Holiday, Fortress Deal Puts Spotlight On Seniors Housing

Holiday Retirement Corp. and Fortress Investment Group LLC recently announced an acquisition agreement that highlights significant investor interest in the seniors housing sector and illustrates the strong position that this asset class has assumed in the commercial real estate development and finance arena.

With the transaction, announced late last month, private equity funds managed by Fortress affiliates will acquire a huge portion of Holiday's North American operations and facilities. The deal involves 299 seniors housing communities containing more than 35,000 units, including 265 properties in the U.S. and 34 in Canada.

The companies noted that the transaction will likely close sometime this quarter but have not released terms of the deal. However, according to Robert Kramer, president of the National Investment Center for the Seniors Housing & Care Industry, the transaction is going to be big.

Based on initial bidding for the portfolio and the buzz in the industry, the transaction will likely exceed $6 billion, Kramer says. Citigroup Global Markets Inc. and Goldman, Sachs & Co. are providing debt financing for the transaction, according to Fortress.

Moreover, he notes, ‘It's a reasonable speculation that it's going to be a record-low cap rate for an IL [independent living] portfolio – below seven percent, I think.’

Kramer says there has been some speculation that the cap rate could be below 6%, but he describes that figure as ‘really aggressive.’ More likely, the cap rate will register in the low- to mid-6% range.

Holiday, which is one of the world's largest owners and operators of retirement housing, and Fortress, an asset management and alternative investment firm with nearly $30 billion in equity capital under management, have been somewhat quiet about the transaction. However, the companies' discreetness has not tempered the seniors housing industry's excitement about the deal. Kramer notes that Fortress is ‘getting a marquis portfolio.’

‘This is not an example of buying a portfolio because you think it's poorly managed and you can bump up low occupancies,’ he says. ‘This is a very well-run, very well-managed portfolio.’

Kramer suggests that there certainly could be some upside in terms of revenues for Fortress, but he remarks that there are two major incentives accompanying the purchase. First, there is probably potential for ancillary services and products with these properties. He suggests that Fortress might be able to bring in assisted living or home healthcare services to the existing facilities, and there is likely surplus land on the properties or contiguous to them that will enable future development.

‘I've got to believe that Fortress sees opportunities to do more than IL,’ he says.

Also, Fortress is positioned to acquire what Kramer describes as an ‘outstanding development pipeline.’

‘Holiday has always been known for a very good development pipeline. They've been active, and have always had great access to cheap capital,’ he says. ‘That development pipeline for North America is part of this deal, and I'm sure that's very attractive.’

Regardless of precisely why Holiday decided to sell this portfolio or why Fortress moved to acquire it, the deal points to enormous investor interest in seniors housing and offers evidence that the sector is performing very well. There have been no leaps in new supply, but demand has surged recently. Occupancies in seniors housing properties have been strong and climbing, and revenues have been impressive.

These fundamentals have attracted investor attention from all corners of the financial community. Independent living, Kramer says, has been particularly tantalizing because there are no healthcare or government regulations with which to contend. The Holiday-Fortress transaction certainly lends credence to this assertion.

‘[Independent living] is housing for the elderly rather than long-term care for the elderly,’ he says. ‘It's the most like, simply, a real estate play.’

And as industry participants have witnessed within the past few years, commercial real estate has become a significant target for institutional investors' money. Retail, multifamily, office and other property types have clearly been on investors' radars for some time, but seniors housing is slowly emerging as another avenue for these players.

‘In terms of getting the yields that they are looking for, seniors housing is becoming more and more attractive,’ Kramer remarks.


Closes $160 Million Private Placement

Washington, D.C.-headquartered Friedman, Billings, Ramsey & Co. has closed a $160 million private placement of South Coast Metro, Calif.-based NNN Realty Advisors' common stock to institutional investors and certain accredited investors.

NNN Realty Advisors, a commercial real estate asset management and services firm, sold 16 million shares of its common stock in the offering for $10 per share. According to the company, it will use the proceeds from the transaction to repay debt, fund asset purchases and provide short-term financing for its sponsored programs. It will also use the money for a co-investment of a new institutional-oriented real estate fund.

NNN Realty Advisors plans to register as a public company and will seek to become listed on the New York Stock Exchange by the fourth quarter of 2007, the company adds.

Program Offers Funds, Ancillary Services

CBA Commercial LLC, a Stamford, Conn.-based firm that purchases and securitizes small balance multifamily, commercial and mixed-use mortgage loans, is now offering its CBAC Authorized Lender Program.

The program is an origination, funding and investment strategy for portfolio lenders and other loan originators. Besides funding, the program provides standard underwriting guidelines, third-party services – such as appraisals and environmental insurance – and a Web-based application and tracking system that speeds loan processing, funding and closing, the company says.

‘If regulators begin requiring commercial mortgage lenders to increase reserves significantly, it will likely reduce their ability to grow,’ says Craig Knutson, CBA Commercial's executive vice president. ‘It could limit the number and amounts of loans banks can originate for portfolio unless they are able and willing to continually increase their capital reserves. The CBA Commercial program provides an alternative.’



WHAT: Crossroads Technology Park is a four-building, 322,318 square-foot research and development office campus. It was constructed in 2000 and is 100% leased to five pharmaceutical and biotechnical tenants.

WHO: The San Francisco office of Holliday Fenoglio Fowler LP (HFF) arranged the refinancing on behalf of the borrower, Crossroads Technology Park LLC, an affiliate of Woodstock Development (the manager of the property). The loan was secured through Wachovia Securities NA, a conduit lender.

$$$: $35 million.

TERMS: The 60% leveraged loan, which is being used to refinance a maturing loan, has a 30-year amortization schedule with a 10-year interest-only period and will be serviced through HFF.

HFF: (415) 276-6300.


WHAT: Arundel is a Class B, 219-unit garden apartment complex built in 1969. It contains a mix of studios, one-bedroom/one-bath units and two-bedroom/one-and-a-half bath units located in 18 buildings on 16.1 acres of land. The property has a 95.71% occupancy rate.

WHO: Bethesda, Md.-headquartered Green Park Financial provided the permanent loan to Arundel Apartments Holding Co. LLC for the apartment complex.

$$$: $14.3 million.

TERMS: The loan was structured as a 10-year term, with 9.5 years of yield maintenance and a 30-year amortization period. LTV: 74%; DSC: 1.20.

Green Park Financial: (301) 215-5534


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