The Fountains of Mission asset, located in Calgary, was part of the transaction.

Completion of a $931 million seniors-housing acquisition in Canada this week had special significance for both Chartwell Seniors Housing Real Estate REIT and Heath Care REIT, Inc. The addition of 8,187 suites makes Chartwell the largest provider of seniors housing in the country and gives Healthcare REIT its first foothold in the growing Canadian market.

“This investment with Canada’s leading seniors housing operator expands Healthcare REIT’s successful U.S. strategy into Canada,” said George Chapman, chairman, CEO & president of the Toledo, Ohio-based REIT. “It establishes the company’s presence in Canada’s largest and most attractive markets with a portfolio of high-quality private-pay facilities.”

The two REITS formed a joint venture to buy the portfolio in 42 retirement communities from several Maestro Retirement Residences funds. Most of the properties are located in Quebec and Ontario, 45 percent each, with 7 percent in British Columbia and 3 percent in Alberta. They are almost entirely independent-living or assisted-living units.

The co-ownership agreement between the Chartwell and Healthcare REIT subsidiaries gives each a 50 percent undivided interest in 39 properties with 7,662 suites for a net purchase of approximately $850 million. Healthcare REIT, also known as HCN, has acquired full interest in three properties with 525 suites for a net price of about $81 million. Chartwell L.P. will manage all of the properties, as well as any others in the future acquired by the co-ownership.

“With the completion of this important transaction, we are increasing our focus on the strong, stable and growing Canadian market,” said Brent Binions, Chartwell’s president & CEO.

Binions said the deal helped the REIT achieve many of its goals including focusing on its core business by expanding its presence and leverage its management infrastructure in existing Canadian markets. He also noted that Chartwell wanted to enhance its profitability by growing its offerings in the higher-margin independent and assisted living segments of the market.

As in the United States, Canada’s seniors-housing market is expected to grow as baby boomers age and retire. About 14 percent of Canada’s population was 65 or older as of 2010. That number is expected to reach 20 percent by 2026, according to Statistics Canada.

Binions said Chartwell, based in Mississauga, Ontario, expects to increase the new portfolio’s occupancy from the current 88 percent to at least 90 percent over time.  He also noted that HCN “is a highly experienced, well-capitalized partner that is fully committed to participating in the seniors housing industry.” The two REITs acknowledge they anticipate both increasing occupancy in the portfolio and seeking new Canadian opportunities in the future.

Occupancy rates for seniors housing in the United States are up this year, according to a first-quarter 2012 report by NIC MAP. The average occupancy rate for U.S seniors-housing properties Q1 was 88.4 percent, an increase of 0.2 percentage points from the previous quarter and a 0.8 percentage point increase year-to-year, according to the report. The occupancy rates have risen consistently in the past eight quarters. The report noted that assisted living facilities had the best occupancy rates – 88.6 percent – while independent living rates were 88.3 percent, both up slightly from the previous quarter.

Seniors housing investments are on the rise in North America. In mid-April, Prudential Estate Investors said it had raised $568 million for its largest seniors-housing fund.. The closed-end fund is targeting investments in independent-living, assisted-living and memory care properties as well as other assets that offer a combination of those services.

The largest owner of private-pay seniors housing in the U.S. is about to get even larger. Ventas Inc. has entered into a definitive agreement to acquire 16 private-pay communities from affiliates of Sunrise Senior Living Inc. and its institutional joint venture partner. It’s no small deal; Ventas will shell out $362 million for the properties.

It’s also a good deal, James Milam, analyst with investment banking firm Sandler O’Neill + Partners L.P., told Commercial Property Executive. “It expands a relationship that Ventas already has with Sunrise, who is a good operator and manager of these types of assets,” he said. “They manage assets that contribute a little over 10 percent of Ventas’s NOI now, so they have a significant relationship with each other and know how to work together well at this point.”

Sunrise, in addition to walking away with $28 million in exchange for its 20 percent ownership interest in the 1,274-unit portfolio, will continue in its capacity as manager of the properties.

The group of 16 seniors living communities spans 12 states and has a median age of just four years. In a recent note on Ventas, Sandler O’Neill estimates that the portfolio closed 2011 with an occupancy level in the 82 to 83 percent range. Additionally, the firm calculates an initial yield of 6.7 percent on the acquisition price, which, as documented in the note, “indicates an expectation of above average growth from these assets, as well as the competitive bidding that this marketed portfolio attracted.”

