Why step-down care accommodation is drawing private capital

On any given day, parts of Australia’s hospital system have an estimated 8 to 10 per cent of their beds occupied by patients who are well enough to leave but have nowhere suitable to go. Many live with acquired brain injuries, spinal cord injuries, motor neurone disease or multiple sclerosis. They need too much care to return home, yet an acute ward is the most expensive place in the health system to provide that care.

The health sector calls this bottleneck “bed block”. It also underpins an emerging corner of real estate that Tim Slattery, managing partner at ASA Real Estate Partners, believes the large pools of capital have yet to discover.

Step-down care explained

Step-down accommodation provides purpose-built housing with on-site care for people who cannot live long term in hospital and cannot live independently either. Residents include stroke survivors and people recovering from major physical trauma, including quadriplegia and paraplegia.

Funding flows through long-term government programmes such as the Transport Accident Commission (TAC) and WorkSafe, along with the specialist disability accommodation component of the National Disability Insurance Scheme (NDIS).

Supply has not kept pace with need. Industry estimates point to a requirement for a further 10,000 beds to 2033. Older group homes are reaching the end of their useful lives while the number of eligible participants keeps climbing.

Industry analysts estimate that private operators can build and run this accommodation for up to 70 per cent less than the nightly cost of an acute hospital bed. They put the potential saving to government at about $6 billion over the decade to 2033.

“The NDIS, at its core, was designed to provide critical support and essential accommodation for vulnerable members of the community,” Slattery says. He notes that care for people needing this kind of lifelong support uses only about 1 per cent of the annual NDIS budget.

How the structure works

ASA’s Equal Living Social Infrastructure Fund, a five-year fixed-term trust for wholesale investors, offers one route into the sector. Its initial portfolio holds three income-producing properties in metropolitan Melbourne.

All three are leased to operator Equal Living Group on 20-year triple net leases with annual CPI indexation. The fund starts with $50 million of initial equity and targets an asset base of more than $250 million over its term. ASA and Equal Living Group plan to co-invest up to 10 per cent of the equity.

A triple net lease shifts the property’s running costs, including rates, insurance and maintenance, from the landlord to the tenant. Pair that with CPI indexation and a 20-year term, and the landlord holds a long, predictable income stream with built-in inflation protection. Those are the same features that draw investors to childcare centres, medical centres and service stations.

The fund goes a step further than a conventional property trust. Alongside the buildings, investors gain equity participation of up to 30 per cent in Equal Living Group itself, a registered operator with more than 150 staff and over 25 years of relevant experience.

The fund targets a stabilised distribution yield of 7 per cent a year and an 18 per cent total return, before performance fees and tax, across the property and the operating stake.

An early-stage sector

Slattery says the team favours alternative real asset sectors where underlying occupier demand and clean cash flow drive value. He draws a parallel with healthcare real estate after the global financial crisis, which he describes as a very profitable investment for those who bought in early.

“Here we see the potential for the asset class which is emerging and not yet supported or priced by institutional capital.”

Anyone who has watched a niche property sector mature will recognise the pattern. As superannuation funds and listed property trusts take an interest, competition for quality assets tends to build and valuations follow. Slattery describes the opportunity today as “great assets, profitable tenants and priced without significant competitive tension.”

The team brings experience in specialist real assets. Slattery, Alex Abell and Chris Aylward previously led APN Property Group, which managed $3.2 billion across specialist real asset funds at the time of its $320 million sale to Dexus in 2021.

The trio set up ASA Real Estate Partners in late 2023, and the firm has managed the ASA Diversified Property Fund, which dates back to 2006, since 2024.

Points to consider

As with any specialist property sector, the quality of the operator is central to the investment case. In a single-tenant portfolio, the rent depends on the tenant’s ongoing performance. The operator’s revenue in turn draws on government programmes whose settings evolve over time.

ASA’s structure speaks to this through Equal Living Group’s established operating history. The equity stake also gives investors a direct interest in the business behind the rent.

As institutional interest in social infrastructure builds, the sector gives investors a way to pair long-dated income with accommodation the community increasingly needs.