Investors keen to get into nursing homes

Since the Government introduced 100 per cent tax allowances for the construction of nursing home buildings in the 1998 Finance Act, activity in the sector has grown rapidly. Private investors have been competing with banks and foreign companies for investment opportunities.

A joint venture between the Sandown Group (a subsidiary of Australian healthcare company Moran Group) and Mowlam Residential Care Ltd was announced recently. This involves spending £40 million on a minimum of 24 purpose-built nursing homes around the country. To date, 12 sites have been acquired and planning permission has been applied for in some cases.

Sandown, which operates 40 facilities in Britain, hopes to run nursing homes in Limerick, Waterford, Clare, Cavan, Cork, Tipperary, Kerry, Galway, Sligo, and open three in Dublin and two in Meath. Each facility will have 50 en suite bedrooms and the joint venture should create 1,300 jobs when fully operational.

Financier Cormac Crawford recently set up Ailesbury Corporate Finance to arrange finance for investments in nursing homes. AIB has also recently established a £50 million fund to part-finance capital investment and restructure/renovate nursing homes, and "it has been going very well with a lot of interest", said an AIB spokesman.

David Fee of Christies Property Services Ltd says investing in nursing homes has become very popular since capital allowances were introduced and that there has been "a marked increase in investment this year".

"Private investors used to be into car-parks, then it was apartments and now they're getting into nursing homes. Most of the interest is coming from Irish investors, so all the noise about the arrival of multi-nationals is a bit hyped."

Much of the current investment is in single storey nursing homes with at least 30 en suite bedrooms and around 330 sq. ft per resident. Efficiencies and margins on smaller units are generally unattractive and buildings with more than one floor require expensive lifts.

Single storey purpose-built units are also more likely to attract higher premiums for fees and eventual sale. This has lead to fears that existing smaller operators and investors will be swept away in the current investment wave.

Finding the right nursing staff for nursing homes is a vital point for investors to consider. One source believed a lot more nursing homes would be built if there wasn't such an acute shortage of trained people to staff them.

David Fee says investors need the right socio-economic statistics, such as age and income distribution, for an area before investing. In the past, this would have led to nursing homes setting up on the periphery of cities and large towns.

With land prices around cities so high and competition for land from builders so great, nursing homes are being pushed further out from centres of population.

Ronan King of BDO Simpson Xavier warns those thinking of investing in and running a nursing home that they "generally involve significant up-front capital investment and a relatively long-term pay back" so "unless adequate provision is made to deal with the financial implications, problems will occur". Initial returns can be quite low, "so, if you are expecting a decent income flow straight away, - think again. You shouldn't borrow on this assumption".

However, some say the long-term investment prospects look good. The proportion of the

State's population over 65 will increase by 70 per cent (or 290,000) on current levels by 2026 according to the CSO - leaving a lot more elderly people to be taken care off. Changing health trends and increased prosperity should also ensure the wealth to pay for this care.

Others say that with around 22,640 beds for the long-term care of the elderly, this State will only have to marginally increase the number to 23,300 in 2006 and 26,000 beds in 2011.