Senior partners

Prudential Real Estate Investors has entered into a $1 billion (€770 million) joint venture with Sunrise Senior Living, one of the world's largest senior housing companies, to develop an estimated 18 senior living communities in the UK.

PREI, whose parent company is Prudential Financial, has agreed to invest $160 million in exchange for an 80 percent stake in the joint venture, while Sunrise is contributing $40 million for a 20 percent stake. With leverage, the venture will spend $1 billion on developing the portfolio over the next three years.

It is not the first time PREI and Sunrise have struck up a partnership in Europe. In 2002, the two firms agreed to invest €195 million to develop 36 properties in the UK and Germany, 11 of which have since opened.

Virginia-based Sunrise operates 436 communities in the US, Canada and Europe, and specializes in offering communities that typically comprise 80 to 90 high-end units in wealthy areas.

Jonathan Short, head of European real estate merchant banking at Prudential's real estate management business, Pramerica Real Estate Investors, said appreciating house prices in the UK has given rise to greater prosperity, increasing the affordability of housing for many seniors. In addition, the size of the ageing population combined with tighter government regulation of nursing homes can provide operators with economies of scale.

“The model is to run it as a residential home with activities and interaction with other residents,” he says. “Our experience is that these properties are filling up quickly.”

The biggest risk in such investments is the planning process, he concedes. Other risks associated with care homes include negative publicity if poor care is highlighted by the media or a downturn in the economy.

The new investment will be injected into PREI's third opportunity fund in Europe, PRECO III. To win the deal, PREI had to fend off competition from an overseas pension fund, underlining the widespread attraction that such investments hold.

The Pramerica/Sunrise joint venture is the latest example of overseas investors attracted to properties catering to the UK's graying population. Blackstone was one of the early pioneers in the sector, acquiring a significant number of nursing home operators including Southern Cross Healthcare, NHP and Ashbourne. Last month, the private equity firm pocketed €192 million from selling 40 million shares, or 21.3 percent, of Southern Cross.