INDUSTRY BUZZ: California targeting senior living investments
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • KKR lifts out 3 to focus on clean energy infrastructure
      Richard Johnson
      Appian Capital Advisory adds global investor relations head
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      CI Financial launches global real estate, infrastructure joint venture
    • Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
      Deloitte to acquire Sydney-based consulting firm Rice Warner
    • BofA: Most managers bullish on economy, markets
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      Jerome Powell, chairman of the Federal Reserve, listens during a Senate Banking Committee hearing in Washington on Dec. 1, 2020
      Fed saw some time before taper conditions met – minutes
      International Monetary Fund and World Bank spring meetings signage at the IMF headquarters in Washington
      IMF upgrades global growth forecast, warns of diverging recoveries
    • Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
      Economic Group Pension Services scoops up third-party administrator
      OregonSaves gathers $100 million in assets
    • Tracker gives investors insight into progress on social commitments
      Shoppers wear protective masks while visiting an Apple Inc. store at George Street in Sydney, Australia, on June 24, 2020.
      Apple backs SEC mandate on climate disclosure
      Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky.
      Investors, businesses call for ambitious emissions goals
      Signage for Temasek Holdings Pte. is displayed during a news conference following the company's annual review in Singapore
      Temasek, BlackRock partner to launch carbon-cutting funds
    • Ken Griffin
      Ken Griffin donates $5 million to give Miami students internet
      New book culls institutional wisdom from podcast series
      Fearless Girl
      SSGA’s Fearless Girl statue now shattering glass ceiling
      Tangen video
      Norges chief dons chef’s hat to boost employees’ spirits
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • Connecticut earmarks $200 million to 4 alts funds
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      SSGA selects head of continental Europe for global institutional group
      Ontario Municipal promotes from within for new global equities exec
    • SSGA selects head of continental Europe for global institutional group
      BofA: Most managers bullish on economy, markets
      The Absa Group logo displayed in Pretoria
      Absa shuts $6 billion mutual fund, sparking spinoff speculation
      Mirova adds proxy voting and engagement leader
    • Ontario Municipal promotes from within for new global equities exec
      Kansas City Employees adopts global strategy with small-cap swing
      Michael C. Viteri
      Arizona appoints new CIO
      A £10 sterling bank note with a pound coin and a ballpoint pen, with focus on the word 'pension.'
      U.K. defined benefit plans’ surplus surges in March
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      SSGA selects head of continental Europe for global institutional group
      Ontario Municipal promotes from within for new global equities exec
      Mirova adds proxy voting and engagement leader
    • Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
      Azimut takes minority stake in HighPost
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
      Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
      Taiwan Semiconductor’s No. 1 in the emerging markets book
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
      Vaccination cartoon
      Rallying to meet the ongoing COVID-19 challenge
      Tesla cartoon
      Don’t confuse wealth creation with retirement saving
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
      Jared Gross
      Commentary: Anchors and allocations – breaking the grip of 60/40
      Peter Marber
      Commentary: Is it time for an emerging markets rally?
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
June 12, 2000 01:00 AM

INDUSTRY BUZZ: California targeting senior living investments

Ricki Fulman
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    SACRAMENTO, Calif. -- There's a new buzz surrounding the assisted living industry now that the $175 billion California Public Employees' Retirement System has announced plans to commit $200 million to the sector.

    The system expects to recommend several managers to the board at its June 19 meeting, said Mark Albertson, who oversees a $3 billion non-core real estate portfolio for Sacramento-based CalPERS.

    Despite problems with operators and oversupply in some markets, the system is making its first commitment to senior living. Mr. Albertson said he believes the oversupply is creating a strong opportunity for institutional investment.

    "Most of the problems have been identified, which means those with capital will find pricing very attractive now. There is little institutional capital in the field, so investors who get into it now will be able to earn a premium until it's more widely established," he said.

    He is projecting returns of between 12% and 16% on investments in these facilities, depending on the risk level.

    Focus on real estate

    In CalPERS' senior living investments, Mr. Albertson said, "we're most interested in independent living and congregate care facilities, which provide a full continuum of care and allow a person to age in the same place, getting more levels of help, as needed. CalPERS prefers to make investments that focus on real estate and that are private pay rather than government sponsored."

    What also makes the assisted living industry attractive to CalPERS is that its economic performance is driven by demographics, not by the business cycle, which will allow the system to diversify its real estate risk.

    Many other pension funds have investments in the industry through a variety of real estate advisers, including: Lazard Freres & Co., New York; AEW Capital Management, Boston; Prudential Real Estate Investors, Parsippany, N.J.; and Cordia Senior Living, a subsidiary of Lend Lease Real Estate Investments Inc., Atlanta.

    "Senior housing can be a sound investment if done right," said Jack Barthell, a partner at PricewaterhouseCoopers, New York, which analyzed the industry for CalPERS. According to the analysis, the gross capital size of the senior housing market is expected to grow from $86 billion in 1996 to $126 billion in 2005 and $490 billion in 2030.

