Berkley Care Group

Tucked between glitzy shops on London’s upmarket King’s Road is one of Britain’s most expensive nursing homes.

Opened last year by hotelier Laurence Geller, Chelsea Court is more like a private club than a care home. It contains just 15 luxurious suites costing from £2,000 to £3,000 per week for residents with dementia.

Although other private nursing homes offer high-end hotel-style facilities including en suite bedrooms and lounges, even the best can feel clinical and few provide services that are personalised to such a degree.

Facilities at Chelsea Court include individually tailored memory improvement training, physiotherapy programmes and escorted trips that cater to each resident’s interests, such as opera or art galleries. A spacious dining room and bar dishes up plates of pumpkin and amaretto tortellini to residents, their families and friends.

Its opening in November last year was a bet by Mr Geller that niche, boutique-style residences for the elderly will become more appealing as people grow frustrated by the quality of care in most nursing homes and as wealthy baby boomers enter retirement.

“There is a huge demand for new homes that is not being met,” says Tom Morgan, senior director in healthcare at CBRE, the real estate adviser. “Historically care homes were seen as a place of last resort but now they are as much about a lifestyle choice. People choose them for the mental stimulation and sociable environment.”

The care home sector has suffered a tumultuous few years, with providers hit both by austerity cuts to local council budgets and rising staff costs triggered by the new minimum wage. Some that are dependent on state fees have struggled to survive in Britain, while the biggest operators, such as Four Seasons, are heavily indebted.

But investor appetite for high-end homes that cater to self-paying residents is rising. US real estate investment trusts — such as Welltower (formerly Health Care Reit), HCP, and Griffin-American Healthcare Reit (now part of Northstar) — have been pouring cash into the sector, alongside pension funds, insurers and hedge funds.

Julian Evans, head of healthcare at estate agent Knight Frank, cites £10bn of overseas equity that is set for investment in the sector, drawn by the stable, long-term income streams. In the wake of the UK’s Brexit vote, Chinese insurers and Singaporean and sovereign wealth funds are among the potential buyers as they take advantage of the fall in the pound’s value, he adds. Many of the buyers have little interest in actively managing the homes but are snapping them up and leasing them back to the owners.

Mr Morgan says prices for upmarket care homes have “increased dramatically”, with the best ones selling £300,000-£500,000 per bedroom, compared with £200,000-£300,000 five years ago.

Many of the homes are privately owned, operated by chains including Sunrise, Signature, Barchester, Porthaven and Berkley Care Group.

Berkley says it makes around £30,000 of profit per bed each year before tax, interest, depreciation and amortisation — and around £2m a year per home.

Average weekly fees for residents have in some cases increased by more than 50 per cent over the past three years, driven by a shortage of beds at the high end of the market, according to CBRE.

Nick Hood, an adviser at business risk consultancy Opus, says it is hard to tell whether luxury care homes are profitable because many operators have “complex corporate structures which disappear into offshore jurisdictions”.

He says many of these operators are using private equity structures, which impose debt and interest burdens that significantly increase their financial risk.

But the demographics are in the industry’s favour, with the number of over-65s forecast to rise from 11.6m in 2016 to 12.9m in 2021.

Knight Frank says 2016 was a “record year” for both prices and deal numbers, with more than £4bn assets transacted through its business. On a multiple of profits, properties sold at 12.5 times underlying earnings, in line with the peak of 2007, according to Mr Evans. But with properties selling at a ratio of 15 times in the US, he says “there is plenty of room for prices to rise further”.

The biggest obstacle for buyers is a shortage of suitable properties and land, especially given there is less demand for isolated, rural care homes in converted country houses.

Mr Evans notes that there was a net loss of 166 homes and 2,612 beds across the UK market in the year to September 2016, as local authorities cut contributions to fees.

But Mr Geller sees an opportunity for higher end accommodation in the UK and the US, where care homes tend to be much larger, many in converted office buildings.

Chelsea Court, which converted a boutique hotel targeted at new mothers, has “smashed through the price barrier” he says, proving that “if you offer more tailor-made, bespoke therapies you get more in fees”. He would like to roll out slightly larger 15-25 bed homes in the UK and says he could, in theory, expand to 100 premises.

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