COVID-19 hits senior living investment


Shares in senior living groups have fallen since the outbreak of COVID-19, as concerns grow about the wellbeing of existing residents and the wariness of potential new residents.

The care home sector had become more mainstream in recent years, driven by an ageing global population.

In one week in March in the US, the four leading healthcare Reits saw their share prices fall by 42% to almost 50%. S&P Global said: “Senior living properties in particular can suffer during severe flu seasons, as residents die or move into hospitals, and some observers expect a more dramatic version of this as a result of the coronavirus outbreak.”

Wendy Simpson, CEO at Reit LTC said that the virus would not hold back the long-term prospects for senior housing and announced a share buyback programme for up to 5 million shares. The group then pulled back from the plan to hold onto cash.

Simpson said: “As the world continues to work to find solutions to the current global pandemic, we have the highest confidence in our operating partners and their employees as they fight on the front lines to take care of those most at risk.

“The industry is strong and resilient. We have survived multiple real estate cycles and tough times together, and we are doing it again now.”

Prior to the outbreak, the senior living sector was attracting investors, drawn by what was viewed as exponential growth. JLL forecast that, in the UK alone, by 2025 20% of the population or 14.3 million people, would be over 65 and in command of combined £800bn in housing equity. This would drive a potential requirement for an additional 725,000 Housing with Care units by 2025, equating to nearly 50% of all new homes built at the current rate.

Philip Schmid, JLL UK’s director, living capital markets healthcare, said: “There’s a real gap between demand and supply. We are well below the level of building needed to satisfy future demand. From an investor point of view, this sector could become another successful operational-led sector, like build-to-rent or student housing. The private sector has a key role to play as people stay active for longer and want retirement living homes that reflect the lifestyles they’ve led in their earlier years.”

The company estimated that, given the scale of development activity required to stimulate the UK market, investment volumes could reach £2bn to £3bn per annum over the next five years, driven through partnerships or forward funding.

Michael Hodges, managing director, Christie & Co’s healthcare consultancy business, told us -  assuming a normalised market before Coronavirus - “Elderly care and senior living has been a key area of focus for many investors over the last few years. A key reason for this is that the sector is need driven with the demographic trends showing a material increase in the elderly population over the next 20 to 30 years. Historically the sector has been seen as alternative, now it is becoming much more mainstream.

“There is a wide range of capital from family offices and high net worths through to special situation funds, sector specialist funds, Reits and institutional investors. There has also been significant interest and involvement from overseas capital, both US, Europe and further afield.

“The care home sector has continued to mature and become more mainstream. The senior living space remains relatively young with major investors such as Legal and General and AXA entering in the last two to three years following clarity on various issues such as event fees and contract terms. Moving forward, as the senior living sector becomes more established,  we expect to see the space corporatise further as investors partner with existing providers and new entrants develop innovative new concepts, particularly in relation to short leasehold tenures.”

In 2017 AXA Investment Managers - Real Assets bought Retirement Villages Group, a portfolio of 14 retirement village properties, comprising 1,274 purpose-built independent living units and 402 care beds, primarily located in the South East and South West of the UK.

The deal took AXA IM–RA’s European healthcare portfolio to over €1bn and followed investments in UK senior housing, and the healthcare sector in Germany and Finland.

Andrew Ovey, head of healthcare at AXA IM–RA, said: “Having built up a deep understanding of the intricacies of healthcare real estate, we are very pleased to be able to add this significant UK holding to our European healthcare portfolio.

“RVG has proven its leadership in the sector and has secured a pipeline of extensions and new sites that offer significant scope for further penetration of an undersupplied market providing long-term stable cash flows, for the benefit of clients.”

The Retirement Villages brand was retained and operated autonomously, while the care element of the portfolio was operated by health and social care provider HC-One under 25-year leases.

Commenting on ownership structures, Hodges said that they varied by country. He said: “In England, we still have a primarily freehold or long leasehold model albeit with an increasing number of short leasehold deals.”

And, as in hotels, branding was a feature, adding: “In the care home sector, there are some top end brands although the local reputation of a facility for the quality of care is generally the most important factor. For senior living, some brands are now becoming established with these largely reflecting corporate identities such as Audley, Innspired or Retirement Villages.”


Insight: The senior living sector seemed like a pretty sure bet ahead of the outbreak of the virus, driven by an ageing population with cash in its pocket. Indeed, GuestInvest’s founder Johnny Sandelson  - who vanished from hotels after, well, GuestInvest did - resurfaced as the co-founder Auriens, a “later life luxe” developer which raised £55m in funding from Investec and built a property in Chelsea which featured a first-class restaurant, hydrotherapy pool, spa, gym, private members’ club, café, gardens, library, consulting rooms and cinema.

The latest trend is towards co-living for seniors, which sounds like current senior living, but features a self-contained private home, and shares some community cooking and leisure spaces.

But away from the Bugatti chairlift and the cinema nights, Hodges identifies the mid-market as the real focus at the moment.

Not this exact moment of course, given the current crisis which has made every activity day-by-day, just as in the hotel sector. But just as in the hotel sector, the underlying model is sound.