As large portfolio deals in the U.S. senior housing sector have become rarer, some major investors are closing big transactions in foreign markets. Prominent U.S. real estate investment trusts have posted noteworthy Canadian deals recently, but they also are active overseas, dramatically ramping up activity in European markets in the last year.
Europe-based investors reduced their activity in the seniors housing space by 41% between the first quarter of 2014 and the first quarter of 2015, while global investors — mostly based in the United States — increased deal volume by 142%, according to figures from commercial property data and analytics firm Real Capital Analytics.
Institutional real estate investors in Europe historically have been wary of the operational risks involved in seniors housing, and this may be contributing to their lagging now as demographic trends make the sector more appealing, Real Capital’s Executive Managing Director for EMEA & APAC Simon Mallinson tells SHN.
U.S. senior housing specialists seem to be bolder, with Toledo, Ohio-based Health Care REIT (NYSE: HCN) emerging as the top European investor for the three years ending in the first quarter of 2015, according to Real Capital data. HCN is the largest non-provider owner of senior living properties in the United States, according to the Assisted Living Federation of America.
U.S. firms Formation Capital and NorthStar Realty Finance Corp. (NYSE: NRF) also appear on Real Capital’s top European investors list.
In one prominent deal to take place in 2014, HCN acquired an 11-property senior housing portfolio acquisition in England from Gracewell Healthcare for £153 million (USD$257 million) in cash.
The United Kingdom has been the prime European market for U.S. investors. Shared language and other similarities, as well as market access, make the U.K. the natural beachhead for investors moving into Europe, the report notes.
This is reflected in the numbers: The United Kingdom accounted for 62% of overall activity in the 12 months ending with the first quarter of 2015, for a total of €1.97 billion in deals.
Germany followed with a deal volume totaling €524 million. As U.S. players look to expand their European investments, Germany could emerge as more of a target market, thanks to its demographics: In Germany, 9% of the population is projected to be older than 80 as of 2035, compared with 7.1% of the U.K. population.
Cap rates in the European senior housing sector are averaging about 6%, according to Real Capital.
Even though this is lower than the yields offered by office, industrial and other types of commercial real estate, European investors and those from overseas may increasingly see an upside in senior housing.
That’s due not only to the demographic trends, but to increased competition for office, retail and industrial assets, as well as the possibility of government incentives to invest, long-term leases and stable income, the report states.
There is significant room for investment in the European markets, whether or not the capital is flowing from international sources, the Real Capital data suggests. Senior housing and care accounts for 2% of overall European investment volumes, compared with 4% of U.S. and 7% of Canadian activity.
Written by Tim Mullaney