New In Town: Institutional Investors Moving In On Senior Housing

Institutional investors are becoming more interested in senior housing, especially as transparency grows around performance metrics, according to panelists at last month’s 2016 NIC Fall Conference.

One such panelist was a high-ranking official at one of the largest institutional investing bodies in the world: Canada’s $130 billion Public Sector Pension Investment Board (PSP Investments).

Transparency around performance metrics is key for institutional investors to truly dive in. Here’s what the PSP official had to say:

“The demographics are compelling,” said Neil Cunningham, senior vice president, global head of real estate investments, PSP Investments, a $130 billion fund that manages the pension assets of the Canadian armed services and public service employees. “We’ve made a tactical allocation to overweight U.S. seniors housing.”

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Seniors housing has gained more acceptance among institutional investors, noted Cobb of Hamilton Lane, though she added that investors still need to be educated about the product. Cunningham believes that as transparency improves and the seniors housing market becomes better known, it will be a standard part of a portfolio because of the quickly aging population.

As an investor, Cunningham at PSP wants the operator to have at least a 20% investment in the property. With a stake in the project, the operator will have a solid knowledge of the market and submarkets, he said.

PSP is usually on the cutting edge of institutional investing trends. They are one of the world’s largest infrastructure investors, and along with other giants like CalPERS and the CPPIB, help pave the way for pension funds into new markets.

An Institutional Investor piece from April characterizes the activity of institutional investors so far:

Thus far, much of the institutional investment in senior housing has been through loans for independent and assisted-living facilities, far more than for those that require staffing of skilled workers, such as nurses, and also involve a higher level of operational risk. But experts say that even nursing facilities are increasingly attractive because of their higher returns, especially when compared with traditional multifamily properties. To help with the learning curve, the National Investment Center for Seniors Housing & Care in Annapolis, Maryland, which collects data about senior housing, has been hosting “new investor” events around the country.

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“It used to be impossible for institutional investors to find quality real estate deals on the ground in markets they didn’t know, but now they can track algorithms, just like stock traders, to be able to pinpoint deals quickly,” says Picken. “They have access to much more opportunity that’s not just in their own backyard.”

Experts note that although it’s a complicated market, technology and the transparency that comes with it have created a welcoming environment for institutional investors to take advantage of the growing demand.