Where to turn when old-style funding fails care for the elderly



Durable business models are underpinned by strong demographic drivers. That’s certainly the case with healthcare: individually and collectively, we’re not getting any younger, for a start. This, perhaps uncomfortable, fact supports the growth of care homes for the elderly.

The sector is worth around £61 billion, with 520,000 residents, and demand for care home bed provision is increasing, with the UK’s over-65 population forecast to rise from 11.6 million in 2016 to 12.9 million by 2021. As a result, occupancy rates have hit a record high, increasing for the sixth consecutive year to 89.4% in 2018.  

However, provision isn’t keeping up with this demand. In fact, in many respects, it’s going the other way. In 2016, care homes and bed numbers shrank by 11% and 5% respectively across the UK – in Scotland alone, the number of care homes fell by 21% in the 10 years to 2017. Market analyst Knight Frank has estimated that 6,000 beds annually will be decommissioned in older style unsustainable homes before 2021.

In order to redress this – and accommodate a population in need of its services – the sector needs finance. With larger operators, big institutional funds are significant providers of capital, such as large infrastructure funds, seeking to diversify their portfolio from the traditional PFI models, according to market analysts Savills . Knight Frank, too, notes Asia Pacific and infrastructure funds “are now firmly the new money in town,” supplanting the previous big players, UK and US real estate investment trusts (REITs). [2]

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These funds are going for large allocations of capital: tens to hundreds of millions of pounds. But that is only a part of the puzzle: the sector is highly fragmented, with major providers accounting for just 25% of the market. The balance is made up of small and medium-sized enterprises, more often than not owner-managers.

For most incumbents, running one or a handful of care homes, approaching an Asian sovereign wealth fund for finance isn’t an option. Alternative finance lender ThinCats states that its experience and analysis shows that there is a swathe of smaller businesses that are well positioned and well run, but in need of finance to capitalise on the inherent opportunity. They may be looking to expand existing provision through the development of existing operations, acquire a strategically placed additional home or to recapitalise punitive debt.

While the traditional banks have been an obvious recourse for loan capital, they have proven reluctant to lend to small businesses, driven by a combination of loss of experienced Relationship Directors and the increased focus on capital-adequacy regulations. And it’s not just access to capital that’s the problem, but also that the terms on which it’s offered can be punitive. Even where traditional funders are prepared to lend, the conditionality and controls mean that in many instances the funding remains inaccessible.

Thankfully, as banks have withdrawn from these areas of the market, other lenders have come in – picking up the skills and sector expertise that business people used to be able to rely on with their banking relationships.

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[2] UK Healthcare Property 2018, Autumn-Winter Overview, Knight Frank



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