Top trends of 2007: healthcare real estate shows rude health

PERE looks back at the year just passed for the trends that mattered most. Today we look at trend number five - ageing populations have put a premium on facilities that cater to senior citizens and healthcare businesses.

US investors had changing demographics on their minds this past year. “As the population of our country gets older, the demand for healthcare services will increase. Commercial real estate investors who invest in the medical office sector will benefit from these demographic changes,” Steve Bolen, managing director at LaSalle Investment Management and head of the firm’s medical office fund, told PERE in October.

LaSalle acquired a portfolio of nine medical office buildings located in the greater Albany metro region of New York State from New York-based real estate company First Columbia for $100 million. The properties were acquired by LaSalle’s Medical Office Fund II, a private real estate investment trust with $300 million of equity and an approximate $850 million purchasing power.

The acquisition is the latest in a string of deals by private equity real estate firms in the healthcare and related sectors. Connecticut-based Westport Capital and healthcare investment company Reichmann Healthcare Capital acquired in August a controlling interest in Roswell, Georgia-based long-term care provider Wellington Healthcare Services. Wellington is comprised of 11 long-term care and senior living centers in the Southeast US.

In an earlier deal, Westport partnered with Capital Health Group and Kaplan Development Group to acquire four healthcare facilities in New England, collectively known as the New England Healthcare Portfolio. Westport gained 369 assistedand independent-living units following the deal. The biggest news in this sector came in the form of The Carlyle Group’s acquisition in July of Toledo, Ohio-based Manor Care, a provider of short-term post-acute and long-term health services, in a deal valued at $6.3 billion.

The Manor Care transaction received much press for the sheer enormity of the deal. Carlyle picked up more than 500 nursing and rehabilitation centers, assisted living facilities, outpatient clinics, and hospice and home care facilities. Manor Care reportedly owns around 98 percent of its property portfolio. The deal is still pending following accusations by some activists that private equity firms will put profits ahead of care.

Nursing homes have been an increasingly attractive sector for private equity real estate firms. In July, after a protracted bidding war, JER Partners and healthcare investor Formation Capital acquired Genesis Healthcare in a $2 billion deal. Genesis, the fifth-largest provider of skilled nursing services in the US, has a portfolio of 220 nursing and assisted living facilities.

The sector presents good opportunity only for firms skilled with both the real estate and operational complexities of these assets – a blend that private equity real estate firms have long bragged about.

Manor Care: Carlyle’s healthy investment