New SocGen healthcare loan demonstrates lender appetite for the sector

The French investment bank is supporting Threestone Capital’s pan-European push

Societe Generale has issued a multi-jurisdictional loan in Europe’s nursing home sector as cross border buyers take an ever-increasing share of the healthcare market.

The French investment bank has issued a €53.5 million (£45 million) facility to the Luxembourg-headquartered investment manager Threestones Capital, which has been investing in nursing homes since 2009.

The five-year facility will fund the acquisition of six nursing homes in Germany, and refinance two nursing homes in Spain that are housed in Threestones’ TSC Fund Eurocare IV investment vehicle.

Fernando de Galainena, head of real estate structured finance at Societe Generale, said the bank would continue to support Threestones’ plan to grow its healthcare portfolio around Europe.

Beka Pipia, portfolio manager, Threestones Capital, explained that it has typically used local lenders in the markets where it has been investing in healthcare but that larger lenders were increasingly entering the asset class.

“This is the first time we have taken on a cross border loan, but as we plan to become more pan-European this is something we will increasingly do,” said Pipia.

He added that larger lenders were becoming increasingly interested in the healthcare market, which had proved to be “extremely resilient” in providing stable cashflows.

“Banks see that cashflows are inflation-hedged; leases are 20 to 25 years with top-tier operators and those operators receive significant support from government and pension funds,” he said.

Transactions in Europe’s healthcare market are becoming increasingly cross border in nature, as overseas buyers become present, according to Knight Frank, which estimates that 40 percent of buyers in the sector in 2021 were cross border.

Investors are seeking to capitalise on low-quality stock in markets such as Spain, Italy and Germany, relative to an ageing demographic.

Threestones said banks were following the lead of these investors, which are finding “attractive yields”, especially in markets like Spain, where a “big influx of institutional players has created yield compression”.

Deepak Drubhra, co-founder of Westfort Advisors, which acted as debt adviser to Threestone, said that the process involved several banks interested in the cross border financing. “We wanted to explore with a bank that was capable of financing both geographies. It was a competitive process, and we weighed up arranging a single debt facility over several local players providing separate facilities,” he said.

But Drubhra explained that lenders coming fresh to this popular-yet-niche sector often needed to get comfortable with the operational aspects of the asset class before investing: “The sector is relatively untapped [by lenders], and their reluctance is often because the downside risk is having to take control of a nursing home in the event of operator default which also presents reputation risk.”

However, Pipia explained that in practice, operator default was “extremely rare”. “The whole operation has to be mismanaged to a tremendous level. It is almost impossible, from our experience. We have bought over 120 nursing homes in 12 years and only one home went to bankruptcy.” He added that in the rare event of mismanagement, investors can find another operator “with ease”.

“The licence to operate is mostly owned by the landlord, so they have the upper hand and that is something not known to many banks. Once lenders understand how that works, they get more comfortable,” added Pipia.