A dilemma between Investment and regulation
One third of German nursing homes are sold in the form of individualized condominiums, pushing overall investment yields in this segment lower. Private, or retail investors are willing to accept a return of 5 % p.a. or even lower for an investment in a nursing home condo. Institutional investors, who purchase entire homes have been expecting returns of approximately 7% in the last years. There is a shortage of investment opportunities.
Investments in (long term) care real estate are driven by the quality of the asset and its operator. In addition, there are a plethora of laws regulating construction of the building and operations. Many homes do not satisfy newer building standards, i.e. higher quotas of single rooms, due to their age.
One of the greatest value drivers in a nursing home investment is the lease agreement. Such factors as sustainability of the rent, rent deposits, provisions for operator default, reporting obligations etc. play the most critical roles.
Operators owning property often do not know how they can optimize cash flow from their real estate, i.e. in order to reinvest it into the core business.
Long term assisted Housing / Living
80 % of Germany’s current stock of residential units (all housing together) does not comply with so called „barrier-free“ standards, offering easy accessability for the eldery or people with impairments. The current „barrier-free“ stock is assumed to be at 700.000 units, according to a study published by Bank Kreditanstalt für Wiederaufbau KfW. The demand in the year 2030 will be at more than 3.5 millionen units, showing that substantial investments are needed in the next years.
Investors are increasingly drawn to the submarket of so called assisted living schemes (Betreutes Wohnen) in Germany – barrier-free residential complexes for the elderly offering additional security, assitance and support services.
This submarket is not trasparent, however. Data on this market is scarce. An comparing schemes is not always easy. Service offerings differ and calculating sustainable rent levels can be challenging. Most investors do not want to take over management of individual lease agreements and thus require a third party – often a nursing home operator or property mangement company – to take over the role of a general or principal lessee.
D&S monitors the market and help price assets and operations adequately. We are well connected to national and international investors.
D&S has developed its own proprietary nursing home database, including inter alia prices and occupancy rates of homes. D&S uses it data to help create market transparency, showing i.e. strengths and weaknesses of operators, locations etc.
We also assist property developers in creating the right “product” for their location and bring them together with the right operators and investors.
D&S offers its expertise in calculating sustainable rents, defining safeguard and reporting obligations for lease agreements and act as interim manager if an operator defaults.
We advise operators in real estate sale and leaseback situations, allowing a substantial inflow of funds for reinvestment in operations.
In the area of assisted Living (Betreutes Wohnen) we assess demand potentials, analyze competitor offerings, validate rental levels and operator or tenant quality.
Tel: +49 (0) 175 5812278