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Case Study – Keystone Communities


Keystone Communities, a developer, owner and operator, had a portfolio comprised of 4 Independent Living, Assisted Living and Memory Care communities totaling 413 units. The properties were all centered in the Minneapolis/St Paul MSA. The portfolio enjoyed operating margins above 40% and occupancies averaging more than 95%. Given the high net operating income generated, a value of $72 million was established. While these high operating standards sound great, it was difficult to get most potential purchasers to recognize full value due to the more conservative underwriting that was in place after 2007. Keystone had a strong relationship with their current private equity partner that both parties wanted to continue. However, the equity partner was effectively blocked from further investments in senior housing due to its sector allocation guidelines and the fact that its current senior housing investments had risen in value. Keystone also desired to retain management of the properties to maintain cash flow as they moved forward with several development projects. As such, the decision was made to either enter into a sale/leaseback with a REIT or joint venture with an investor.


A full marketing campaign was developed including an offering memorandum and property website. The portfolio was marketed to a number of highly qualified REITs, institutional investors and private equity groups. During the course of the campaign, Keystone and its current equity partner determined that a REIT execution would not provide everything they desired in terms of value and flexibility. This left pension funds, advisory groups and private equity which were all less aggressive than they used to be.


An affiliate of Canadian pension fund arrived with the best structure. A joint venture was formed between the current equity investor, owner/operator and the pension fund that accomplished each of the three party’s goals. The pension fund invested an amount roughly equal to 50% of the equity in the portfolio, giving it full value at $72 million. Canadian tax laws provide more favorable treatment if ownership is limited to 50% of less of its real estate investments in the US. Keystone¬ís equity partner was able to take substantial profit off the table, thus allowing it to invest in future development while maintaining an ownership position in the existing portfolio. Keystone was able to maintain management of its existing properties and was provided with ample capital from both its original equity partner and the pension fund for future development projects.

Mike Lewis & Kristi Olson, Keystone Communities

“Bruce offers a highly sophisticated senior housing advisory and brokerage service. He is a consummate professional that is responsive, persevering and unflappable.”


Principal Senior Living Group

Renaissance on Peachtree