‘Grey euro’ lures overseas buyers into nursing homes as small players feel the squeeze

Making money ‘has never been more difficult’ than now for a small operator

Anne Gallagher, owner of the Hillcrest House Nursing Home in Letterkenny, Co Donegal, for almost two decades, is grateful to have gotten through 15 months of the Covid-19 pandemic without losing any patients to the deadly virus.

“It’s been very difficult for our residents and their relatives and extremely worrying for us. We did have an outbreak but, thankfully, it didn’t result in any Covid-related deaths,” says Gallagher, adding that the Government’s special financial assistance scheme for a sector that found itself at the epicentre of crisis has been a “lifesaver”.

“We’ve used that money to develop a brilliant model in the nursing home, with extra staff on duty to check visitors and carry out screening. It’s also helped with the huge costs of hand sanitising centres and extra PPE [personal protective equipment],” she says. “But I don’t know how we’re going to manage with the scheme currently scheduled to run out at the end of June.”

For Gallagher, who has 31 beds in her nursing home and 27 places in a separate facility for adults with neurological problems, making money “has never been more difficult” than now for a small operator, particularly in rural areas where the Government’s Fair Deal rates, which effectively finance long-term care for most elderly people in homes, trail those in major cities.


The average Donegal rate from the National Treatment Purchase Fund (NTPF), at a little over €900 a week, is 25 per cent behind the €1,200 going rate in Dublin, according to a recent BDO report for Nursing Homes Ireland.

“But our main cost – staffing – is actually higher, because it’s more difficult to get nurses outside of the capital,” says Gallagher. “We are facing ever increasing regulatory demands and costs. There’s no negotiating with the NPTF on Fair Deal rates. When I had needed to invest over €200,000 a few years ago to finish fire remedial work, I couldn’t get it from the bank. I had to borrow from friends and family. There were a number of months while that was going on that I didn’t take a wage myself.”

Staffing costs have risen by 23.5 per cent in the six years to 2020 – almost double the rate of increase in Fair Deal fees – to account for 60 per cent of turnover across the sector, making it “not economically viable” to build new homes in certain parts of the country, BDO said.

Meanwhile, the cost of developing a nursing home – with boom-time development tax breaks a distant memory – have jumped from €80,000- €100,000 per bedroom over the same period to between €170,000 and €200,000 today, according to Hilary Coates, Bank of Ireland's health sector head.

“This level of investment significantly reduces the potential for traditional ownership structures to prevail into the future,” said BDO.

With new rules from the Health Information and Quality Authority (HIQA) coming into force at the end of the year, requiring that 80 per cent of nursing home residents are accommodated in single, en-suite rooms, as well as laying out minimum communal space per occupant, sector players have faced additional costs trying to get their business into shape.

Small operators in parts of the country can only look on in envy as nursing home groups consisting of multiple modern, future-proofed facilities, have become a magnet for overseas care home businesses and property investors in the past two years – at a time when demand for accommodation is only going one way. The Government estimates that the number of people over 65 will double between 2018 and 2040 to 1.3 million, with the population aged over 85 quadrupling.

‘Wall of cash’

"Right across Europe you've got a wall of cash looking for a home in an era of negative interest rates on deposits. In Europe, investment in the sector has been driven by strong demographics, strong regulation and the emergence of real estate investment funds, who are acquiring homes primarily based on a property valuation model," said Coates.

“We’ve seen a lot of European and other overseas financial investors enter the market in the last 18 months. We estimate that €1 billion has been deployed in Ireland over this period. In some cases this has resulted in valuations of up to 16 times ebitda [earnings before interest, tax, depreciation and amortisation].”

Five years’ ago, nursing homes were changing hands at valuations of between eight and 10 times earnings.

Of the 31,700 nursing home beds in the Republic, fewer than 20 per cent are now in public nursing homes. Coates estimates that about a third of all beds are now owned, or partly owned, by real-estate investment funds, as the rush of overseas money into the sector sees the traditional owner-occupier care model give way increasingly to one where one company owns the operating business and another the underlying property. This is often referred to an OpCo/PropCo model.

While rental yields on property deals in the sector have fallen from about 8 per cent a decade ago to around 5.5 per cent, according to CBRE Ireland, a leading adviser on deals in the sector, prime office yields in Dublin are currently 4 per cent even as uncertainty hangs over the future of the workplace in a post-Covid world.

