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
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.
Case Studies
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.
Highwood Group/Patron Capital
Increase in the number of
care businesses inspected by
Christie + Co in 2011 compared
with the previous year
7.1%
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.
40
Business Outlook
2012
