The seniors housing sector, once considered a niche asset class, has in recent years become a more mainstream product type for individual and institutional investors alike.
Despite the negative impacts of COVID-19, the sector is experiencing its best period ever for investment, experts say.
Commercial real estate firm CBRE states that total investment volume for the past two quarters alone, of more than $4.6-billion, will match the all-time annual record set in 2015.
Fieldgate spent 65 years building shopping centres, commercial business parks, golf courses and thousands of houses – before following the market into seniors’ housing.
Typically, the annual volume of seniors housing investment in Canada is in the $1.7-billion range, according to a recent CBRE report. Yet, in just half the time, the sector saw twice that volume, “and the momentum shows no signs of slowing down,” the report states.
“It’s one of the best investments in all real estate, and I think that’s going to continue over the next 10 to 20 years,” says Mathew Burnett, senior vice-president, health care capital markets at CBRE.
“It’s the only real estate class where the future demand is quantifiable,” Mr. Burnett explains of the “needs-driven demand” that characterizes the asset.
“In Canada, the sector is crucial; the 85-plus cohort will not just double, but double-and-a-half – 150 per cent – over the next 20 years.”
The industry’s resilience proved itself during the recession as well, Mr. Burnett adds. But “there is nothing the sector can go through that is worse than COVID, and the industry is rebounding strongly from that.”
Mr. Burnett says investors are attracted by high returns on investment; in 2021, the national average was 6 per cent – double that of more popular asset classes such as industrial, apartments and offices.
“That’s unbelievable yield in this environment,” Mr. Burnett says.
The recent high transaction volume is, in large part, the result of major portfolio acquisitions by giant American operators, including Blackstone, Ventas, Sabra and Harrison Street.
But individual investors purchasing single property sales, prices for which hover around $10-million, are also contributing to the robust market, according to Cushman & Wakefield’s Seniors Housing Industry Overview, published in January.
The sector’s healthy returns are partly the result of consistently high occupancy rates, the overview states. For five years prior to COVID-19, Canadian seniors housing occupancy rates hovered at around 92 per cent. During the past two pandemic years, occupancy rates fell to a historic low of 85.5 per cent.
“Now, we’re seeing an uptick in occupancy,” says Sean McCrorie, executive vice-president and practice leader, seniors housing and health care, at Cushman & Wakefield and author of the overview.
Mr. McCrorie’s findings project a return to pre-COVID-19 occupancy rates by early 2024, and further growth to 95 per cent by the end of 2026, “as the 85-plus cohort begins to grow exponentially.”
Despite the recent decline in occupancy, rent for seniors housing in Canada’s largest cities continued to rise by about 3 per cent, according to the overview.
In 2021, the monthly fee for a one bedroom in a private, “independent living” seniors home (providing daily meals and weekly housekeeping) is $5,284 in Toronto, $4,907 in Vancouver and $4,323 in Calgary. Montreal has the least expensive rent, at $1,888.
Just over 9 per cent of Canadian seniors, 65 or older, live in some type of seniors residence, a recent CMHC report states. Quebec has the highest capture rate, at 17 per cent, while rates in other provinces vary between 5 per cent and 10 per cent. (The numbers rise the older the population, with nearly one in three 85-year-olds living in a seniors residence.)
“Quebec has many more units of ‘active living’ seniors apartments,” Mr. McCrorie says, referring to complexes that are much like other apartments – except they have minimum-age requirements.
“Developers in other provinces are starting to build more of these kinds of communities in order to capture more of the market,” he adds.
This new product is typically more upscale, larger and amenity laden than older seniors housing. “The look and feel of a retirement residence have changed dramatically over the last 10 years,” he says.
“As the baby boomers age, their tastes and wants will be different than the prior generation.”
Indeed, brochures for new seniors housing complexes often promote a luxury lifestyle for exceedingly active people. Ottawa-based Nautical Lands Group, for example, builds “pro-age” communities that swap “the gentility of the rocking chair with the vitality of the rock wall.”
Fieldgate Properties Ltd., in Toronto, sees the future of seniors living as aging-in-place communities that include posh, active-living apartments, along with buildings for independent living and assisted care, all situated amid beautiful settings.
Relatively new to seniors housing development, Fieldgate spent 65 years building shopping centres, commercial business parks, golf courses and thousands of houses – before “following the market” into seniors housing with its first investment in 2015, says Todd Cullen, vice-president of acquisitions and development at Fieldgate Properties.
