Greystone Closes $425M Healthcare CLO

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Greystone has closed a $425 million CRE CLO that is backed exclusively by bridge loans provided by Greystone Monticello on healthcare-related properties.

The transaction marks Greystone’s sixth overall CRE CLO and the industry’s third-ever CRE CLO composed solely of healthcare assets, particularly skilled nursing, assisted living, memory care, and independent living facilities, the first two being closed by Greystone in 2018 and 2021.

The collateral pool for this latest healthcare CLO comprises 13 whole loans and 9 participations totaling $397 million that Greystone originated, secured by mortgages on 51 properties in 19 states. Skilled nursing properties make up a majority of the portfolio, with 76.5%, followed by assisted living, with 8.7%. Greystone will invest the remaining $28 million of CRE CLO proceeds over the next 180 days into comparable mortgage loan assets. This actively managed CRE CLO has a 2-year reinvestment period.

“We have seen tightening in the capital markets over the past six to twelve months and this CLO created a compelling opportunity for investors to participate in a proven, industry-leading lending platform with significant upside as the economy continues to improve,” said Ross Gusler, Managing Director of Corporate Finance and Capital Markets at Greystone, in prepared remarks.

To date, Greystone and Greystone Monticello’s combined Bridge-to-Agency lending platform, which includes Fannie Mae, Freddie Mac, and HUD, has provided over $18 billion in short-term bridge loans across the healthcare and multifamily sectors.

 

Source: GlobeSt.

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Big Investor Has A New Strategy For Healthcare

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A new investment company, SPHERE Investments — standing for Strategic Public Health Equities and Real Estate — is looking to reinvigorate approaches to healthcare investment.

While the company is technically new, it’s the development of Flagler Healthcare Investments, with a lot of experience, access to massive amounts of industry data analysis, and a claimed $1 billion healthcare portfolio.

Founder Didier Choukroun tells GlobeSt.com that to make healthcare work well, a much broader investment in properties that, while not considered healthcare, are a necessary infrastructure.

“I wanted to find a sector of the U.S. economy that could drive the economy with a value proposition that would go beyond the buildings,” said Choukroun. “We decided in 2023 to not only expand geographically, but we expanded the mission and repositioned the entire company. We have to get beyond healthcare.”

He saw a need to look at social drivers of healthcare, including environment, nutrition, education, housing, and transportation.

“We also wanted to make sure we continued on what has made our company successful, which is if you really want to invest in healthcare real estate, you cannot only focus on your immediate tenant,” said Choukroun. “Success comes from the outcome of the patient.”

On the direct care provision side, they focus on tenants in oncology, cardiovascular, neurology, and a combination of GI and endocrinology. Choukroun points to a Pareto-type distribution, with the four sectors served by 19% of all providers bringing in between 65% and 66% of personal care expenditure. It provides a density of demand, creating a strongly stable floor. The firm is also focused on senior living and care, including independent living, assisted living, and memory care, with some twists.

“None of the management companies are profitable,” Choukroun said. “Acquisition costs are four to five times EBIDTA. Most of the good management companies refused to sign long-term leases, forcing property owners to hold the risk. I think the business model of senior living in the US is not functioning; 98% comes from the inclusive rental of the bed. Every single operator fights on price. It’s their only strategy. Instead, they should be looking at both healthcare and non-healthcare services for the residents, including wellness, adult day care, and transportation. Management fees are 5% of revenue. There is no way the manager can focus. The way out is to focus on the outcomes.”

SPHERE identified 181 management companies with at least 20 communities under management.

“They’re trying to make money on the real estate,” said Choukroun. “Owners give the management companies a small carried interest or something like that. If you focus on outcome, you will bring technology in, you will rethink the model. One way to change the model is to be much more proactive in creating a pipeline of leads,” like being in contact with potential future residents. And then there could be other seemingly non-related services, like having daycare for kids and using elders, who may lack self-esteem in current care philosophies, to have a role. Or tutoring services for underprivileged communities near a center.”

 

Source: GlobeSt.

Healthcare Can Be A Good Candidate For Repurposed Space

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When the topic of adaptive reuse of existing CRE properties comes up, the most typical angle is turning older office buildings into apartments.

While 2023 was a particularly active year, with 55,000 office to apartment unit conversions, according to Yardi’s Rent Café, that’s a small proportion of the 440,000 total units constructed by Real Page’s count.

Instead, developers, owners, and investors might look to other reuse, like healthcare. As that industry moves away from to outpatient care at distributed locations, it increasingly needs space. There are clinics and practices in spaces within shopping malls, freestanding retail locations, former general office buildings, and other repurposed spaces.

Becker’s Hospital Review recently looked at how Hartford HealthCare had used such properties as “a shuttered Blockbuster store, a vacant Bed Bath & Beyond and an old funeral home.”

“Though Hartford HealthCare’s approach to convenience is unique, the goal itself is shared among many health systems,” they wrote. “More organizations are zeroing in on outpatient, ambulatory care offerings as they look to retain hospital space for acute care. From freestanding emergency departments to grocery store walk-up clinics, health systems are testing new methods to expand their footprints (and appease an increasingly impatient patient before they make the switch to Amazon).”

As the Center for Health Design has noted, reuse of buildings can be more economical than trying ground-up construction, especially with the cost of land, materials, and labor in many metropolitan areas.

Appropriate buildings are not available in all locations, so repurposing is frequently not a viable alternative. Renovation costs can at times run more than new construction. There can be zoning restrictions or difficulties with community stakeholders. But there are also opportunities. Unoccupied buildings that have been sitting on the market are often available at discounted prices. If reuse of the infrastructure is possible, that becomes an additional source of savings. Often suitable buildings are available in prime locations that otherwise would be impossible to obtain.

As an article in Medical Construction & Design notes, there are additional considerations. One is visibility from the street. There should be easy access and sufficient parking. One similarity to repurposing space for logistics and warehouses is ceiling heights, “as the 10- or 11-foot ceilings common to strip-mall retail centers and commercial office buildings often don’t work for healthcare facilities.” But if the space has ceilings that are too high, like in a superstore type retail space, building interior partitions may be too difficult.

Consideration also needs a structural engineering analysis, including seismic loading and vibration. Existing elevators may be too small to enable travel by gurneys. Healthcare HVAC needs are more complex. The number of needed fixtures in restrooms may be three to four times as much as in a retail or office space. The need for greater scale is also true for electrical power.

 

Source: GlobeSt