Investors Keen On Care Homes — Even With Cost And Regulation Challenges
A rapidly ageing population and a projected shortage of beds are among the factors driving investor interest in the Irish nursing homes sector.
According to a new Bank of Ireland report, Ireland is expected to have a shortfall of up to 7,500 nursing home beds over the next eight years.The report notes that the over 65 population will double over the next 20 years, while the number of people aged 80 and over will increase by 130,000 by 2030.
At the moment, Ireland has 433 private care homes with 22,415 beds, as well as 129 public homes with 7,180 beds, according to CBRE research.
Bank of Ireland Head of Health Sector Hilary Coates said there has been renewed interest from investors looking to raise finance to enter the nursing home market, while existing operators are seeking to grow through acquisitions and extensions.
Coates said the shortage of beds is more likely to be a regional issue than a Dublin one. “With Dublin benefiting from more attractive Fair Deal rates and better access to staffing, the expected level of nursing homes built in counties with lower Fair Deal rates may not materialise,” Coates said.
At present, the Fair Deal rate — the amount the State will pay a nursing home per bed per week — ranges from less than €800 in Donegal to over €1,300 in Dublin.
“The capital value of greenfield nursing homes once operational may, as a result of the Fair Deal rates and increased staff costs, be lower than the development costs,” Coates said.
CBRE Healthcare Director Cormac Megannety believes there is already a shortage of beds in Dublin. “Most good nursing homes are full, with 98% occupancy,” he said.
One of the challenges for nursing home developers is the fact that they are often competing with residential developers for sites. “They won’t compete favourably unless the zoning or planning won’t allow for residential development,” CBRE Director John Hughes said.
Another barrier is the cost of construction. According to Bank of Ireland’s research, average costs of building new nursing home beds have increased by around 75% over the last four years from €90K to €160K per bed. During the same time, the average increase of Fair Deal rates has been 3.9%.
Megannety said it costs around €180K per bed to build a nursing home in Dublin, including land costs. “We’ve never sold a nursing home for €180K a bed and we’ll be a long time waiting before we do. We’ve sold them for €120K and €130K."
In Dublin, planning permission is in place for around 3,215 nursing home beds at present. “About 1,900 of those have an obvious operator so we’re confident they will be built,” Coates said.
“With the ones that have no obvious operator, it’s unlikely there was an operator in the planning,” she said. “Maybe some of them will get built, but maybe some of them won’t.”
The players that are building at the moment tend to be funded with plenty of cash. "They aren't looking for big loans off the banks," Megannety.
Richard Barrett’s Bartra Capital is on-site in Loughshinny in north County Dublin, where it is building a 123-bed facility. The 11-acre site was one of three bought by the company last year, the other two being a 1-acre piece of land in Santry with permission for 118 beds and a 2.5 acre site next to Beaumont Hospital in Artane with the go ahead for 221 beds.
Bartra CEO Michael Flannery said the three acquisitions demonstrated that the company is on track to deliver 1,000 beds by next year. The company has said it aims to have 2,000 beds by the end of 2020.
Prudent Healthcare received planning permission in August to convert the Millrace Hotel in Bunclody, County Wexford into a 59-bed nursing home.
A number of extensions are underway. An extra 49 bedrooms are being built at Marymount Care Centre in Lucan, a family owned facility.
TLC Group, which operates four nursing homes, is adding 50 beds to its 149-bed facility on Tonlegee Road in Coolock.
CareChoice, the second biggest operator in the country behind Mowlam Healthcare, is adding 40 rooms to its 89-bed Ardmore Lodge facility in Finglas.
Converted from a hotel in 2015, the Ardmore Lodge was bought by CareChoice in April of this year. The operator also acquired the 117-bed Knightsbridge Care Village in Trim, County Meath from Barchester at the end of last year, bringing its nursing homes tally to eight.
Both acquisitions have been made since CareChoice was acquired by French fund InfraVia Capital from Emerald in June 2017 for €60M. This was the biggest ever sale of a nursing home portfolio in Ireland.
Last December, German-based Immac Group bought Beechfield Care Group from Lioncourt for an estimated €33M. The group includes three nursing homes and a homecare service. “Immac definitely still has an appetite to continue purchasing and expanding,” Savills Associate Aaron Spring said.
Irish investors and operators are also in the market for care homes. Trinity Care is believed to have paid up to €9M for 71-bed Castlemanor Nursing Home and adjacent retirement units near Cavan town. The operator has five other nursing homes in Dublin, Meath, Kildare and Louth.
Ditchley Group, a sister company of hotel operator iNua, currently has a portfolio of three nursing homes. “But they should be announcing some acquisitions in the coming weeks,” Spring said. “They will be more regional in nature.”
Potential investors are interested in modern, large homes that are close to populations centres, Spring said. “The deal rate is all important as is the potential for extension or renovation.”
Coates believes that nursing homes will continue to be of interest to investors but cautioned that the sector has its own unique challenges. “Key to any nursing home is the quality of care that’s provided in it,” she said. “When we look at funding nursing homes, the most important thing for us is the experience and quality of the operator. The regulator overnight can close down a nursing home if the quality of care isn’t good. You can go from having a trading business to a shell, and a shell is of no value to anybody.”