, and Small predicted the “occupancy needle” could only move higher in future years and decades.
In a break with past investments, JER is unlikely to target entity-level investments, as it did in July 2007 when it closed a $2 billion take-private of senior living company, Genesis HealthCare Corporation.
Real estate investing today was about “getting to the asset”, Small said, rather than taking on the potential “incremental risks” of entity-level restructurings. “JER is very much focused on triple net leases, targeting primarily the skilled nursing sector, where there is a lease already in place or where a sale-leaseback can be executed,” he added.
JER is investing in the deals directly with investors, through separate account and joint venture structures. Gale said the firm was concentrating first and foremost on managing investments in its $772 million JER Partners IV fund and the €809 million JER Europe III vehicle, closed in 2008 and 2007, respectively. He said though JER would raise future real estate funds “when the time is right. I’m very pleased with the blocking and tackling we’ve been doing so far, it’s resulted in some enormous successes for us.”
Overall though, JER was “waiting for the time when things really begin to change” – something he predicted could take “two to three years. We are consistently monitoring the situation but there’s no need to rush into every sector and opportunity you see.”
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