Newcastle Bullish on Seniors Housing

Newcastle Investment bought eight seniors housing properties in five western states. The increasingly growing need for seniors housing influenced the company's acquisition.

Newcastle Investment Corp., through a number of subsidiaries, has  acquired eight seniors housing properties in the western United States. The seller is BPM Senior Living of Portland, Ore.

The purchase price totaled $143 million plus related expenses, funded by the $88.4 million credit facility and a $55 million equity investment from the borrowers. Oak Grove Capital originated the Fannie Mae DUS credit facility, which consists of a fixed-rate loan and a variable-rate loan that matures in seven years.

The properties are California, Oregon, Utah, Arizona and Idaho, and the acquisition comes at a time of rising occupancies and rents for seniors housing nationwide. According to the National Investment Center for Seniors Housing & Care Industry (NIC), the average occupancy rate for seniors housing properties in the second quarter of 2012 was 88.6 percent, an increase of 0.3 percentage points from the prior quarter and a 0.9 percentage point increase from the same quarter a year earlier.

Moreover, annual rent growth for the sector accelerated to 1.9 percent in second quarter from 1.2 percent during the first quarter, and was 0.4 percentage points above the pace during the second quarter of 2011. The pace of annual rent growth is now at its highest level since the fourth quarter of 2009, according to NIC.

During Newcastle’s second quarter conference call earlier in August, chairman Wes Edens said that “one of the things that’s interesting about the sector is… the tremendous growth in the industry over the past 10 years. As [it’s] gotten bigger and bigger, a section of the market that we think is very under-appreciated are some of the smaller transactions.

“In particular, the ones that are serviced by people that are … mom and pop operators,” said Edens. “About 75 percent of the senior housing in the U.S. is operated by people who operate 15 or fewer properties. So with that, there’s a great opportunity to buy assets that are under-managed, leverage them modestly, and generate good returns.