Ventas will buy the properties, which will come free and clear of debt, with borrowings under its revolving credit facility. Ventas completed a new $2 billion unsecured credit facility in October 2011, replacing its previous $1 billion unsecured revolving credit facilities. The healthcare REIT expects the Sunrise transaction to be immediately accretive to normalized funds from operations, approximately 1 to 2 percent accretive, according to Milam. And there’s more for Ventas to be excited about when all is said and done. “The properties are new so they should be in pretty good condition, but there’s also some additional upside as, because they are new, they haven’t really gotten to a fully stabilized occupancy yet so there’s some opportunity for Ventas to see some earnings growth out of the assets.”

Ventas’s purchase of the private pay seniors living communities is on track to close during the second quarter. And as Raymond J. Lewis, president of Ventas, intimated during the REIT’s fourth quarter earnings call in February, there is much more to come. “With our extensive tenant relationships and investment grade balance sheet, the lowest leverage in our sector, $2 billion of revolver capacity, a competitive cost of capital and a world-class acquisitions platform, we are well-positioned to source and win attractive investment opportunities,” he said.

Earlier this month, Ventas wrapped up the approximately $770 million acquisition of Cogdell Spencer Inc. and its portfolio of 72 medical office buildings, a transaction that gave the REIT the title of the largest owner of medical office buildings in the U.S.

Noah Levy

Prudential Real Estate Investors is set to make a big impression in the seniors-housing sector, having raised $568 million for its newest and largest seniors-housing fund.

Senior Housing Partners IV, a closed-end fund, will target investments in seniors housing, including independent-living, assisted-living and memory-care properties, as well as other assets that offer a combination of those services. The fund will invest in direct and joint venture acquisitions of existing properties, forward commitments on newly constructed projects, including mezzanine loans, and development.

The fund’s first asset was purchased in October, but PREI declined to release transaction details.

“We look at projects all around the country, but tend to focus on the top MSAs,” Noah Levy, managing director with PREI and the fund portfolio manager, told Commercial Property Executive. “Most of our acquisitions will be existing communities, but the fund does have a limited appetite for new development.”

Levy cited the growing need and demand for high-quality senior housing in the United States.

“We expect this demand will continue to increase and we look forward to providing an attractive return for our investors over the long-term,” Levy said.

PREI opened its first senior housing fund, Senior Housing Partners I, in 1998, when it noticed the growing market opportunity as well as investor interest. Senior Housing Partners II opened in 2001 and Senior Housing Partners III opened in 2006.

“Both SHP I and SHP II are completely liquidated,” Levy noted. “SHP III’s investment period is up.”

Steve Blazejewski, who has a strong background in the senior housing industry, was hired as a principal to help the team expand the group’s capabilities. Blazejewski was previously a vice president of senior housing at Health Care REIT and a vice president with CSH, L.L.C., an affiliate of The Carlyle Group. A graduate of the U.S. Naval Academy, he also has an MBA from the University of Maryland, Robert H. Smith School of Business. Blazejewski will be based in Atlanta and report to John Dark, PREI’s managing director of senior housing.

“Steve brings the kind of experience and industry knowledge that will help PREI to identify and target the types of senior housing opportunities that will expand our ability to execute on behalf of our clients,” Dark said.

As of Dec. 31, 2011, PREI managed approximately $49.1 billion in gross real estate assets on behalf of nearly 500 clients worldwide. It did not break out senior housing assets. Based in Parsippany, N.J., PREI has public and private investment vehicles in the U.S., Europe, the Middle East, Asia, Australia and Latin America.

PREI seems to be ramping up its seniors-housing investments at the right time. The market continued its recovery in the fourth quarter of 2011, according to a report by NIC MAP. The average occupancy rate for seniors-housing properties in 4Q11 was 88.2 percent, an increase of 0.1 percentage points from the previous quarter and a 0.7 percentage point increase from 2010, the report stated.  The seniors housing rate had risen for seven consecutive quarters. NIC MAP noted that independent living facilities, in particular, were driving the recovery. The assisted living properties occupancy rate remained at 88.6 percent for 4Q11. However, the nursing-care occupancy rate of 88.2 percent in the fourth quarter was down slightly from the third quarter. The report noted that nursing-care occupancy “has been marginally declining for several years.”

Overall, the annual absorption rate for senior housing properties was 2.0 percent in the fourth quarter of 2011, compared to 1.9 percent in the third quarter and 1.7 percent in 4Q10 , according to the NIC MAP report.

