French nursing home real estate will be hot property in 2018

We hear from several industry players that real estate trading will pick up in French nursing homes in 2018 after 2017 saw more deals in the hospital sector.

Stephane Pichon of healthcare real estate advisory firm Your Care Consult says he is aware of several large deals in nursing homes that should be concluded this year. Overall, he expects the sector to make up a bigger portion of real estate activity in France in 2018 than in 2017.

“I think this year it may be equal between nursing homes and hospitals because we’re expecting a few large deals in nursing home portfolios. In 2017 [his firm is still compiling the year’s data] we’re expecting the majority to have been in hospitals.”

Another contact, a healthcare executive in France for many years, thinks the same and gives more colour to the assertion. He says the large nursing home operators – Orpea, Korian and DomusVi – will be buying more of their own real estate. Orpea already has a policy of owning more than half the real estate it operates in, but the lack of opportunities to expand nationally are reportedly forcing its hand and those of its competitors.

And you can’t build. No new licences for nursing home development are being given out, meaning that the only way to expand is to refurbish outdated properties. The Hollande government made attempts to ease planning permission processes but Pichon says the effect has not been felt. The Macron government is also making efforts; most recently commissioning a report that suggested, amongst other measures, a substantial reduction in the power of local opposition to urban developments.

But he says there is still an opportunity to replace units, with many public and non-profit nursing homes in need of renovation. Total units will thereby increase but only incrementally: “There are no new licences being given, so it’s basically a replacement market.”

The bigger opportunity for construction will be in assisted living facilities which are classed as residential, making planning permission easier to obtain. Pichon anticipates a tripling of the national inventory over the next 20 years, from around 50,000 units to 150,000.

“That’s a big piece of the action right now, presenting a growth area you can’t find in nursing homes. Most of the operators are going into that field.” But since it’s a cash-only market, getting the right location is absolutely essential.

Pichon thinks between €800m and €1bn of healthcare real estate M&A took place in France in 2017 and that 2018 will see a similar amount. Others estimate 2017 activity totalled around €500m, which Pichon says is the normal amount for a ‘bad year’ in France.

Icade had a busy year, buying up private clinics across the country in April (spending €50m), September (€90m) and December (also €90m). BNP Paribas spent €100m on clinics in Lyon and Floirac in February. Falling tariffs over the last few years have prompted many hospital and clinic operators to opt for sale and leaseback deals to help their finances. One source told us: “As medical tariffs fall property is how private equity makes its money!”

We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.

Source: Healthcare Europa, January 11th 2018

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