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NorthStar Realty to Buy $1 Billion Health Care Portfolio

Former HCP Chief Jay Flaherty Sources Deal For NorthStar's Senior Housing, Skilled Nursing Holdings
March 17, 2014
NorthStar Realty Finance Corp. has agreed to acquire a $1.05 billion portfolio of senior housing and skilled nursing facilities from private investment partnerships Formation Capital, LLC and Safanad Limited.

The portfolio, comprised of 43 mostly private-pay senior housing facilities and 37 skilled nursing facilities, would give NorthStar a health care real estate portfolio of over 160 properties totaling $1.6 billion in value.

New York City-based NorthStar is acquiring the portfolio in a joint venture with Formation, a firm focused on senior care real estate and services and post-acute health care. NorthStar and its affiliates will contribute about 92% of the $430 million of equity to purchase the portfolio, and the venture will assume in-place financing for the remainder.

Jay Flaherty, former CEO of HCP Inc. (NYSE: HCP), one of the largest health-care real estate investment trusts has led NorthStar’s move into medical property.

"Since joining our healthcare real estate team only two months ago, Jay Flaherty has sourced an investment pipeline through his relationships in the industry that is adding significant value to the NorthStar franchise," said NorthStar Chairman and CEO David Hamamoto.

Flaherty said in a statement that the transaction is an initial step toward expanding NorthStar's portfolio into a preeminent health care real estate business, adding the company "is enthusiastic that this will be the first of many compelling transactions that we can complete with our partners at Formation Capital."

The purchase price represents a cap rate of 9.4%, an initial unlevered yield of 7.8% and an initial levered current yield of about 12%. The Portfolio is located across 14 states with the heaviest concentration (35%) in Florida, and 36 of the 43 senior housing facilities will be owned through a REIT Industry Diversification and Empowerment Act (RIDEA structure), which allow REITs to treat rental payments made by a health care facility as qualifying REIT income, among other changes.

The remaining facilities, including all 37 skilled nursing facilities, will be owned under triple-net leases across five separate master leases.

Safanad, a global real estate and private equity firm, and Formation, a private investment firm focused on post-acute services, senior housing and health care real estate, jointly acquired the Portfolio over a period of three years.

Brian Beckwith, Formation Capital's CEO, said the transaction "demonstrates Formation's continued focus, together with Safanad, on creating value for our investors and partners."

"While this partial exit realizes our expected return, it is also a validation of our senior care investment strategy," said Safanad's CEO, Kamal Bahamdan. "Consistent with this strategy, we will continue to actively explore further investment opportunities within this sector, while we maximize the value of the remaining assets."
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