Sonida Senior Living’s newly announced $1.8 billion merger with CNL Healthcare Properties stands to reshape the senior housing landscape, creating what the companies describe as a $3 billion “pure-play” owner that would be the eighth largest in U.S. senior living assets. The move comes at a time of renewed optimism for the sector—unless you’re Blackstone.
The private equity giant, long regarded as a savvy player in commercial real estate, is offloading around 90 properties with 9,000 senior housing units, a distressed portfolio that originally represented a $1.8 billion investment.
Some of these assets are reportedly being sold at losses of up to 70%, with The Wall Street Journal reporting total write-downs exceeding $600 million. According to the Journal, Blackstone had followed its usual playbook: acquire undervalued properties, fund improvements, and wait for profitable exits.
But as the pandemic swept in and the sector buckled, this became one of the firm’s most painful recent investments. The unwind began in 2022, several years after Blackstone had started building the portfolio, before Covid.
“These properties sit in a $33.5 billion fund that has nearly doubled investors' capital. These properties, like much of the senior housing sector, were significantly impacted by Covid,” Blackstone said in a statement provided to GlobeSt.com. “Importantly, Blackstone’s commitment to residents and the frontline workers who care for them has never wavered, as evidenced by over $100 million in improvements and operational investments made to these communities.”
There is still broad consensus in the industry that senior housing offers substantial long-term upside, albeit with unique operational and regulatory challenges. “From a demographic perspective, senior housing is an attractive asset class since there will be demand as baby boomers continue to age,” Daniel Spiegel, SIOR, Senior Vice President & Managing Director of Coldwell Banker Commercial, tells GlobeSt.com. “From a real estate perspective, investing in senior housing is not a passive investment like a net-leased retail asset.”
Jack Osteen, broker associate and senior housing specialist with Coldwell Banker Commercial, notes, “Senior housing is a hybrid of hospitality, healthcare and property management, not just real estate. The staffing can be complex and costly and there is heavy regulation.”
He emphasizes that regulations differ from state to state, complicating compliance across a portfolio. And while the number of Americans 65 and older is rising rapidly, Osteen points out that most residents don’t move in until at least their 80s, so investment horizons must be long-term.
Lynn Jerath, founder and president of Citrine Investment Group, which invests across the Midwest, Mid-Atlantic, and Southeast, tells GlobeSt.com, “All real estate sub sectors experience cyclicality and senior housing, a large and varied sector, is also among the most nuanced and operationally intensive. While one firm is exiting at a loss, others are buying huge portfolios and actively expanding. The market today is very different from when Blackstone first acquired their senior housing portfolio, and with COVID now behind us, the fundamentals have improved dramatically.”
Lynne S. Katzmann, Ph.D., CEO and owner of Juniper Communities, sees Blackstone’s experience as symptomatic of unfortunate timing and external pressures. “Blackstone’s portfolio hit the perfect storm,” she says. “They bought into a frothy market at its height. The pandemic hit made operations tough, and margins shrank at best. Interest rate increases on floating debt and a fund, likely coming on its end, make a stellar and timely recovery hard. They are not alone in the issues they face, and I trust Blackstone and others realize the unfortunate timing but hopefully understand that the industry’s fundamentals remain strong.”
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