Business focus: Why retirement housing looks attractive to investors

Joanna Bourke
·3-min read

US private equity firm Lone Star has become the latest company to look at investing in UK retirement homes, and property experts believe it is a sector that has plenty of room for growth.

Lone Star, which owns Wembley Park homes developer Quintain, has made an offer to acquire McCarthy & Stone in a deal that values the UK retirement housebuilder at around £630 million.

Should the purchase complete, Loan Star will own a business that specialises in land buying, developing, selling and managing retirement communities, mostly for people in their late seventies, although buyers start from 65.

Lone Star’s move comes at a time when the McCarthy & Stone share price is lower than prior to the coronavirus outbreak, making it an attractive time to buy. But, it is not only the price that looks good. Many investors think demand for retirement housing will keep rising, which should mean there is income growth to be had.

Companies that have been investing in the sector this year include Legal & General, which in June bought land in Uxbridge. It wants to create a £130 million scheme comprising around 200 ‘later living’ apartments.

Phil Bayliss, L&G’s chief executive of later living, said at the time: “London is often seen as a young city, but actually has the fastest growing over-50s population. We have to be prepared to meet these changing dynamics.”

For Lone Star, it would benefit from rental income from McCarthy & Stone’s recent push to offer more multi-tenure options to customers. It could also make development profits when McCarthy & Stone builds out new sites, and then there is income from the services McCarthy & Stone offers residents, such as restaurants and domiciliary care.

Rising demand for these services and homes is expected as Britain’s ageing population continues to grow thanks to cleaner lifestyles and better healthcare than in previous generations.

Some pensioners want to move out of large houses, to go into smaller apartments with medically trained staff and cleaners on hand.

McCarthy & Stone’s homes often sit on sites where there are luxuries available at an extra cost. Wine clubs and hair salons can be found within some of the firm’s retirement villages.

Aynsley Lammin, analyst at Canaccord Genuity, says: “The UK retirement homes market is attractive as the demographic trends support a large and growth target market.”

Lammin adds that the supply of retirement homes “remains small relative to the overall housing market as well as relative to the potential demand”.

Anthony Oldfield, director of healthcare capital markets at property agent JLL, says: “The UK’s ageing population is a major issue, and later living is an essential component of a sustainable approach to how we help care for our older generation."

Oldfield says: "Latest research shows that demand for housing with care from older people has risen significantly since the first wave of Covid and we expect that trend to continue.”

McCarthy & Stone is not immune to problems that could arise due to economic uncertainty. For example, potential buyers could hold off purchasing until there is greater clarity around Brexit and the economy post-Covid. Other issues could be that in the event of a weak secondary housing market, it might be harder for would-be customers to sell their current homes and downsize.

Watch: Why are house prices rising during a recession?

But the retirement housebuilder, led by John Tonkiss, has been trying to broaden its customer base in recent years. There has been a push into the rentals market and more shared ownership schemes have been available.

On the acquisition plan, Donald Quintin, president, Lone Star Europe, said: “Lone Star shares the McCarthy & Stone management team's vision for growth. With our proven experience in developing property-related businesses, we believe our partnership will enable McCarthy & Stone to accelerate its transformation, which aligns with the Government's goal of increasing the supply of attractive housing options in the UK.”

Watch: What is shared ownership?

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