UK - Asset manager Morgan Stanley is moving into the UK senior living space through a joint venture worth $1.1bn with established real estate services firm Sunrise Senior Living.

This is the first such assisted living market deal in the UK as real estate attention has in past years been focused more on nursing home ‘sale and leasebacks' which include medical services as a significant part of the real estate package.

Under the terms of the 30-year management agreement deal, much like a typical hotel management real estate agreement, Sunrise - which is already a major player in the US assisted living space - will retain a 10% holding of these communities.

This move should mean the development and maintenance of 15 senior living communities through the financing deal.

Toby Phelps, head of UK investing at Morgan Stanley Real Estate, sees this as an opportunity to raise the profile of assisted living as an asset class in its own right as well as tapping the growth potential of what is expected to be an increasing market.

"We see these are predominantly driven by demographic trends," said Phelps. "We have the baby boomers coming through and this [market] is likely to grow over the next 10 years. Despite the demand for elderly care, there is a reduction in the supply of elderly care in the UK where local authorities previously provided the majority of elderly care in recent years.

"What that means is we have a supply demand imbalance so we are anticipating reasonable growth in the revenue potential of elderly care in the UK," he added.

The biggest frustration Sunrise apparently has in the US is they have a huge number of landlords or property ownership partners to deal with so they wanted to sign with a single partner for their UK business going forward, according to Morgan Stanley.

Assisted living is seen as different to nursing home investments because they tend to be new developments, rather than old residential properties held by nursing homes, and offer independent living for individuals but accompanied by personalised care where needed.

Many of Sunrise's existing projects are based in the South of England, but the firm is also said to be seeking prime development space in Yorkshire regions such as Harrogate and York.

Sunrise has held five assets in the UK since 2000, which are said to have performed very well, developed with the support of Pramerica, but these existing propositions are not part of the Morgan Stanley deal.
This latest investment will form part of the portfolio for Morgan Stanley's $8bn high-leverage, high risk international (ex-US) opportunistic real estate fund, now the largest property fund in the world which has institutional and pension fund investors, as well falling into as the MS Special Situations Fund.

Phelps expects to exploit similar opportunities in untapped markets, such as the assisted living sector, wherever possible.

"It is a market which we think has growth potential. We have made a big bet in doing this deal, and we will continue to look for more. But it is an immature market here in the UK, and even more so in Europe," continued Phelps.