The Kingsway Arms, in Aurora, Ont., “had a really good reputation,” Mr. Cullen says. As Fieldgate renovated and expanded the residence, it learned everything it could about an asset class that, as the developer describes it, is part traditional real estate, part full-service hotel, with the added responsibility of health care.
Operational excellence is crucial to the success of seniors housing investment, Mr. Cullen says, and Fieldgate “inherited a wonderful care team at Kingsway.”
However, as long-time property managers who’ve always enjoyed “the service aspect of owning buildings,” it eventually hired its own director to oversee operations.
The success of Kingsway Arms has led to four new developments in Ontario, in Whitby, Milton, Dundas and Burlington, all in various stages of completion.
“It was a no brainer” to get into the business, Mr. Cullen says. Fieldgate has witnessed firsthand the “natural evolution of young families, who purchased our homes 65 years ago. As they became empty nesters and started looking for somewhere to go, it had us searching for the right opportunity to enter the business.”
Fieldgate has more seniors communities in planning stages. “We’re most excited about creating a complete community,” with housing, retail, services, restaurants and recreation facilities, Mr. Cullen says.
For a demographic that is living longer, more active lives than seniors of generations past, a mini-town “catering to its needs is our ultimate vision,” he says.
China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businesses in the near term. An employee works on the production line of the screens for 5G smartphones at a factory on May 13, 2022 in Ganzhou, Jiangxi Province of China.
Standardizing ESG reporting, and making it mandatory, would be a start toward reliable ESG investing
Author of the article:
“Scam” or “dangerous placebo” are some of the terms used by critics to denounce Environmental, Social and Governance (ESG) investing. Yet others see it as one of our last chances to pivot our financial world to a more sustainable and environmentally-friendly model.
ESG, a form of sustainable investing, is increasingly being used as a measure of how well a company is using its investment money. For investors looking to instigate change, ESG scores help them decide if a company is worth their money.
This is despite ESG dating back to 2006, when the U.N. launched the Principles for Responsible Investment at the New York Stock Exchange. The initiative was backed by leading institutions from 16 countries, representing more than $2 trillion in assets owned at the time.
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ESG critics and optimists have called on the government to use its power to fine tune ESG metrics and finally standardize it, in order to give it more credibility.
ESG not what it seems?
In 2021, ESG investment saw issuance exceeding US$1.6 trillion, bringing its total market to more than US$4 trillion. Not only that, but Bloomberg expects ESG assets to exceed US$53 trillion by 2025.
Fierce critics like Tariq Fancy — who worked as the chief investment officer for investment management firm BlackRock before leaving in late 2019 — made headlines with his disillusionment over ESG’s true impact.
“That $4 trillion isn’t really $4 trillion,” Fancy said, in reference to the widely-circulated figure.
For Fancy, the “vast majority” of what’s happening is that companies are “recategorizing existing funds and moving money and shares around from one basket to another…
“They’ve figured out that socially conscious investors will gladly pay more in fees for something with a ‘green’ label,” he said, adding that ESG funds have 43 per cent higher fees on average.
“Also, they don’t fund carbon capture and new innovations, for the most part they publicly overweight tech companies (Microsoft) and underweight oil companies (Exxon),” he added.
Also, regular investors mainly have access to secondary shares that are sold and purchased on a daily basis, which have little impact, argued Fancy.
“The changes we need immediately to flatten the [greenhouse gas] curve are collective actions led by the government — experts have been telling us this for decades,” he said.
As ESG investing rises, so do emissions
Like elsewhere, Canadian ESG investment is increasing, but, again like elsewhere, the nation hasn’t reduced its emissions in the past year.
A March, 2022 report from the International Energy Agency said that global energy-related carbon dioxide emissions rose by six per cent in 2021 to 36.3 billion tonnes — a new record — as the world bounced back from the pandemic.
ESG does make a difference
Art Lightstone, climate activist and host of the Green Neighbour Podcast, acknowledges ESG has its critics. But for him, this class of investing is still making a difference.
“The fact that ESG investing has not only helped to launch several green tech companies, but also encouraged less socially-minded companies to compete in ESG spaces is now pretty much undeniable,” Lightstone said. “Tesla is invariably the best case in point. The amount of investment directed toward Tesla and other EV startups has been mind boggling.”
While money can be moved from one shareholder to another, “that’s not where the story ends.” He cited the example of Tesla when it was “able to raise large amounts of capital [at market prices] with rather little dilution to its stock.”