By Mel Gamzon

It has taken nearly three decades, but seniors housing has surfaced as a vibrant star in the U.S. real estate universe. Through innovation and perseverance on the part of industry operatives and their investors, a track record of successes has been established—even during the challenging past few years. The foundation has been set for a new generation of seniors housing products, which will begin to emerge in the year ahead. Yet the political and economic uncertainty in this country has been a consistent burden for the deployment of capital as well as the impact on the financial resources and psyches of senior consumers. There are numerous proposals at the federal level that will impact the cost and availability of capital, taxes and regulatory oversight. When will stability finally take hold? Hopefully, soon. However, what the government needs to do versus what it will do remains unclear.

Healthcare reform, in whatever format it eventually takes, will likely become reality after this election year. Certain provisions of the Affordable Care Act, even if dramatically modified, will provide the stimulus to alter the massive healthcare cost structure in the nation. Herein lies a vast opportunity for perceptive investors seeking to enter this sector: The healthcare continuum for seniors is evolving, with increased pressure to service our aging population within non-institutional settings that offer housing and supportive care options. This downward pressure for more affordable healthcare options in residential settings has only begun, as the impact of the Baby Boom generation will not be fully realized for at least 15 years.

For the skilled nursing business, the line in the sand has already been drawn at the federal level. The Centers for Medicare & Medicaid Services (CMS) lowered the boom on this segment last July with a draconian Medicare rate cut that impacted property values. This action, one year ahead of schedule, along with likely Medicaid rate cuts by many states that are suffering from severe budget deficits, will provide further impetus for investments in private-pay seniors housing. The handwriting is on the wall for cost containment, and seniors housing in all formats is the logical beneficiary.

Many investors are already focusing on such opportunities, as evidenced by M&A velocity in 2011. Despite all the uncertainty in the capital markets, seniors housing witnessed its second-best year ever, with a more than $16 billion transaction volume, catalyzed by the ultra-aggressive healthcare REITs. From the second half of 2010 into 2011, the REITs closed more than $20 billion worth of portfolio transactions in this space using the REIT Investment Diversification and Empowerment Act (RIDEA) and triple-net-lease structures. The REITs and their institutional capital partners have put the seniors housing sector front and center with prospective industry investment sources that are seeking returns greater than other real estate asset classes can offer.

Buoyed by historically low interest rates, private equity, pension funds, insurance companies and traditional investors have cautiously entered the business. Slowly and with careful consideration for potential operational complexities, the M&A market begins 2012 with a craving for both value-add and stabilized assets and portfolios. Because interest rates are likely to remain at historically low levels through 2014, we anticipate continued stability for asset valuations. Likewise, cap rates for high-caliber independent- and assisted-living assets—which dropped by at least 50 basis points last year—should remain stable if not tick down even lower in 2012 as the prospects for new construction are limited by the lack of available financing.

And U.S. investors are not the only ones monitoring this sector. The volatility of global economies and a need to generate predictable yields are attracting an increasing number of foreign investors. A growing number are studying industry dynamics and metrics with the objective of generating longer-term returns and the ability to “export” seniors housing technologies to their own countries. Like their counterparts in the United States, they are after the yield, safety and stability offered by this generally need-based real estate platform.

While the equity players have jumped off the sidelines for action, we are still waiting for debt to catch up. Therein lies the dilemma, as the GSEs have been the dominant debt providers in this space for the past several years. While it is reasonable to suggest that these entities are somewhat insulated from structural change during this election season, all bets are off the table after November’s election. Budgets are already tightening, and the delays in loan processing are creating frustrations with many borrowers.

Clearly, we are at a point where there is a huge opportunity for new sources of debt to enter the market—sources we likely will see as the year progresses.

Slowly picking up the slack in the debt markets are highly selective national and regional banks, insurance companies and non-traditional lenders. While bridge financing and balancesheet lending are becoming more prevalent, will we also see an emergence of the CMBS markets? Likely not, as some of the most aggressive commercial loans made in 2007 hit their maturity dates this year. There is roughly $55 billion worth of non-seniors CMBS loans out of a total of $580 billion in maturing commercial loans coming due. Those are tough numbers to tackle at a time when refinancing options are limited for non-stabilized assets. The good news is that, industry-wide, seniors housing loan defaults have been negligible relative to those of other sectors.

It helps that seniors housing is not an overheated sector. In fact, were it not for lenders’ continued hesitation to finance any but the triple-A ventures with experienced seniors housing practitioners, ground-up development would absolutely be possible and appropriate in many markets. Industry occupancy rates are at roughly 89 percent, with profit margins continuing to gradually improve. In many respects, there is a window of opportunity for industry owners and operators as well as investors to secure capital at highly competitive rates and terms.

