Across 193 properties, the most under-rated real estate in the country

Medical office buildings and senior-housing properties share an unusual operating characteristic. They are tenanted by the only category of American consumer that does not, in any meaningful sense, defer the use of the building. A patient with a scheduled procedure does not postpone the appointment because the macroeconomic cycle has turned. A resident in an assisted-living community does not move out because rents elsewhere have softened. The demand for the building, in other words, is decoupled from the demand for almost every other building in the property market.

This is the structural argument for the asset class — and it is the structural argument behind the firm’s flagship Real Estate position, a value-add diversified fund investment spread across 193 properties of medical office and senior housing across the United States.

The practice does not run a single-asset deal sheet of trophy buildings. It does not chase the largest individual transactions in the market. It anchors its exposure in a diversified, geographically distributed position in a fund whose underwriting was built around the same proposition: that the operating cash flow of a portfolio of medical office and senior-housing assets is, over a multi-decade horizon, one of the more durable income streams that real estate produces.

“The demand for the building is decoupled from the demand for almost every other building in the property market.Sopris Editorial

What is interesting about the position from an investor’s vantage is how far the asset class is from the categories that absorb the property-market headlines. Office-tower distress, multifamily oversupply, urban-retail repricing — none of these categories materially touch the income from a single-tenant medical building leased to a regional health system, or from a senior-housing community whose occupancy is governed by demography rather than discretionary spend. The asset class is, in the most literal sense, demographically protected.

That protection is also the reason it trades at less spread than the headline categories. The firm’s Real Estate practice does not pretend otherwise. The underwriting takes the spread that the asset class delivers and adds an operating-improvement layer — building-by-building, lease-by-lease, capital-program-by-capital-program — and harvests the value-add component as the work is completed. The flagship 193-property position is the cleanest expression of that approach in the book.

James R. Maher Jr., the strategy’s operating partner, brings two decades of institutional real-estate experience to the underwriting. The track record at BlackRock’s real-estate group, Harbor Road Holdings, and Admiral Capital Group is the pedigree that allows the practice to evaluate a 193-property fund with the same calibration an institutional pension allocator would apply — and, in the sub-institutional band the firm operates in, to size the position the way an institutional allocator structurally cannot.

The fund’s holdings will not produce excitement in any given year. They will produce something the firm prefers to excitement.