Business Outlook

dominated by older and distressed stock. Higher quality stock will hold its value, but is less likely to be transacted as operators await the return to values somewhere near their pre-recession peak. Nonetheless, we are buoyed by the fact that the care home sector has emerged from a difficult, nervous year in a relatively stable manner. Deals are still being done, private equity has not abandoned the sector and investors have retained their appetite for reasonably-priced offerings. The investment market continues to be dominated by specialist healthcare funds such as Quercus, MedicX and Aegon who seek to acquire high quality, purpose-built assets whilst continuing to forge relationships with operators to ensure ongoing, secure pipelines. Funding will remain a key issue into this year, both from an operational perspective as margins on fees become ever-tighter (following a year in which industry analysts Laing & Buisson reported average operator costs of 2.1 per cent against average fee increases of just 0.8 per cent), and from the investment angle where banks and other lenders are still reluctant to demonstrate any significant confidence.

Christie + Co also sold three turnkey care home developments and a fourth development site to Patron Capital’s Gracewell Healthcare on behalf of the developer Highwood Group. The developments added in excess of 280 beds to the sector. Corporate operators are increasingly seeing the value of churning their estates and acquiring turnkey developments – and the prospects look rosy for more of this in the year ahead. Location is as important as ever as operator demand is predominantly for schemes in areas that can target private-pay customers and largely negate the reliance on a dwindling pot of local authority funding. The only exception is Ideal Care Homes, whose model is specifically targeted at the local authority residential care market and which has a pipeline of 16 homes in development. The only concerns remain a minority of poorly-conceived development schemes and a tortuous planning system. Consequently, as major operators migrated towards quality, with their growing demand for turnkey, multi-faceted developments, there were signs that this would result in the release to the market of reasonably-priced, if lower- end quality, stock. In addition, 30 to 40 operators have increased their market presence, adding strength and economies of scale, as a consequence of the reassignment of leases from Southern Cross. What we’re likely to see in 2012, therefore, as these operators fully digest their incoming stock, is a further estate rationalisation that will result in more care homes coming to the market. However, optimism for a much more active transactional market has to be tempered by the realisation that this will largely be

The year ahead should see an increasing flight to quality. It is what service-users and their families want. It is what the regulator and government wants. It is what the investor- community wants. And ultimately, it is what a greater number of operators will provide. Specialist care market sustained Although having to deal with similar fee issues to their contemporaries in the care home sector, specialist care operators engaged in significant activity, backed by private equity – including August Equity and Sovereign Capital. There was some slowing of deals in the learning disability sector, where the traditionally-active Craegmoor was acquired by Priory Group and where Care Tech, which had embarked on an ambitious acquisition programme, focused instead on organic growth. There was greater activity in asset-light service businesses like domiciliary care, live-in care, foster care, and supported living as private equity increasingly trained their radar on these less resource-intensive areas. Major providers, such as Lifeways, were at the forefront of this consolidating marketplace.

Case Studies

Highwood Group/Patron Capital


Acting on behalf of the developer Highwood Group, Christie + Co sold three turnkey care home developments and a fourth care home development site to Patron Capital’s Gracewell Healthcare – adding up to 282 beds to the care sector. One of the developments is in Frome, Somerset.

Increase in the number of care businesses inspected by Christie + Co in 2011 compared with the previous year


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