The year ahead will mark the beginning of a dynamic new era for this industry. M&A activity will gradually accelerate as the year progresses, with owners seeking to monetize their current positions. Furthermore, as residents age in place, transitional housing and service options will evolve. In many instances, independent living will begin looking more like assisted living “light,” while traditional assisted living will assume a broader range of revenue-enhancing services.

Expanding into ancillary businesses such as home care and rehabilitation services represents an opportunity to improve revenue and strengthen market position as healthcare reform intensifies. Prospective new investors should recognize that strategic alliances with health and wellness providers can redirect the regulatory and legal issues to these service providers. Industry professionals are refining new approaches to these relationships.

All in all, then, prospects are good for the seniors housing sector. In fact, in many respects, despite the daunting challenges our nation faces, the next few years will be prime time for the sector as it begins to share center stage with the apartment industry.

Mel Gamzon is president of Senior Housing Investment Advisors Inc., a real estate advisory firm, and a member of the CPE editorial advisory board and the executive board of The American Seniors Housing Association. He produces a biannual seniors housing investment report for CPE TV and MHN TV. He can be reached at mgamzon@snrhousing.com.

Ziegler has facilitated a tax-exempt bank direct purchase on behalf of Covenant Retirement Communities. The direct purchase, completed by JP Morgan Chase, came in the form of two series of bonds totaling approximately $59.1 million.

The bonds included approximately $15.8 million of Series A product and $43.3 million of Series B. The majority of the proceeds were utilized to refund outstanding Series 1999 , Series 2004 and Series 2006 bonds. Additionally, a sum of roughly $6 million was reserved to finance capital improvements for several CRC facilities in Colorado, Illinois and Michigan. The seniors housing company has 15 continuing-care retirement community, independent living and assisted living locations in eight states from coast to coast.

The closing of the Series 2011 bonds marks a milestone for the Illinois Finance Authority, as the bonds constitute the agency’s first multi-state issuance after becoming a multi-state conduit issuer in July 2010.  “Gov. Pat Quinn and the Illinois General Assembly recognized that multi-state conduit issuance authority is an important tool to both retain and create jobs in Illinois,” Chris Meister, IFA executive director, noted in a prepared statement.

Specialty investment bank Ziegler has helped Greystone Communities take a big step forward with the development of The Terraces at Bonita Springs, a continuing care retirement community in Bonita Springs, Fla., with the closing of an approximately $143.2 million issue. Ziegler acted as the sole manager on the non-rated, fixed-rate issue.

The Terraces will span a 20-acre site located roughly 15 miles north of Naples and 25 miles south of Fort Myers. The CCRC will be managed by SantaFe Senior Living and will offer 144 independent living apartments, 49 assisted living apartments, 18 memory support and assisted living units and 40 private nursing beds. Construction of the property just got underway.

Alachua County Health Facilities Authority issued the Series 2011A and the Series 2011B bonds — valued at a respective $84 million and $59.2 million and due November 15 — and The Bank of New York Mellon Trust Company N.A. served as the bond trustee.

“The completion of The Terraces financing can be attributed to a committed sponsor, a well-conceived development plan in a strong market area and an experienced, dedicated working group, the combination of which are the elements observed in successful retirement communities throughout the country,” Rich Scanlon, managing director in Ziegler’s Senior Living practice, said.

Nationally, the seniors housing sector has been on the upswing. In the third quarter, the average occupancy rate for independent and senior living property types continued to climb for the sixth consecutive quarter, reaching an 88.1 percent occupancy level, which marked a 20 basis point increase from the second quarter. “With occupancy having risen each quarter since the first quarter of 2010, it is evident that we are past the bottom and are clearly in the recovery stage,” said Michael Hargrave, vice president with the Investment Center for the Seniors Housing & Care Industry’s NIC MAP Data and Analysis Service.

As for CCRCs, the combination of limited supply growth and increasing demand is expected to push the average occupancy rate up to 88.9 percent by year’s end, as per a report by Marcus & Millichap Real Estate Investment Services.

The bonds for The Terraces marks Ziegler’s third participation in financing for CCRCs within the last three weeks. Last week, the investment bank announced it had served as co-senior manager on a $36 million financing package for Christian Living Communities’ Clermont Park in Denver. And in late October, Ziegler closed a $ 62.2 million fixed-rate issue for the repositioning and expansion of Episcopal Senior Communities’ Spring Lake Village in Santa Rosa, Calif.

Oak Point, which was built in 1998, has 870 homes for seniors aged 55 and older. Terms of the sale also include entitled, developed land that could hold an additional 280 units. The community’s manufactured homes, which are resident-owned, range from 1,500 to 2,100 square feet and sit on quarter-acre lots.

