Luxury care homes growing opportunity for keen real estate investors

The healthcare sector has been championed as an up and coming area for real estate investment with opportunity expected to grow, due to a greater demand for more high quality care services caused by the UK’s ageing population.

The expected increase in newly built care homes throughout the country acceptable for modern use, will create appealing investment opportunities, because care homes are seen as comparatively low risk, future proof investment options.

Interest in the UK market has also been taken up by overseas investors, with American company Healthcare REIT (US) acquiring five high quality care homes from provider Sunrise Senior Living in March 2013.

Kenneth McKenzie, director of UK based specialist investors Target Healthcare REIT, was involved in the Sunrise Senior Living deal and set up Target Healthcare REIT after wanting to invest in luxury care homes which were making the best care available to people with residential care needs.

Mr McKenzie said: “I have been a chartered accountant for 40 years and worked in a variety of businesses, but the last 10- 12 years has been in the healthcare sector.

“I was involved with Sunrise Senior Living in assisted living and Independent living opportunities and invested in Independent Living Services, a domiciliary care business in Scotland, but post credit crunch I started to look into the potential for raising standards of care through investing in modern care facilities, providing home like characteristics for residents needing residential care.”

Target Healthcare REIT was formed in January 2013 and first listed on the stock exchange on 7 March 2013. The company is the only public real estate investment trust investing in care homes, and aims to provide important investment into the sector caring for older people to improve the quality of life for vulnerable residents.

The real estate market is split between commercial and residential investment, from which commercial properties can then be split into sub categories. Smaller specialist sectors include leisure, student accommodation and healthcare. This is where care home investment opportunities for Target Healthcare REIT can be found.

Emerging investment opportunities

The health care sector has been described as a “gradually emerging mainstream asset class” in property consultant Knight Frank’s 2013 Healthcare Investment research.

But for Target Healthcare REIT, the quality of the home chosen to invest in is just as important as the profitability a potential investment holds.

Mr McKenzie said: “We are very selective on the standards of care homes before we acquire. We have methods of checking standards and the people who go into care homes have collectively 40 to 50 years of experience in running care homes so we know what it is like to do this work and the several levels of assessment which is needed.

“We are a little unusual in the way that we invest across the UK and are not South East centric because, as everyone is aware, there are elderly people everywhere and so appropriate and modern facilities are needed everywhere, so our homes cover a variety of levels of privately funded care homes and NHS care.”

Ensuring quality

Members of Target Healthcare REIT senior team visit homes from their portfolio of investment regularly to gain an insight into the home’s daily workings. Ensuring the quality of care being provided is maintained, the team understand the high profitability potential of quality care homes.

Mr McKenzie said: “We visit homes a minimum of twice a year, sometimes three times and others are even visited more often. Our healthcare partners are visiting several homes most weeks.”

“We are always considering the visits as it is about what happens in the homes and we are actively engaged. We speak and eat with residents too as it’s a way to assess standards of care by seeing whether residents look cared for.”

“Although it is good there are activities coordinators, it is appropriate for us to get underneath that, in order to really get under the skin of the home and find out how it is working.”

Southern Cross collapse

Independent real estate property consultants Knight Frank ‘s research found care home investment was a growing market despite the failures of the Southern Cross group which saw trading in the business’s shares cease after landlords owning the group’s 753 care homes pulled out.

Since Southern Cross’s closure, lessons have now been learnt across the sector and there are signs of growing confidence from high street banks and key operators to invest in care home properties again.

Investors are being attracted to care home’s long leases and relatively secure income compared to other investment property opportunities. New healthcare assets typically have 25 to 30 year leases, compared to core commercial property sectors such as retail and office spaces which normally have just six years.

Investment Portfolio

Mr McKenzie described the process of selection each care home goes through to ensure they can meet the high standards to be acquired onto the company’s portfolio. He said: “We seek to invest in new care homes and we assess the staff, the people and the business, everything to provide high quality care. Although everything we have bought has been purpose built, if there is a home which is 10- 15 years old but has high quality features such as wet rooms and en-suites we would consider buying these as well.

“Changes in the sector has seen care homes move on from older converted homes to modern and more flexible purpose built care homes which could be due to the fact that in the last 40-50 years more people have started going abroad and now expect the same level of facility at home.”

Behind Target Healthcare REIT is a team of investment professionals using their combined experience to invest in care providers delivering high standards of care to match their expectations.

Mr McKenzie believes caring can be a vocation and only invests in care homes which give good working conditions to their staff members.

“It has to be remembered that we are not the operators of care homes but property owners and so the carers are not our own to manage. However we make sure we choose operators well and work to invest in homes where the home is designed so the person delivering the care actually enjoys their vocation in the care home community by giving them good facilities.” Mr McKenzie explained.

He continued: “My father owned and ran a farm and I remember seeing how much it meant to one of his farm workers when he saw that my father had made sure the new tractor bought had comfortable seating. My father said to him that if you’re a happy worker, the chances are you’ll do your job better, and in this way we want to see our operators have the same attitude of responsibility towards their employees.

“One example of this is that we were able to make the windows in one home larger, giving residents and staff a better ability to enjoy the outside.”

Moving Forward

The changing demographic of the population predicts there will be over 8 million people aged over 80 by 2050, which will increase the demand for high quality residential care homes.

Mr McKenzie described Target Healthcare REIT’s plans for future of the company and said: “We have 24 homes at the moment and are raising our investment in the sector.

He concluded: “We will continue to invest and be part of the care sector in this way, so for the future we will continue to invest with this purpose and reason.”

For more information please visit: http://www.targethealthcarereit.co.uk/