Despite Industry Pressures, White Oak Launches $500M REIT for Skilled Nursing, Senior Housing

Despite persistent industry headwinds, an investment firm with a strong skilled nursing footprint is expanding its reach in the space.

White Oak Healthcare Finance on Tuesday announced the launch of a real estate investment trust (REIT) vehicle for investing up to $500 million in initial acquisitions in senior housing and skilled nursing properties, primarily focusing on triple-net leases and joint-venture structures.

White Oak is a subsidiary of the San Francisco-based alternative asset management firm White Oak Global Advisors.

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The plan — at least for now — is to have an approximately even mix of skilled nursing and senior housing investments, Jeff Erhardt, managing director and chief investment officer of White Oak Healthcare REIT, I, LLC, told Skilled Nursing News.

“We’re going be pretty strategic about it as the fund evolves, but from a high level and sort of a starting point, we’re looking at about 50/50 mix between skilled nursing and then the various food groups of private pay seniors housing, independent/assisted living, and memory care,” he said.

The REIT is building up its pipeline and looking at initial portfolio investments, though it has not yet made any transactions. The target value of the assets will be about $1.5 billion, with leverage factored in, Erhardt said. White Oak’s REIT will have a national footprint in terms of private-pay seniors housing, but for skilled nursing, it will focus more on certificate-of-need states, Erhardt said.

“In the skilled nursing world, it’ll be almost exclusively triple-net leases to regional operators, mostly that we’ve done business with in the past, but have a nice strong regional perspective in their respective states and know their markets and those kinds of things,” he said. “But they will be generally long-term, triple net-lease structures to regional operators on the skilled nursing side.”

The traditional REIT-SNF relationship has become fraught in recent years — particularly over the past 12 months, with some high-profile bankruptcies and restructurings for SNF tenants leasing from REITs. In fact, Genesis HealthCare (NYSE: GEN) CEO George Hager went so far as to argue that the normal REIT-SNF structure has been a failure at a recent health care conference, citing annual rent escalators that have outpaced precarious reimbursements and thrown many operators into chaos.

To avoid ending up on this path with its tenants, arriving at the right lease terms is crucial, Erhardt explained.

“We haven’t — for lack of a better word — been too greedy in terms of lease structure and coverage and escalators,” he told SNN. “We’re mindful of that. To us it comes down to incentives — both the investor and the operator to have alignment and incentives to continue to operate efficiently. And having a lease that works for both sides is very important to us. We’ve seen in the past, if you structure a lease that’s unrealistic, given the current state of skilled nursing, it likely will result in a poor execution.”

The team leading the newly formed REIT — Erhardt, Paul Nevala, Mike Treiber, and John Brussard — also has experience in the long-term care space. Before joining White Oak, the team founded Capital Healthcare Investments, a subsidiary of a publicly traded REIT, which played into the decision to launch their latest investment vehicle under that structure.

Before that, they worked together at GE Capital, Healthcare Financial Services, where Erhardt served as head of the health care real estate equity platform. Nevala worked as head of long-term care investment research, while Treiber underwrote and managed health care real estate equity and debt deals.

That makes Erhardt optimistic about their capacity to do well in skilled nursing, even where other investors see a troubled landscape and major headwinds.

“We understand the space, we’ve been doing this a long time … We know it well, we know good operators, and we kind of know the pitfalls, at least historically, to it,” he said. So we have a good bench here to understand the space, and we like the fact that a lot of people have pulled back.”

The move comes after several major plays by White Oak into the skilled nursing space. The firm started 2019 by providing $161 million in a senior credit facility for Allegiant Healthcare and Hillstone Healthcare, Inc., which used the influx as working capital for a portfolio of 17 SNFs in Ohio. Late in 2018, White Oak acquired a $700 million portfolio of 12 loans associated with skilled nursing and senior housing properties from Capital One Healthcare and its affiliated banks.

And before that, in November 2018, the firm arranged a $190 million senior credit facility for 17 SNFs owned by the joint venture BM Eagle Holdings, led by affiliates of BlueMountain Capital Management.

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