    "It's a great time to get into it because of the compelling demographics," said Robert Kramer, executive director of the National Investment Center for the Seniors Housing & Care Industries, Annapolis, Md., an independent research and networking organization linking senior housing developers and providers with investors.

    "Pension funds are interested because the industry is not subject to the same market cycles as other real estate investments. It also makes good sense as a social investment," Mr. Kramer said.

    Jim Lee, a principal at Kensington Realty Advisors, Chicago, who recently established a joint venture with Formation Capital, Atlanta, known as KMF Senior Housing Investors, also sees a strong interest because of the demographics. "We're just starting to market to state pension funds, and they are very interested," he said.

    KMF plans to buy properties and hire operators to run them. Eventually, it might take partial positions in properties.

    Mr. Barthell and other industry experts emphasized that the key to success is pooling the right combination of real estate management and operating skills. "Plan sponsors are a good market for these investments because their constituency is the target market," Mr. Barthell said. But, he cautioned, "several of these investments were made four or five years ago and haven't run full cycle, so it's too soon to know how they will perform. Also, there have been problems on the operating side as well as overbuilding, which has left the industry in somewhat of a slump. Some are doing a lot better than others."

    Many investors are expecting opportunistic returns of 20%, Mr. Barthell added, but they would do better to seek returns in the mid-teens.

    Niche fund

    Prudential Real Estate Investors' Senior Housing Partners I, which closed at $183.3 million in 1998, is the only fund to focus solely on senior living, said Noah Levy, a principal at Prudential Real Estate, which contributed $36.6 million, or 20% of the fund. "We're a niche fund that buys properties either with an operator or from an operator. We're not buying into the companies themselves, but we always know who the operators are," Mr. Levy said. "Instead, we focus on the property level or on mezzanine financing. There has been a lot of interest in the fund, which could lead to a second one."

    "These are really operating businesses, and it's important to understand that side of the business or have someone along who does have this knowledge," said Robin Du Brin, president and chief executive officer of Columbia Du Brin Realty Advisors LLC, Seattle, which advises institutions on senior living investments. "Normally, investors pay 50 basis points for asset management, but it should be 125 basis points for senior living, because it takes more work and more due diligence to do it right."

    Lazard, one of the biggest players in the sector, with an estimated $550 million invested through its $1.5 billion LF Strategic Realty Investors II, currently has large positions in ARV Assisted Living Inc., Costa Mesa, Calif.; Kapson Senior Quarters, New York; and Atria Inc., Louisville, Ky., which merged with Kapson in 1998.

    Now there is a supply-demand imbalance, because the debt and equity markets contracted, leaving excess supply in some markets. But Michael Medzigian, president of Lazard, forecast that since the capital spigot has been shut off, demand will grow and supply will slow.

    "At our companies, we're focusing on improving the operational business and creating maximum shareholder value," he said. While there had been reports that Lazard might sell some of its senior living holdings, Mr. Medzigian said there are no plans to do so at this time.

    One limited partner of the fund, who asked to remain anonymous, said he believes Mr. Medzigian, who joined Lazard in the fall, is on the right track as he tries to turn around the businesses. "The fund got into these properties at the top of the market and overpaid, compared to current prices in a sector that has been beaten up. But the new management at Lazard seems to have stopped the bleeding," he said.

    Several Taft-Hartley funds have been moving into this sector, participating mainly on the debt side. The $1.3 billion AFL-CIO Building Investment Trust, Baltimore, two years ago provided a $37 million construction and permanent loan for a 287-unit facility in Vernon Hills, Ill., said Robert Law, managing director for institutional real estate at Mercantile Safe Deposit & Trust Co., Baltimore, which administers the trust. "We are still finding our role, but expect to be a debt player," Mr. Law said.

    Four projects

    And Washington Capital Management Inc., Seattle, has invested successfully in four senior housing projects through a $193 million commingled fund it runs for 18 Northwestern Taft-Harley pension plans, said El Jahcke, principal. They all have been set up as conventional debt financing arrangements for either a combination of construction and permanent mortgages or just construction loans.

    They included a congregate care facility in Wilsonville, Ore., and an assisted living facility with 100 units in Poulsbo, Wash.

    "No one ever missed a payment and returns averaged 9% to 10%. We might do more of these, but are being cautious right now because there has been so much overbuilding," Mr. Jahcke said.

    AEW Capital, Boston, also has grown cautious because of the glut in some areas. It has decided to stay on the sidelines until it determines where it can be opportunistic. "We wouldn't do more development at this stage, but might look for acquisitions," said Kathryn Sweeney, vice president.

    The firm has been investing in senior housing since 1997 through its opportunity funds AEW Partners II and AEW Partners III, with $120 million committed to the sector to date, Ms. Sweeney said. Investments include Benchmark Assisted Living, which focuses on investments in New England; Castle Sr. Living LLC, which focuses on metropolitan New York; and Carege LLC, Seattle, which focuses on the West Coast.

    AEW gave Benchmark $25 million in start-up capital while Castle, an early-stage investment, got $38 million and Carege got $25 million to expand.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center