Senior Housing Safe for Investment; Virtus Launches $500 Million Fund

Virtus Real Estate Capital, a private equity real estate firm based in Austin, Tex., is preparing to launch a $500 million fund –the largest in company history– to invest in “recession resilient” types of properties, including seniors housing, student housing, medical offices, and self-storage facilities.

Although Virtus hasn’t yet closed a senior housing-specific transaction, company founder and CEO Terrell Gates says they’ve been researching and analyzing the sector for several years.

“It just happens to be that it was one of our targeted property types when we made a shift in 2006 into a class of properties we consider to be recession resilient,” Gates told SHN.


The fund will be launched in the coming quarter, and will be invested across all four of Virtus’ targeted property types. No single category will represent greater than 40% of the fund, Gates says, and the firm will probably invest somewhere between 20% and 30% in senior housing.

This will be about $150 million of the fund, and taking leverage into account, that portion could translate into $350-400 million worth of senior housing product, he adds.

Virtus plans to invest primarily in independent living and skilled nursing facilities (SNFs), even though the latter sector has come under fire recently after reimbursement rate cuts and other budget-related issues.


“We like that space because barriers to entry are higher,” says Gates. “Not just anyone can jump into it and upset demand and supply metrics. It’s an asset type that’s well within the way of some major demographic types coming through the system, and there are far fewer beds than there’s going to be demand.”

This statement is backed up by a recent infographic released by Assisted Living Today showing the possibility that 42 million Americans may go without nursing home care by 2012, as the nation gets older and nursing homes close down.

“We’ll manage reduction in reimbursement rates, we’re going to target markets where we can target private pay,” Gates says. “Our general plan for those property types is to allow us to maintain yield, but also enhance it over time.”

Virtus also plans on investing in ground-up expansion or rehabilitation of facilities, and will work with operating companies under a master lease scenario, he says.

As for independent living, the other sector of senior housing the firm is looking to get into, Gates says they want to bring down the price point.

“We’re really focused more on the value segment of [IL],” he says. “The rent per bed is something that is more manageable for the vast majority of the senior housing community. Instead of doing the ‘full cruise ship model’ where everything is included, and you’re paying $1,500 to $2,000 per bed per month, we want to provide more of an ‘a la carte’ service basis where we offer services as needed.”

They like this value space because about $800 per bed per month is much more affordable for a majority of the targeted age group, Gates says.

Virtus has operating partners for both SNFs and ILFs, and Gates says that while its first independent living facility will probably be in the Midwest, it’s looking to the Sunbelt as the geographic location for the majority of its assets.

Written by Alyssa Gerace