PARSIPANNY, N.J. — Prudential Real Estate Investors (PREI) has closed on its fourth seniors housing fund — the firm's largest ever — raising $568 million in discretionary capital secured from institutional investors. Parsippany-based PREI is a real estate investment management business with offices across the globe, including Chicago, London and Tokyo.
Noah Levy, managing director with PREI and portfolio manager of the fund, says PREI will be a co-investor in the fund, as it has for the previous three. “We like this investment niche ourselves,” he says. “Investors are very cognizant of that today.”
The closed-end fund will feature a strategy very similar to PREI’s first three funds. It will target investments in seniors housing, including independent living, assisted living and memory care properties, as well as communities that offer a combination of those services. Additionally, the fund will focus on direct and joint venture acquisitions of existing properties, forward commitments on newly constructed properties, mezzanine loans and development.
Levy says PREI is targeting returns in the low teens using 50 percent leverage. He admits that it is not the most aggressive strategy, but it is characterized by a lot of income. “As a whole, during the recession we have still been able to grow net operating income even when we’ve had to give up a little bit in the way of occupancy, or not quite as strong rent growth,” he adds.
While it might seem that seniors housing is recession-resistant due to demographics, Levy says it still isn’t a sure bet for investors. “The industry has proven to weather a severe downturn but it doesn’t mean we aren’t affected by it,” he says. “We have held up well as an industry during the recession, and that’s a good thing. However, with that said, you still have to underwrite these things intelligently and work with the right operators and the right properties in the right markets. You can still make bad investments here.”
The average length of time PREI holds an asset is between 5 and 7 years, although Levy adds that each acquired property has to be looked at on its own terms. “If you buy a portfolio of properties and you know that one just isn’t a fit, you might sell it right away,” he says. “It really has to do with the environment and the property. Every case is individual.”
The firm opened its first fund, Senior Housing Partners I, in 1998 and has been managing funds on behalf of investors ever since, following up with Senior Housing Partners II and Senior Housing Partners III. The first two funds are liquidated, and the third fund has completed its investment period.
— Savannah Duncan