The lead-up to a senior housing RIDEA deal between an operator and a real estate investment trust has been described many ways: as dating; as a courtship; even an arranged marriage. But at the end of the day, panelists at SHN’s 2013 Senior Housing Summit agreed, it’s all about alignment of goals, and there are plenty of future “relationships” still to come.
“It really takes alignment; a quality operator from our perspective who is proven,” said panelist Sharon Yester, chief asset management officer at CNL Financial Group. “We figure out the strategy beforehand. It takes experience on the side of the REIT, particularly, to be able to manage through and meet expectations with operators.”
“What they’re looking at is a strategic partner with them long-term for one deal, or many deals. In some transactions, we’ve bid less on properties, but we’re supportive of these groups—particularly hospitals and MOBs—and they want to know they’ll have a partner that will allow them to perform and follow their strategy,” says Yester. “It’s a lot of alignment, a lot of dating, so to speak. A lot of courtship.”
When it comes to RIDEA agreements, size doesn’t always matter. John Cobb, chief investment officer at Ventas (NYSE:VTR) said that when considering deals, there’s more at play than the size of the transaction.
“We like to partner with the best assets, the best operators,” he said. “We’ve done larger RIDEA deals, and single-asset add-ons with those partners too. It’s not the size of the deal, but who you’re doing it with. Because the industry has done so well in the last five years, there’s plenty of capital. You’re trying to match the best capital with the right deal and the right operator.”
However, when doing RIDEA deals, there is a fair amount of documentation that has to be worked through, he adds. “It’s hard to do a one-off asset with a one-off operator. We tend to want to have a sizable portfolio because of the amount of time it takes to negotiate [all the paperwork].”
While many agree that much of the “low-hanging fruit” has been reaped in terms of large-scale attractive portfolio deals, Yester said there’s still a “huge” consolidation play.
Ventas is still seeing “tons” of activity, Cobb agrees.
“When we look at deals today, there are just as many today as a month ago, as a year ago, and as two years ago,” he said. Competition is also hot with private equity, pension funds, and other REITs at the table “every time” Ventas does a transaction.
Operators are benefiting from the competition.
“It’s not a foregone conclusion, even through this period, that the REITs wind up with everything there is to buy,” Will says. “In all the transactions [we’re involved in], private equity is right there with REITs on price. Pricing can be remarkably close.”
Belmont Village has been involved with raising development capital in addition to the almost $1 billion in RIDEA-structured deals it has done in the past year and a half. The new construction, says Will, has all been private equity-funded.
“Private equity is a much better source for development [capital],” she says. “It becomes an issue of matching needs with want.”
With the expansion of the aging population, demand is rising for new development.
“Boomers are going to want different options than what a 30-year-old CCRC is going to bring to them,” Yester said. While REITs aren’t using the RIDEA structure on most ground-up development transactions, joint venture structures hinge on upfront communication. “You set expectations early on, and deal with ‘what’s the worst that could happen’ up front. It’s like a marriage. You work through it.”
Written by Alyssa Gerace