“Tesla did this three times in 2020, and with that money they were able to build more factories, scale up their production, lower their per-unit costs, increase their profit margins, and therefore increase the economic viability of their entire operation,” he explained.
This expansion created a domino effect for legacy automakers such as GM and Ford, who are investing more in their electric vehicle programs.
Investing intentionally and collectively
Tim Nash, founder of Good Investing, a company with a goal to help at least one million Canadians invest intentionally, argues that informed decision-making can make the impact needed.
“People spend more time choosing an avocado in the grocery store than they spend when choosing a mutual fund for their RRSP,” Nash said.
Instead, he urged people to think more about their portfolios and ways to diversify, including carving out part of their portfolios for investment just “for doing more good.”
“This is where we can invest part of our money into things like community bonds and impact investments,” he explained.
Community bonds, a debt financing tool, are issued by non-profit, charity or co-operative organizations. They allow these groups to take loans from community backers. The backers will eventually get paid interest for investing in an impactful project, while the organization enjoys access to capital.
During the interview, Nash noted that he was located at the Centre for Social Innovation, a non-profit that owns two buildings in downtown Toronto.
“How does a non-profit own two buildings in downtown Toronto?” he asked. “Community bonds. That’s how they were able to access capital.”
Then there is also shareholder activism, and this is where Nash highlighted how shares that are publicly traded on a secondary market can be used as a powerful tool if used collectively.
“If I sell my shares, someone else is going to buy them. However, if enough people sell their shares that will impact a company’s cost of capital,” he said. “This is a very important metric when it comes to how a company operates.”
One example Nash cited as proof of effective shareholder activism is the increased cost of capital for fossil fuel companies. At the same time, there has been an unprecedented shifting of investment capital into greener energy.
Better knowledge needed
The financial industry needs to delve into the environmental sciences, sustainability, and systems thinking to have a more well-rounded view on how to make a full impact, Nash says.
“I do think that a lot of the criticisms come from the financial industry, people who don’t have a background (in these topics),” he said. “ESG is a very broad concept… We need everybody rowing together in the same direction.”
While the government is in a position to lead, it’s still caught up in a four-year election cycle, he added.
“It’s even shorter if it’s a minority government, which we’re in right now,” he noted.
Time to start mandating metrics on ESG
Nash put the onus on the Ontario Securities Commission, which regulates companies listed on the Toronto Stock Exchange, to start mandating disclosures of ESG issues, as other regulators have done.
For example, the SEC in the U.S. is focused on the climate aspect of ESG. It mandates that all publicly traded corporations publish their environmental compliance costs, and proposed new rules in March to standardize climate-related disclosures to investors. The rules would require businesses to disclose information about their direct greenhouse gas emissions, as well as the indirect emissions from the energy the business consumes.
In Europe, the trend tends to lean more toward the corporate governance aspect of ESG. Under the 2018 Non-Financial Reporting Directive of the European Union, companies are expected to disclose information on environmental, social, and employee-related problems, such as anti-bribery, corruption, and human rights performance.
In Nash’s view, Japan is ahead of the curve with its Financial Services Agency actually mandating climate risk disclosure.
“Investors, I think, to some degree are demanding more data and information and disclosure than what governments are requiring,” he said. “This is an area where investors are asking tough questions and pushing that forward. That said, investors can ask, and companies get to decide how they respond. Many of them are responding in different ways.”
ESG optimists and critics alike want to see those regular investors emboldened to make the difference the world is waiting for.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
(Bloomberg) — Real Madrid Football Club is set to receive about 360 million euros ($381 million) from Sixth Street Partners, providing much-needed funds as its stadium undergoes an 800 million-euro renovation.
Sixth Street will get the right to profit from certain operations at Real Madrid’s Santiago Bernabeu stadium for twenty years, the investment firm said in a statement on Thursday. The U.S. investor will get a 30% stake in the stadium operations and will receive revenues from all its activities except for season-sale ticket sales, according to a New York Times report.
Real Madrid, which won its 35th Spanish league title last month, can use the funds however it sees fit, including to sign players. Real is the most successful European team of all time, with 13 champions leagues, and it is set to play the final that may give it a record 14th later this month.
The deal announced Thursday includes the Legends, an American sports and live events management company that’s partly owned by Sixth Street, and which has overseen Real Madrid’s retail business since 2020.
Real Madrid has been raising money to help pay for the ongoing refurbishment of its stadium, including a removable pitch that will allow the club to shift the grass surface into storage to host other revenue-generating events such as concerts or tennis matches.
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