Senior Housing and Care M&A Activity Down Because of Pandemic

The COVID-19 pandemic has had a detrimental impact on senior housing and care M&A activity. When compared with 2019, it is especially dramatic, as numerous buyers were in the space looking for acquisitions.

Third Quarter Results

Irving Levin Associates reported 58 announced deals totaling $1.48 billion in transaction volume in 2020 Q3. The coronavirus pandemic has impeded deal volume for two straight quarters, as Q2 was only slightly better with 60 transactions. The third quarter numbers represented a 3% drop-off, sequentially.

However, some good news is that the dollar volume represented a 9% increase sequentially, even though the majority of that total is credited to one deal—Welltower’s $702 million disposition of its stake in 10 senior housing communities operated by Merrill Gardens, which acquired the portfolio in a joint venture with AEW Capital Management (see discussion below).

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There were some smaller deals that fueled M&A activity the last few years; however, capital has not yet fully come back to restart that activity. Private senior care operators are driving the current deal volume, making up for 63% of deals recorded in Q3. They were followed by private equity (9%), real estate investors (9%), and real estate investment trusts (4%).

Assisted living communities made up about a third (34%) of deals. Other categories were age-restricted communities (12%), independent living (7%), and CCRCs (5%).

Analysts have yet to say if Q4 will reverse course, but M&A activity has started strong in the first half of October.

One Notable Senior Housing Sale

There are reports that that Toledo, Ohio-based real estate investment trust Welltower has liquidated its holdings. The deal involved 10 communities in its senior housing operating portfolio operated by Seattle-based Merrill Gardens.

Welltower notes that it was “one of the first companies of its kind to invest in seniors housing, which includes independent living, assisted living and memory care communities.”

California public records in Santa Clara County show that Welltower recently sold a Merrill Gardens senior housing community . The unit is located in San Jose with another located in the town of Gilroy, according to The Silicon Valley Business Journal. The deal for the two properties reportedly was more than $111 million, with Merrill Gardens itself listed as the buyer.

In another news report last month from The Daily Journal of Commerce, Merrill Gardens and partner AEW Capital Management were said to be purchasing Welltower’s stake in the entire 10-property portfolio. The 10 communities are located in California, Nevada, and Washington.

In February 2020, Welltower announced that it had reached a definitive agreement to sell an assisted living portfolio of communities. The price for the three-state deal is $740 million. However, Welltower did not disclose the operator involved.

Initial Deal Cancelled Because of COVID-19

The news of Welltower’s sales indicates that it has succeeded in selling its interest in the Merrill Gardens senior housing portfolio after the initial deal was canceled due to COVID-19. Reports are that the portfolio sold for a little more than $700 million, according to The SeniorCare Investor.

Merrill Gardens has a long relationship with Welltower, previously known as Health Care REIT. The two companies created the first RIDEA (REIT Investment Diversification and Empowerment Act ) partnership in senior living in 2010.

In other news, Welltower announced a $402 million joint venture partnership. Welltower is joining with Invesco Real Estate, a global real estate investment manager. This extends the existing partnership between the two companies. The joint venture comprises a portfolio of 20 outpatient medical buildings. Welltower previously owned them. They span 1.0 million square feet across five states. The average age of the properties is 16 years, with roughly 50% of the portfolio affiliated with health systems.

Welltower’s CEO Resigns in Senior Housing Shakeup

Along with the transaction news comes the announcement that Welltower’s CEO and chairman of the board of directors, Thomas DeRosa, has resigned from both positions. The company’s CFO, Shankh Mitra, has replaced him as CEO, and real estate sector veteran Kenneth Bacon takes his spot as chairman.

Welltower didn’t give much of a reason for DeRosa’s departure. He had served as the senior housing REIT’s leader for over six years. In its press release announcing his resignation, the company quoted him as saying vaguely that “the Board and I have decided that now is the right time for me to hand the reins to Shankh.”

Mitra has been with Welltower for four years. The company says that he will keep his CIO title while serving as CEO. Before Welltower, Mitra was a portfolio manager at real estate company Millennium Partners. He was also a senior analyst at both Citadel Investment Group and Fidelity Investments.

Kenneth Bacon has been in the real estate industry as an executive for many years. He worked for almost 20 years at Fannie Mae and then was a co-founder of RailField Realty Partners. He still serves as managing partner. Bacon has been on Welltower’s board of directors since 2016. He also sits on the boards of other companies, including the entertainment conglomerate Comcast.