NorthStar to Buy $1B Healthcare RE Portfolio from Formation Capital, Safanad

By Gail Kalinoski, Contributing Editor

A property that Formation Capital brings to the portfolio

NorthStar Realty Finance Corp., which has been growing its healthcare real estate holdings since former HCP, Inc. chairman & CEO James “Jay” Flaherty came on board in January, has agreed to acquire a $1.05 billion seniors housing and skilled nursing portfolio from Formation Capital and Safanad Ltd.

The portfolio is comprised of 43 primarily private-pay senior housing and 37 skilled nursing facilities located in 14 states, with 35 percent of the assets in Florida. The acquisition boosts NorthStar’s healthcare holdings to more than 160 properties valued at approximately $1.6 billion, according to a NorthStar news release.

“This transaction represents an initial step towards our goal of expanding NorthStar’s healthcare portfolio into a preeminent healthcare real estate business. We are enthusiastic that this will be the first of many compelling transactions that we can complete with our partners at Formation Capital,” Flaherty, who serves as CEO & president of NorthStar Healthcare Income, Inc., said in the release.

Formation, a leading private investment management firm focused on post-acute services, senior housing and healthcare real estate, is NorthStar’s joint venture partner in the acquisition. NorthStar and its affiliates will contribute approximately 92 percent of the $430 million of equity to buy the portfolio and the joint venture will assume in-place financing for the remainder of the purchase price, according to NorthStar.

Formation and Safanad, a global principal investment firm that invests in real estate, private equity and public markets across the United States, Europe, Middle East and Asia, jointly acquired the portfolio over the past three years. Last July, the partners bought a $400 million seniors housing portfolio that consisted of 65 percent assisted living, 18 percent independent living and 16 percent memory care. Formation and Safanad had also made joint purchases in September 2012, when it acquired a 68-property portfolio of skilled nursing facilities for $750 million, and in 2011, when they bought 36 assets in three transactions.

While Safanad will no longer own any part of the portfolio being sold to NorthStar, it will remain investors in the sector, according to Safanad CEO Kamal Bahamdan.

“Safanad, as the lead investor, together with Formation Capital, have built a substantial senior care real estate platform in the U.S.,” he said in a prepared statement. “While this partial exit realizes our expected return, it is also a validation of our senior care investment strategy. Consistent with this strategy, we will continue to actively explore investment opportunities within this sector, while we maximize the value of the remaining assets.”

Formation CEO Brian Beckwith noted in the joint release issued by Formation and Safanad that, “this transaction demonstrates Formation’s continued focus, together with Safanad, on creating value for our investors and partners.”

NorthStar is a diversified commercial real estate investment and asset management company organized as a REIT. The firm recently announced a plan to spin off its asset management business into a separate public company. Flaherty, who until October was HCP’s chairman & CEO, joined NorthStar Healthcare in late January as a partner to grow that part of the business for NorthStar. One month later, NorthStar Healthcare announced it had completed more than $100 million of investments, including $86.6 million in acquisitions made through a strategic joint venture with The Freshwater Group, Inc., a developer, owner and operator of senior living facilities, according to NorthStar.

“We are very pleased to have a diversified, quality portfolio of healthcare properties added to our existing healthcare portfolio that we expect will produce attractive current and overall returns,” David Hamamoto, NorthStar Realty’s Chairman  & CEO, said of the latest acquisition. “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.”