Starting To Make Sense

I wrote yesterday that I was not going to pay attention to any rumors until they showed up in a Bruce Kelly article.  No sooner than I had posted that comment than I read Kelly's report that NorthStar Realty Finance (NRF) is in talks to buy the Griffin-American Healthcare REIT II.  His story reads as though he sourced it through the same Financial Times article I referenced.  Kelly's article provides a good rundown of recent non-traded REIT liquidity events in addition to NorthStar's potential purchase of Griffin-American Healthcare REIT II.

At first I didn't understand why NRF would spend $3.7 billion to $4.0 billion for a healthcare REIT.  I immediately thought it was a way to combine the NorthStar and Griffin-American non-traded REIT sales platforms.  I have always primarily viewed NRF as a real estate finance company that, to a lesser extent, owned other real estate, including healthcare, manufactured homes and hotels.  Then I read NRF's first quarter 10-Q and the Griffin-American Healthcare REIT II acquisition makes more sense.  NRF hired James Flaherty III in January to build NRF's healthcare business.  From NRF's 10-Q:

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty will oversee and seek to grow both the Company’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In addition, the partnership is expected to focus on raising institutional capital for funds expected to be managed by NSAM.

NSAM is the company NRF spun off earlier this month.  NSAM is NRF's asset manager and it or an affiliate will serve as the distributor and advisor for NRF's non-traded REIT business.   Mr. Flaherty is also the CEO and President of NorthStar Healthcare Income, Inc.  In May 2014, NRF acquired a $1.1 billion portfolio of healthcare properties, primarily assisted living and skilled nursing facilities.  NRF now has $1.63 billion of healthcare assets and is seeking to aggressively grow this business, and this explains NRF's interest in the  Griffin-American Healthcare REIT II portfolio.  NRF's first quarter 10-Q is worth a read because it discusses Mr. Flaherty's financial incentives to growth the healthcare business. 

How NRF would finance the Griffin-American Healthcare REIT II acquisition is another consideration, but the rationale for the purchase is clear.