KeyBank Debuts $750M Healthcare Real Estate Fund

KeyBank has announced a $750 million healthcare real estate fund with Welltower.

The new unitranche loan program will provide first mortgage financing on seniors housing and skilled nursing facilities.

A unitranche loan blends senior and junior debt pricing and terms into a single first lien debt facility rather than creating two classes of debt and coordinating among multiple lenders. KeyBank says the approach increases certainty of execution, and borrowers typically benefit from a single lending entity and blended interest rate.

The announcement comes as large investors are making a macro call that time is right to enter the seniors’ market after being on the sidelines even before the pandemic, according to Ted Flagg, Senior Managing Director for JLL Capital Markets, told GlobeSt.

“There is a widely held view that we are in early days of a bull run in seniors housing (e.g., double-digit annual NOI growth over the medium term)⁠—the question is not ‘if’ there will be outsized growth but rather debate around the timing of that recovery,” Flagg said.

One notable example: last month Monarch Alternative Capital, an investment firm with approximately $9 billion of assets under management, and American House Senior Living Communities, a national leader in the senior housing industry, announced that they were forming a joint venture to acquire, develop, and manage senior housing properties across the US.

Monarch believes that the senior housing industry is at an inflection point given the trends of a growing elderly population against the backdrop of a significant slowdown in construction activity of new properties. The joint venture expects to opportunistically invest in additional properties in the near-term.

In another indication of increased demand in the seniors healthcare market, Irving Levin Associates reports that more and more patients are seeking alternatives to facility-based care, turning toward home health services, and anxiety caused by the effects of the COVID-19 pandemic is causing a surge in individuals seeking mental health treatment and services.

The firm noted that increased activity in the healthcare real estate market for medical office buildings and upbeat, stable activity in the home health and hospice and behavioral health care sectors powered M&A volume in Q3 2021.

“The healthcare M&A market is booming right now, largely driven by private equity activity across a variety of sectors,” said Dylan Sammut, editor of Health Care at Irving Levin Associates. “We’re seeing the usual interest for physician groups and behavioral health providers, but investors should keep an eye out for deals involving emerging companies, such as specialty pharmacies and chronic care management platforms. Dealmakers tell us that’s the next big wave.”