Chicago: the investment manager’s home base

Waterton has expanded its existing stake to become the majority stakeholder in Chicago-based senior living owner and operator Pathway to Living as part of its plan to expand into senior living investments, PERE has learned.

Using balance sheet capital, Chicago-based Waterton acquired a 50 percent interest and three of the six board seats in Pathway to Living in 2015. PERE understands Waterton’s most recent transaction increases the firm’s stake to 80 percent. The firm declined to comment on the details of the transaction, including price.

Waterton CEO: David Schwartz

The acquisition of the additional stake in the vertically integrated senior living platform will allow Waterton to further expand its business into the senior living market. Currently, the real estate investment firm specializes in the multifamily and hospitality sectors. Though it has had a stake in Pathway since 2015, Waterton’s exposure to senior living has remained relatively small compared to multifamily properties, with around 5 percent or less of its investments being made in the sector, according to Waterton co-founder and chief executive David Schwartz.

PERE understands that since its initial investment in Pathway to Living, Waterton has acquired nine senior living assets via a joint venture with the firm. Waterton held one senior living asset prior to partnering with the company and does not have an interest in the assets that Pathway to Living owned prior to the formation of their partnership in 2015. Schwartz hopes that senior living will be a greater part of the Waterton business going forward.

The firm has three commingled funds in the Waterton Residential Property Venture series, which follows a value-add multifamily and residential investment strategy. Its most recent commingled fund, Waterton Residential Property Venture XIII, closed on $920 million in April 2018, PERE previously reported. The fund originally launched in December 2016 with a target of $750 million, according to PERE data. Waterton also has one hospitality-focused value-add fund, Waterton Tactical Real Estate Fund I, according to PERE data.

Waterton has been interested in ramping up in senior living because of growing demand from institutional investors, which have been drawn to the strategy due to demographic changes in the US. The firm also views senior living as a natural extension to its multifamily investments, Schwartz said. The aging American baby boomer population creates an obvious need for senior living facilities that includes independent living, assisted living and memory care. At the same time, the supply of senior living assets has been very small compared to other property sectors. With Pathway to Living, the firm has access to ground-up development, value-add and opportunistic distressed investments in the senior living property sector.

Waterton’s stake in Pathway to Living has benefited both firms thus far. The latter’s more than 20 years of experience in the sector has helped Waterton lower operational risk in what is a relatively new sector for it, according to Schwartz. Though senior living provides housing the way traditional multifamily properties do, the tenants require different accommodations, amenities and services – such as food and wellness care and a higher level of socialization – due to their age and physical conditions. Meanwhile, Waterton has brought an investment management component to Pathway, including a capital markets research team and capital raising team, Schwartz noted.

Waterton will not be making additional senior living investments using capital from its multifamily or hospitality-focused fund series. The firm will use a separate vehicle to pursue senior living investments, according to Schwartz.

Waterton’s existing multifamily fund series typically targets a 13 percent net internal rate of return and a net multiple range of 1.5x to 1.8x, PERE previously reported. The firm declined to comment on its own investment performance and on the performance of any Pathway to Living investments. Waterton held approximately $4.8 billion in assets under management as of September 30, 2018.