There's no denying that like in the US, a rising life expectancy and a growing population have global demographic trends telling a compelling story for the industry. The lack of defined seniors housing product make the need for such properties even greater. Yet as with any real estate venture, exporting a product wholesale from the US will not guarantee success; it's important to take into account the cultural norms and expectations of the country being considered.

When examining seniors housing in Europe, one must do so on a country-by-country basis. The most common model, says Berne, is the age-restricted, active adult retirement community. The executive says, however, that there is some transition now to building facilities more akin to what is considered in the US as assisted living.

The other main product within the segment is the skilled nursing facility, though it tends to be more institutional than residential. "There's very little in between," says Löwentraut. "The service-enriched residential model--which focuses on lifestyle enhancement through exercise, nutrition, socialization and the like--does not exist. There's a terrific need and opportunity for that."

The concepts in the US, such as continuing care retirement communities, or a mix of independent and assisted living, is seldom available in Europe, concurs Robert G. Kramer, president of the Annapolis, MD-based NIC. At the same time, he states, it isn't as easy as simply building a property. "It's critical to understand the particular local culture," he says. "That's been one of the greatest challenges for US companies going abroad." A firm can do well in England, but may face considerable challenges in Germany.

In Germany specifically, the seniors housing business is becoming a more transparent and defined segment of healthcare real estate. While skilled nursing and assisted living are the two main types of product, they would not resemble US properties in the same category. "Our nursing homes could almost pass as assisted living facilities in the US, and our assisted living facilities could pass as an independent living in the US," Löwentraut says. Also gaining favor, he adds, is age-restricted, active-adult properties. "The first developers are looking at opportunities to refurbish old apartment buildings and the like for seniors that are too fit for a nursing home, or do not have enough money to pay for an assisted living facility. The active-adult segment is just about to start."

Like most European governments, Germany favors in-home ambulatory care for its older citizens before they enter into institutionalized living. However, home care can only go so far; when dementia sets in or the individual requires a high level of care, nursing homes typically take over. Additionally, Löwentraut points out, in Germany, as well as across most of Europe, between 80% and 90% of the apartments do not have an elevator. That, he explains, acts as a natural barrier to in-home care.

And like much of the rest of Europe, the healthcare system in Germany is public. But when it comes to care in the later stages of life, an interesting formula kicks in. As Löwentraut tells it, every German that receives health insurance pays a small percent into a nursing fund, which pays for a certain portion of the retirement facility or nursing home. This subsidy covers about half of the overall cost of a nursing home, or 20% to 40% of overall home care. If the resident cannot make up the balance, welfare kicks in, as long as the facility has a contract with the appropriate welfare department.

Investors or operators looking to make a play in the country would certainly be propped up by some serious tailwinds. Germany is already the largest market in Europe, and the demand for new senior living product is set to grow. "We need about 200,000 additional beds within the next 25 years, and that is a conservative number," says Löwentraut. Add replacement of older facilities to that, "and we will be looking at anywhere from 400,000 to 500,000 beds. That means anywhere between €80 billion and €100 billion must be invested in Germany through 2040 in order to meet the demand."

Some entities are already looking to capitalize off of the opportunity. Löwentraut, whose firm is one of the largest advisors to institutional investors and operators in healthcare facilities in Germany, says Avivre has done due diligence and consulting work on more than €3.5 billion, or over US$4 billion, worth of properties in the past two-and-a-half years alone. So far this year, the firm has completed operational due diligence for some €735 million in facilities and consulted on roughly €500 million worth of acquisitions. These include operational due diligence on nine developments with 937 beds for the largest German nursing home fund, worth approximately €75 million; operational acquisition due diligence on six facilities with 936 beds on behalf of an expanding operator; the restructuring of a 130-bed nursing home for €9.5 million; and advising a developer on the planning of 13 skilled nursing facilities totaling 1,105 beds in northern Germany worth about €88.4 million.

[IMGCAP(3)]Most of the capital into the sector comes from European institutions such as pension funds or life insurance companies that have set up special-purpose funds to invest in these types of assets, says Löwentraut. These players are not only attracted to the upcoming demographic trends, they also favor the long-term lease structure of such properties as well as its resistance to economic cycles.

Operators in Germany tend to be smaller, local firms, although those entities are now consolidating much like they did in the United Kingdom and the US. "Nevertheless, the German market is one-third of the size of the US market," he relates. "While the largest US operator may have 30,000 beds, the largest German operator has 17,000 beds. There's still a lot of fragmentation, but we see consolidation happening as we speak."

Most transactions or projects in Europe are done through a joint-venture partnership with an investor and an operator. They typically involve a sale-leaseback agreement with a couple of five-year options. Roughly nine out of 10 properties in Germany are operated by private companies, with very little input from nonprofits. The deals tend to be straightforward; unlike in the US, tax rules in Germany prohibit opportunistic or value-add plays.

Like in the US, many operators of seniors housing properties in Europe were originally active in the healthcare or hospitality fields, points out Kramer, or started out in the skilled nursing arena and branched out into other pockets of the industry. Whether working alone or with a JV partner, these local operators have an upper hand. "Many of those operators are often looking for ideas in the US, but they have a better understanding of the cultural context" within their own countries, he says. "They have an advantage as far as that's concerned, as well as in the ability to identify land and get it through the entitlement process. Getting the local support is a challenge."

Next week for Part II, GlobeSt.com visits Asia, where the senior living business, although still in its infancy, is growing rapidly.