Oversupply of nursing homes grows
Die Welt - Article from 21.01.2009Miscalculations of investors – senior citizens did not make sufficient use of expensive offers
The financial crisis will not stop short of nursing homes: Many investors who purchased objects during the last years got into a situation of corporate distress. This situation might partly be called a dramatic one, says Carsten Brinkmann, chairman of the supervisory board of the consulting company Terranus which is specialised in social real estate, to the WELT. “Some purchasers have already tried to hive nursing homes off again ineffectively.”
This approves appraisements of those experts who warned against overpriced purchases in the nursing home market during the investment boom. In 2007 Helmut Braun, the former chairman of the board of the Kuratorium Wohnen im Alter (KWA), tried ineffectively to scale down the exaggerated expectations of investors by stating the thread of “a giant real estate bubble” caused by new buildings and price increases.
The dramatic consequences of the investment boom are also shown by the recent study of the Federal Statistical Office. According to this study, the number of nursing homes increased by 605 objects and 5.8 percent respectively to 11029 nursing homes with an overall number of 777015 inpatient beds from the beginning of 2006 to the end of 2007. Assuming an average new building price of eight million EUR, this corresponds with an overall investment asset of 4.84 billion EUR. On the contrary, the number of people permanently in need of care increased only by 4.3 percent to 686082 patients in the same period. This means that the offer of beds was 13.25 percent over demand already one year ago. Since then further new buildings came into the market.
RREEF, the real estate fund provider of Deutsche Bank, reduced the acquisition for its nursing real estate fund due to this development during the last years. On the contrary, other fund initiators and foreign investment companies relied upon an increased need of nursing home beds and a price explosion concerning social real estate caused by a continuously increasing number of elderly people. This hope was proved wrong until now but already bulled the nursing home real estate market in an unfavourable way during the last years. “At the beginning of 2006 objects were dealt with the 12.5-fold of the yearly rent on average. In autumn 2007 purchasers paid up to the 15-fold of the yearly rent”, says Brinkmann.
By now the prices have dropped to the 13-fold of the yearly rent again. Nevertheless, many providers do not find purchasers for their objects presently. “Prospective buyers pay high attention to location and condition of real estate objects” says the chairman of the supervisory board of Terranus. Investors had to struggle against the neglect to modernise existing objects during the years of boom.
Additional problems for many buyers: “Quite often purchase prices were financed by short-term credits”, says Brinkmann. Now banks do not only insist on considerably higher interest concerning the follow-up financing but also on higher equity participation. “But many purchasers of the last years cannot provide any more private funds”, says the chairman of the supervisory board. The crisis caused such an increased need for consulting for investors that Terranus has meanwhile assembled a team of six experts. Brinkmann: “This enables us to evaluate financing quickly and restructure it if necessary”.
The crisis of nursing home owners worried many nursing home inhabitants and their relatives. “Under the prevailing circumstances nobody has to fear for his or her bed”, says Brinkmann to give the all-clear. Social real estate is rented to operating companies. “In the past these operating companies were still able to operate the nursing homes although one owner had become insolvent”, says the expert of Terranus. “Banks will not press for evictions because nursing real estate could hardy be used differently”. Lease payments will be made as long as the operators operate the nursing homes.
Investors cannot solve their problems by rent increases. Brinkmann: “The maximum amount of lease payment of operating companies is capped by legal restraints.”