Private Equity in Senior Housing: “Not For the Faint of Heart”

Private equity is largely absent from the senior housing market, but it will return pending its ability to mitigate some of the risk involved in the sector, industry experts said at a November panel hosted by The SeniorCare Investor and the American Seniors Housing Association.

While many private investors have exited, it doesn’t mean they’re completely done with the market.

“I think they’ll return,” said Patrick Hurst, national director of Houlihan Lokey’s Healthcare Group. But first, “They have to be able to see their return and be able to quantify some of their risk.”


With real estate investment trusts (REITs) “pricing up” real estate, it’s hard for private equity to compete and get a worthwhile return, he continued.

However, he thinks that as REITs start entering the skilled nursing facility sector, there will be more opportunity for private equity to get back into assisted and independent living, as they have prior experience in these fields.

Headline risk is what’s keeping private investors away, Hurst said at the panel, especially as acuity levels increase across the spectrum in both assisted and independent living facilities as well as nursing home care.


“This is a very specialized property type, and it’s not for the faint of heart to invest in,” said Matthew Lustig, CEO of Lazard Freres & Co. “Over time, more and more money goes in through specialized firms, but they’re not that big. In small deal business, there are specialists.”

If there’s an opportunity to make money, then bigger players (like REITs) will likely be involved, Lustig said.

“Private equity firms aren’t that enamored of this business. It’s a hard way to make a living in senior housing; it takes a lot of specialty, and there’s not as much liquidity as in other sectors,” he said.

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But private equity isn’t all about chasing yield, Hurst countered, it’s about mitigating risk. The assisted living sector is more than just a place where elders live, he continued: it’s beginning to fit into the health care system more, and when there’s more being offered, there’s more interest.

“By diversifying what you’re doing in assisted living, in the perception of equity, it brings down the risk,” he said.

View the Evening with Wall Street and Seniors Housing panel here.

Written by Alyssa Gerace