Prudential raises $568m for senior housing fund

The Parsippany, New Jersey real estate investment manager has completed its largest fundraise for the property type, exceeding its original target by $68 million.

Prudential Real Estate Investors (PREI) has held a final close for its fourth senior housing fund, Senior Housing Partners (SHP) IV, amassing a total of $568 million in commitments. The closed-end, commingled real estate vehicle will pursue senior housing investments such as independent-living and assisted-living facilities in the US and Canada, where up to 20 percent of the equity can be invested. Transactions will focus on direct and joint venture acquisitions of existing properties, forward commitments on new construction, mezzanine loans and development.

“There is a growing need for senior housing in the United States, and the demand for high-quality properties that offer a variety of services and accommodations is on the rise,” said Noah Levy, managing director at PREI and the fund’s portfolio manager, in a statement. “We expect this demand will continue to increase, and we look forward to providing an attractive return for our investors over the long term.”

SHP IV, which launched last year with a targeted size of $500 million, is seeking net returns of 10 percent to 13 percent, employing no more than 50 percent leverage, according to documents from the Pennsylvania Public School Employees’ Retirement System (PSERS), which committed up to $100 million to the fund in December. Other limited partners in the fund included the New Mexico Educational Retirement Board, the State of Wisconsin Investment Board, Texas Permanent School Fund and the State of Hawaii Employees’ Retirement System, according to PEREConnect and PERE research. PREI, the real estate investment and advisory business of Prudential Financial, will co-invest $50 million in the fund.

PREI has invested in senior housing since the late 1990s, based on what it has viewed as a growing market opportunity and investor interest.  The population of seniors aged 75 and older in the US currently stands at about 19 million, but that number is expected to grow considerably over the next decade, the firm said in its presentation to PSERS. Meanwhile, “since 2007, senior housing construction starts have sharply declined, having been restrained by a lack of financing during the financial crisis.”

PREI launched its first fund in the SHP series in 1998, followed by a second fund in 2001. SHP I, which raised $183 million, and SHP II, which raised $93.75 million, achieved net IRRs of 16.4 percent and 29.8 percent, respectively. The $370.7 million SHP III, with a 2006 vintage year, currently has a net return of 0.27 percent, but it is expected to reach the targeted return of 10 percent to 15 percent.

Like its predecessor funds, SHP IV will be managed by Levy and PREI managing director John Dark, who together lead an investment team that recently added Steve Blazejewski as a principal in its Atlanta office. Blazejewski previously served as vice president of senior housing at Health Care REIT and as a vice president at Capitol Seniors Housing, an affiliate of The Carlyle Group.