“The community has experienced rapid lease-up activity in the years since its inception,” Dan Mulkey, a vice president with Marcus & Millichap, said, “which is a testament to the desirability of the community, the demand for this product type in the area and the skill of the onsite operating team.”

As Commercial Property Executive previously reported, the outlook for seniors housing has been and continues to be very good. For the last 10 quarters, occupancy rates in the sector has been rising, currently sitting at 88.1 percent. With such strong showings, investors have been flocking to snap up facilities, and a full 90 percent of all transactions have been through REITs.

“The new owners see the value in the existing income from the stabilized portion of the community,” Mulkey said, “and also place significant value on the ongoing home sales operations and future development potential.”

The property is located at 200 Oak Point Dr. in the Route 24 corridor. A commuter-rail line provides direct access to Boston.

Carriage Inn in Katy, Tex.

Seniors housing continues to be a hot topic of discussion and area of investment. Last week, Commercial Property Executive found that multiple reports out of the sector show that things are going very well: NIC MAP found that occupancy has been on the rise for 10 straight quarters, and Senior Housing Investment Advisors Inc. has seen the velocity of transactions for seniors facilities increase in the last few months.

On the same note, Harrison Real Estate Capital, on behalf of Harrison Street Real Estate Partners III L.P., has just completed an off-market transaction for an eight-property seniors-housing portfolio for approximately $125 million. Seven of the properties are located in Houston; the remaining facility is near Oklahoma City. Bridgewood Property Co. will be in charge of property management, as well as redevelopment of the facilities. The portfolio was purchased from affiliates of E-Quest Management.

“We have sourced a portfolio of established, well-located Class-A assets that already benefit from a great reputation, Michael Gordon, senior vice president at Harrison Street, said. “We are excited to expand the scope of services that will be provided to our seniors, and generally enhance the assets, creating optimal living and working environments for staff and residents.”

The entire portfolio consists of more than 1,000 units and the facilities have been open for an average of 12 years. The properties include Village on the Park in Houston; Friendswood, Tex.; Oklahoma City; and Conroe, Tex., as well as Carriage Inn in Bryan, Tex.; Lake Jackson, Tex.; Huntsville, Tex.; and Katy, Tex.

The assets are currently encumbered by debt that is being assumed by the each asset.GE Healthcare is the lender on five of the properties, and FNMA/Greystone is the lender on the remaining three properties.  The venture has restructured the terms of the financing, and all parties are advocating the repositioning of the communities.

According to NIC MAP, annual absorption for seniors properties nationwide was 1.9 percent in the third quarter of 2011, compared to 1.8 percent in the second quarter — marking the fourth consecutive quarter where absorption is greater than inventory growth, which will apply upward pressure on occupancy rates.

Courtesy Flickr Creative Commons user Uriel 1998

Multiple reports out of the seniors-housing sector all seem to be saying the same thing: Things are going very, very well.

According to NIC MAP, while overall construction activity continues to decline, seniors-housing occupancy rates continued its recovery in the third quarter of 2011 — remaining, on average, 88.1 percent. That rate is an increase of 0.2 percent from the previous quarter, continuing a 10-quarter rise from a low of 87.1 percent in 1Q10.

The occupancy rate for independent-living properties in 3Q11 averaged 87.9 percent, and the occupancy rate for assisted-living properties averaged 88.6 percent. Both property types showed improvement from the 2Q11 occupancy rates of 87.5 percent and 88.5 percent, respectively. The average occupancy rates for independent living and assisted living are now 1.0 and 1.1 percentage points, respectively, above their cyclical lows.

Michael Hargrave, vice president of NIC MAP, was pleased with the results. “With occupancy rising each quarter since 1Q10, it is clear we are past the bottom and are clearly in the recovery stage,” he said.

A report co-sponsored by Senior Housing Investment Advisors Inc. was similarly bullish. The findings were heavy on the REIT side, as the report noted that more than 90 percent of the buyers in the seniors-housing sector in 2011 were REITs, helping to buoy the pricing for Class A facilities.

The REITs have certainly helped raise the profile of the seniors housing industry by engaging in a number of mega deals, but they aren’t the only aggressive buyers, according to Mel Gamzon, president of Senior Housing Investment Advisors. “Much of the industry’s historic growth has come from buyers of single assets and portfolios in the $10 million to $200 million range, below the radar screen of the major health care REITs,” he said. Gamzon expects the velocity of these investment sales transactions to further increase as the U.S. economy slowly improves.