It has been far too quiet on the Brookdale Senior Living buy-out front, other than its share price continues to slide as some investors may be giving up on a major capital event or sale of the company at a price point that interests them. The shares are trading at their lowest levels since early January, which, counterintuitively, may make it easier to get a deal done, if that is what the Board wants. We are still sticking with our opinion that only “stupid money” would pay the $20 to $25 per share for the company that several analysts have been saying is the true sum-of-the-parts value, which is why the price needs to come down so that a buyer would be able to offer some sort of premium, just not that much of one. The phrase “stupid money” is used by people who understand the market, have been in it for a long time, and who realize there is a reason why the return expectations not only are, but have to be, higher than other real estate asset classes. But, is “stupid is as stupid does,” as Forrest Gump notably said? Not necessarily.

Not fully understanding what you are buying and thinking that demographics alone is the reason for making a major investment play is, well , stupid in our opinion. But paying a high price, or higher than we think is justified in today’s market conditions, may come down to different investment return expectations for some, as well as different investment time horizons. Take, for example, the current interest from China in the U.S. seniors housing market. Our bet is that these investors are willing and able to pay more than a traditional large U.S. private equity firm because they have lower equity return expectations and a longer time horizon to achieve those returns. In addition, they have the unquantifiable incentive to get money out of China and into the U.S. market, which is still considered a safe investment haven, especially for physical assets. The one caveat is that as the dollar strengthens, an investment in the U.S becomes more expensive, unless they already have dollar positions.

We have heard through the grapevine that there has been a lot of what we call “unsophisticated” interest in buying Brookdale from Chinese investors, who like the size of the platform, as big (coming from China) does not seem to scare them. In our mind, that would put the likes of Blackstone and Ventas on the buying sidelines, the former from a price perspective, the latter, well, we never thought it made sense for them anyway, but also from a price and structure perspective, not to mention obtaining consents from its REIT competitors. Given the forecasts from many companies of a weak first quarter, the longer we go without any news of a Brookdale transaction, the lower the price goes for a transaction. Time is in the side of the likes of Blackstone, which can wait for their number to be hit, and then plunge in. Or maybe not.