Non-Traded REITs: Only Getting Started in Senior Housing

After raising nearly $20 billion of capital last year, non-traded real estate investment trusts (REITs) continue to carve out their roles as significant players in senior housing finance. And for 2015, some are forecasting heightened activity yet to be seen among these investors.

Non-traded REITs set a record in 2013, raising $19.6 billion in the year alone, according data from Robert A. Stranger & Co., an investment bank based in Shrewsbury New Jersey. But while the past year was a milestone that also saw $17 billion in deals monetized—compared to $9.2 billion monetized in 2012—those eying the senior housing and healthcare sectors anticipate even more money coming into the space in 2015.

“It’s going to be a very robust year, for capital formation and acquisition activity,” said Kevin Gannon, managing director for Robert A. Stranger & Co., during the 24th Annual National Investment Center for Seniors Housing and Care (NIC) conference in Chicago last week. “We think about $30 billion will hit this space in 2015.”


Three non-traded REITs collectively account for over $25 billion in capital, Gannon said, naming the three firms of the session’s panel speakers: American Realty Capital Healthcare Trust, Griffin-American Healthcare REIT III and Sentio Healthcare Properties, Inc.

Doing the largest share of the investing is ARC Healthcare Trust, representing between 50%-60% of total activity, Gannon noted. The REIT, which was acquired in June by the Chicago-based publicly-traded Ventas (NYSE: VTR) in a $2.6 billion transaction, has been highly active in senior housing in the last three years.

From 2011-2014, the REIT has invested approximately $43.7 billion into senior housing and healthcare, totaling 259 acquisitions to date along with more than 7,000 senior living units.


In the last few years, ARC Healthcare Trust deployed over $2 billion in the senior housing space alone, according to comments made by CEO Thomas D’Arcy during the discussion.

“Seniors housing is a business we know well and look forward to growing our footprint,” he said. “We’re going to be in the business for the long-term.”

But ARC Healthcare Trust isn’t the only non-traded REIT looking at senior housing as a long-term growth sector.

“The worst kept secret in our inudustry is if you’re raising money, then you need to deploy it,” said Dan Prosky, president and CEO of Griffin-American Healthcare REIT III. “The goal is to diversify the payor, whether it’s the government, private pay as well as private insurance.”

Griffin-American Healthcare REIT II, the predecessor to the third REIT variation of the same name, was acquired by NorthStar Realty Finance Corp. (NYSE: NRF) in August in a transaction valued at $4 billion.

In conjunction with the deal, the boards of both companies agreed to a merger agreement under which NorthStar will acquire all of Griffin-American REIT II’s outstanding shares for $11.50 per share. The acquired portfolio comprises 30% senior housing investments in the U.S. and U.K., whereas 43% represents medical office buildings (MOBs).

Earlier this summer, it was rumored the REIT had notably triggered a bidding war among several of the senior housing sector’s high net worth investors, including Ventas, Health Care REIT (NYSE: HCN) and even ARC Healthcare Trust, before it was revealed that NorthStar would be the REIT’s final suitor.

When it comes to targeting potential partners for investment, Prosky said his firm prefers to partner with operators who have a “performing pool of assets” with the opporunity to expand that pool.

When it comes to targeting potential partners for investment, Prosky said his firm looks for “good, regional operators” to help them grow their platforms.

“Let’s start out with a performing pool of assets and then let’s expand that pool,” he said.

Currently, the REIT has between seven to eight development projects in its pipeline, Prosky said, though he did not elaborate on where or what those projects would include. However, not all non-traded REITs have been actively raising billions of dollars worth of capital as of late.

Sentio Healthcare Properties raised zero retail capital in the last few years, though it is still remaining active in the senior housing investment arena.

The Orlando, Florida-based REIT commands about a $400 million business comprised 75% of senior housing RIDEA assets and 25% medical facilities, which include skilled nursing, MOBs and long-term acute care hospitals.

Though it’s no longer raising capital, according to Sentio CEO John Mark Ramsey, the company does have additional investor with a “whole bunch of capital.”

“Our business is built on the high-quality of our operators,” Ramsey said.

One of the REIT’s recognized capital partners is Kohlberg Kravis Roberts & Co. (KKR), a global investment firm with $98 billion of assets under management as of June 30, 2014.

In early 2013, the firm entered into a $150 million capital partnership with Sentio, which is currently in the process of working through that commitment right now, Ramsey said. Of that total $150 million, about $38 million has been deployed, he added. Under the agreement, KKR committed to provide an initial $150 million of convertible preferred equity to Sentio over a two- to three-year period.

This month, Sentio announced a $42.5 million purchase of St. Andrew’s Village, a Class A, 246-unit continuing care retirement community in Aurora, Colorado—the first of what’s to come from the non-traded REIT as it looks to also target long-term growth in the senior housing space.

Written by Jason Oliva