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New Beginning for Erickson Retirement Communities

Redwood Capital Investments pays $365 million in bidding war for the financially troubled developer.

After an 18-hour auction, Redwood Capital Investments emerged as the winner with a bid of $365 million for Erickson Retirement Communities, a company in bankruptcy and one of the top brands in seniors housing.

“This [deal] is a good sign for the sector,” says Robert Kramer, president at the National Investment Center for the Seniors Housing & Care Industry (NIC). “Clearly, word is getting out to investors about seniors housing.”

Redwood outbid a group led by private-equity giant Kohlberg Kravis Roberts & Co., along with private-equity firm Beecken Petty O'Keefe & Co. and CoastWood Senior Housing Partners. Other bidders expressed interest in the deal, says Thomas Califano, Erickson's bankruptcy attorney at DLA Piper's New York offices where the auction was held. But only Redwood and KKR participated in the final auction.

The first court hearing on Erickson's reorganization was scheduled for Feb. 5 says Califano, who thinks the sale will be approved by April when Erickson would emerge from bankruptcy.

Redwood earlier had announced plans to buy Erickson out of bankruptcy. Reports say Erickson was to be sold to Redwood for $105 million in cash plus the reinstatement of some debt.

Redwood is headed by Jim Davis, said to be an acquaintance of John Erickson, founder of Erickson Retirement Communities, which have 19 projects housing 25,000 seniors. Davis co-founded Allegis Group, a staffing firm in Baltimore where Erickson is also based.

The auction opened with KKR's bid of $296 million, including cash and securities. “The initial bid was a little low,” says Bruce Gibson, a principal at Senior Housing Investment Advisors in North Miami. A low price could have added to the turmoil in the industry, he notes.

The final price of $365 million was justified not only because of the Erickson name, observers say, but also because of the development potential of the company's holdings. Erickson got caught with too many large, new developments just as the residential market crashed. Last summer, lenders foreclosed on a project in Columbus, Ohio. Work stopped on a project in Charlotte last spring.

Still, Erickson has land and zoning approvals to build once the market recovers. With few seniors housing developments in the pipeline, Erickson could be in a good position, says Kramer.

While New York-based KKR has no other seniors housing holdings, observers see KKR's interest in Erickson as a positive for the industry. “KKR's bid was an indication that the industry is getting better,” says Michael Berne, managing partner and leader of Jones Lang LaSalle's seniors housing team based in New York.

Berne expects private-equity firms to make more offers for seniors housing companies in the months ahead. “The industry is drawing big players. It portends well for attracting folks who might not have otherwise been interested in seniors housing.”

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