Health Care REIT Nixes $643M Seniors Housing Investment

It’s a sign of the times. Almost exactly two months after revealing it had entered into an agreement to acquire an Arcapita Inc. affiliate’s 90 percent stake in a joint venture owning 29 senior housing properties, Health Care REIT Inc. has announced that the $643.5 million deal has been aborted. Health Care REIT cited the uncertainty in the capital markets as a driving factor in its decision to back away from the transaction. Had the plan reached fruition, Health Care REIT would have become a joint venture partner with Sunrise Senior Living Inc., which still owns 10 percent of the partnership and is under contract to manage the properties until 2025. Perhaps the writing was on the wall in mid-October when Toledo, Ohio-headquartered Health Care REIT announced that the agreement with Bahrain-based Arcapita had been changed to allow for the extension of the due diligence period from Oct. 17 to Oct. 31. The group of assets encompasses 2,082 units and features locations in high barrier-to entry markets predominantly concentrated in metropolitan New York, Los Angeles and Chicago. Ten of the communities are in the New York City area, while greater Chicago is home to five properties and the Los Angeles area is home to four. The remaining senior housing communities are located in the metropolitan markets of Colorado Springs, Columbus, Minneapolis, Portland, San Francisco, St. Louis, and Washington, D.C. The majority of the portfolio, 67 percent, consists of assisted living units, while Alzheimer’s care units and independent living residences account for 23 percent and 10 percent, respectively. Sunrise developed most of the facilities in the portfolio, which had an average occupancy rate of 94 percent at mid-year. Health Care REIT had planned to fund the acquisition with $365.4 million in cash, as well as the assumption of 90 percent of the existing $309 million non-recourse mortgage debt held by the joint venture. Officials of Health Care REIT, a public company, are not discussing details of the decision to cancel the Arcapita deal; however, a company spokesperson did give offer an assessment of the senior housing market and insight into Health Care REIT’s plans for the near future. “Right now, we’re seeing cap rates move slightly; there was a discrepancy for a while between buyers and sellers,” the spokesperson said. “Sellers are trying to be patient and hold off, and buyers are being cautious, as well. Everyone wants to be liquid right now and there’s a tremendous amount of caution on both sides of equity.” Health Care REIT is no exception, treading lightly for the time being. “We think the discrepancy will sort itself out in 2009 and we want to be in a position to take advantage of good opportunities, so we’re probably going to be on the sidelines for the rest of the year–unless the deal of a lifetime comes along.”