In January, Spanish care home operator DomusVi agreed to buy Trinity Care, a nursing homes business comprised of more than 600 beds that was majority owned by businesswoman Anne Heraty and her husband Paul Carroll. However, the group immediately sold on the properties to Belgian property company Cofinimmo. The entire deal was said to be worth between €150 million and €200 million.

French care homes company, Orpea Group, has been among the most active in the market. It entered the Republic early last year with the €150 million purchase of the TLC Nursing Home portfolio before buying the Brindley Healthcare care home group. Last month, it agreed to buy the FirstCare collection of nursing homes from Mervyn Smith in a deal understood to be worth more than €100 million.

All told, Orpea will have 1,961 beds after the FirstCare purchase closes, which will make it the largest private operator in a fast-consolidating sector – not counting pipeline projects Smith was working on that come with that transaction. Four of the underlying properties in the FirstCare portfolio were acquired in 2017 by a French property investment company, called Primonial Reim, under a sale-and-leaseback deal.

Elsewhere, French care group Emera bought a 70 per cent stake late last year in the Virtue elder care group, which was founded by brothers Cillian and Ronan Willis and operates the exclusive Fern Dean and Four Ferns nursing homes in Blackrock and Foxrock in south Dublin, and Moorehall Lodge and Moorehall Living in Drogheda and Ardee, Co Louth. The actual properties were acquired by Pierval Sante, a healthcare property investment fund managed by Paris-based Euryale Asset Management.

Emera subsequently backed Virtue's deal in March to buy SingaCare, a nursing home group in the southeast of the country, bringing its stock of beds to almost 900. The actual SigmaCare properties have been bought by Belgian real-estate investment trust Aedifica.

Meanwhile, Dublin-based Cardinal Capital Group's new private equity fund moved last November to buy a controlling stake in Mowlam Healthcare, which currently has about 1,700 beds and is seeking to develop another two homes – in Cork and Dublin – to add another 210 beds. Most of Mowlam's properties are now leased, with Axa Investment Managers, another French outfit, buying a number of them in 2019.

Simple case

For Daragh Lane, the Cardinal private equity director that led the deal, the investment case is simple.

"We've got a crunch coming," said Lane. "We've got an aging population. There's an increasing prevalence of the likes of dementia and Parkinson's disease. And on the other hand, we've got a supply shortage at the moment, not helped by the fact that much of the 6,000 or so public beds in the system don't meet the incoming HIQA requirements."

“We bought into Mowlam mainly because of the level of care they provide. They’ve been in the market for 20 years, are the largest player in the State, with a national presence. You’re only as good as your reputation in this business. If you want to have a home that’s full, you need to be giving the right care,” he said, adding that the business plans to double its number of beds in the coming years.

Cormac Megannety, head of the healthcare department at CBRE in Dublin, says that the age profile of many of the owners of nursing homes around the country, compounded by the trauma of dealing with the pandemic, has prompted a lot of calls to his office in recent months.

“I’m getting a lot of nursing home operators coming to me with the same story. They are typically a husband-and-wife team that have had a pretty good lifestyle, put their kids through college and are now approaching retirement, but the next generation – seeing the work involved – have no interest in taking over the business,” he said.

“Nearly half of the market is made up of homes with under 50 beds, much of it older stock that needs a lot of investment. The big guys are just not interested in buying these.”

On the other hand, the dilemma for large players that have paid up to enter the market in recent years – and mostly aim to build up portfolios of 3,000-4,000 beds – is that they are going to have to build if they can’t find suitable deals, at a time when construction costs are rising.

“We’re hearing of build costs recently being quoted at over €200,000 a bed, because of the likes of steel and timber costs going through the roof,” he said. “We need 2,000 new beds coming into the system every year over the next decade to keep up with demand. But with new regulations coming in and the cost of construction rising, we’re in danger of actually losing beds, not gaining them.”

Fifteen private nursing homes have closed across the State over the past five years, according to BDO. The fear is that more will follow, according to Maura O'Sullivan, who runs the 20-bed St Gobnait's Nursing Home in the village of Ballyagran in rural Co Limerick that was set up by her parents in 1985.

O’Sullivan says that the central problem is that Fair Deal rates, based on historical pricing arrangements and geography, largely ignore the actual care needs and level of dependency of residents.

“It is resulting in smaller, independent and family-operated providers being excessively squeezed to the point that some have closed their doors and we are really struggling to compete on a fair basis with State healthcare providers,” she says. “There is urgent need for discussion as we emerge from Covid-19 with regard to how we deliver to care to people in our nursing homes.”