Property companies embrace seniors

Europe's politicians are increasingly fretting about the greying of the Continent's population but real estate investors are discovering a new found love for senior citizens.

Geneva-based Faisal Private Bank (FPB) is working to create an international fund to own a EUR 140 mln portfolio of nursing home properties in Germany. FPB aims to take advantage of the consolidation of what is a very fragmented market in Germany to acquire 15 -20 homes with 80-100 beds each at transaction prices of EUR 5-10 mln. FPB has so far invested its own money and that of clients, but the intention is to get international investors to participate in the creation of a fund with total equity of EUR 40 mln.

Ikenna Okoli, head of Investment Banking at FPB, says that 'aged-related properties' are less dependent on the economy compared to the office and retail sectors; nursing homes are a defensive investment in the current economic climate and are also a good inflation-shield. The main attraction though is the massive potential for the market in Germany, Europe's largest economy.

The population is aging rapidly. Back in the early 1990s there were almost three people of employment age for every person over 60. By the start of this decade the ratio dropped to 1 to 2.2. Within the next decade the ratio is expected to be down to 1 to 2. HSH Real Estate estimated in a recent report that there will be EUR 12 bn worth of new demand for nursing homes in Germany over the next 12 years. FPB aims to acquire recently built nursing homes at a 7-8% cap rate, below the replacement value. 'It is fairly easy to get finance from regional banks in Germany for properties that have rent contracts of 15-20 years with well-established nursing home operators'. FPB - the first Shariah-compliant financial institution in Switzerland - is one amongst an increasing number of investors focusing on nursing homes in Germany.

Listed Swedish property company Kungsleden has made several acquisitions in Germany after unveiling its international retirement homes initiative back in 2006. The company noted that Germany's retirement homes had about 600,000 residents in 2006, but this figure was expected to increase to around 900,000 in 2025 and 1.6 million by 2050. Cofinimmo, the largest owner of office properties in Belgium, started buying nursing home assets a few years before and is now the largest owner of such properties in Europe. However unlike many others interested in the sector, Confinimmo has to date confined itself to Belgium and France and has not done any deals in Germany. In June this year, UK-based Kenmore announced the purchase of two German residential care homes was the first step towards the creation of Kenmore Care Home Fund. The vehicle is focussed on the acquisition and management of elderly residential care homes in Germany.

A month later Guernsey-based real estate firm Public Service Properties Investments acquired a portfolio of six German care homes from a subsidiary of an undisclosed German bank for EUR 36.3 mln. The portfolio comprises 403 care home beds and 154 assisted living places in cities such as Berlin, Bremerhafen and Büren. Also in July HSH real Estate established a joint venture with Australia's Mariner Finance acquire and manage portfolios in Germany's nursing homes sector.

The partners said they will also seek to invest in other 'age care' assets. Marc Weinstock, CEO of HSH Real Estate, explained: 'As a start we want to acquire a portfolio consisting of nursing homes and are aiming at a total investment volume of EUR 500 mln.'

The creation of the portfolio and the purchase by Australian institutional investors will be carried out in several tranches over the next three years. LB Immo Invest, a German investment company founded by HSH Real Estate, Real I.S. and Landesbank Hessen-Thuringen announced it will launch a special EUR 500 mln property fund to invest mainly in German nursing homes. The fund will invest in some 50 nursing homes with a price ranging from EUR 8 mln to EUR 13 mln and targeting a net yield of between 6.75% and 7% a year. The company said the first ten assets, comprising three development projects, have already been identified and will involve a total investment of EUR 95 mln.