Kayne Anderson Reportedly Raising $2.5B Fund, With Senior Housing As Investment Target

Kayne Anderson Real Estate is reportedly raising a new fund, with senior housing among the private equity firm’s investment targets.

The $2.5 billion fund is “on the verge of closing,” the Wall Street Journal reported earlier this week, noting that about half the fund is intended for medical office deals.

Managing Director Max Newland spoke with Senior Housing News to discuss how senior housing will remain a focus for the firm. Newland leads Kayne Anderson’s senior housing team. 

Kayne Anderson is no stranger to senior housing, having invested in the sector since 2013. The firm’s portfolio currently numbers 74 communities located across the United States, from Vermont to California.

Other private equity firms also are raising funds to go after senior housing. Ares Management, for instance, has reportedly raised a $1.7 billion fund, anticipating that pandemic-related market dislocation could create opportunities to invest in distressed senior housing.

But Kayne Anderson plans to stick with its tested strategy, which largely revolves around a few operator relationships, such as with Watermark Retirement and Discovery Senior Living.

“We have a handful of key operators that we work with, and we’re not really looking to expand that stable much more as we head into Fund VI,” Newland said. “The bulk of our pipeline is largely deals that Kayne sources, and we [work with] our existing operators.”

Within senior housing, Covid-19 has given rise to opportunities, such as situations in which a developer was in need of an exit, and Kayne was able to recapitalize the project as a more patient source of equity. The developers in these scenarios are still able to get a reasonable valuation relative to development costs, although likely their profits are far lower than they had originally anticipated.

“I’m not sure if that’s distress in the traditional manner,” Newland said.

As previously reported by SHN, one of Kayne Anderson’s most high-profile projects is a $330 million Brooklyn Heights redevelopment, operated by Watermark.

That project opened its doors “in earnest” near the end of Q1 2021, which fortuitously was also when Covid-19 vaccinations ramped up and visitation guidelines were relaxed, Newland said.

The community is now leasing up and Kayne is “very bullish on Brooklyn” and other major metro, infill locations, he said. Other Kayne Anderson projects recently opened in the Los Angeles metro area and Charlotte, North Carolina; and the firm just signed a term sheet on a project in the Washington, D.C. area.

Within the Kayne Anderson portfolio, needs-based demand in assisted living and memory care has rebounded more quickly than lower acuity settings, although from region to region there are significant variations, according to Newland.

Also of note: the firm’s one active adult property experienced the biggest census gains of any community in Kayne’s portfolio in 2020 and now is around 97% occupied. Newland attributes this to some older adults preferring active adult to traditional independent living, where visitation constraints were tighter during the pandemic.

Going forward, Kayne has readjusted some sales and leasing targets and restructured some incentives on the executive director and sales/marketing levels. The firm worked closely with its operators during the pandemic on everything from accessing testing to hero pay to new sales and marketing approaches. The result is stronger asset management and even tighter operator relationships.

“I think we’ll come out of this Covid world much, much stronger,” Newland said.