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The Prolifico Report (March 2018) – Brazil: The Revival Begins

26.03.2018

Brazil is finally back on the path of growth. The economy grew by 1% last year and the market (Focus Bulletin) is forecasting 2.83% this year and 3% next year. Some more optimistic forecasts see potential growth of 4% in 2018. Inflation is under control and ended February at 2.84%, the lowest level since 1998, […]

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Brazil is finally back on the path of growth. The economy grew by 1% last year and the market (Focus Bulletin) is forecasting 2.83% this year and 3% next year. Some more optimistic forecasts see potential growth of 4% in 2018. Inflation is under control and ended February at 2.84%, the lowest level since 1998, which allowed the Central Bank to reduce interest rates to their lowest level ever (6.5%). On the fiscal side, Brazil also recorded some improvement in 2017. The public sector has posted the lowest primary deficit since 2014. The Central Bank announced that the deficit was equivalent to 1.69% of GDP in 2017, after a deficit of 2.49% a year earlier.

In regards to October’s general election, the main headline is ex-president Lula da Silva’s conviction being upheld by the appeals court, which during the process, increased his sentence to more than 12 years. As a result, Lula should be barred from running for president. According to Eurasia Group, with Lula now seemingly out of the race, the chances for Geraldo Alckmin, from the centre-right PSDB, have increased.

In Brazil’s real estate market, 2017 saw the beginnings of a rebound, with six of the largest developers reporting higher sales (+36.4%) and more launches (+29.7%) than a year before. In one of Prolifico’s newly launched sectors, senior living, the Brazilian Franchising Association picked this market as one of the sectors that will flourish in 2018.

If you would like to read more – please access the full report here.

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Moby Self Storage arrives in São Paulo

09.11.2017

Moby will begin self storage operation at its first facility in Brazil’s largest city, São Paulo. Located with 70 metre frontage on one of the world’s busiest roads, “Marginal”, Moby’s new store is 100 metres long. Moby’s will be working hard to bring this severely undersupplied service to customers nationwide over the coming years, with […]

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Moby will begin self storage operation at its first facility in Brazil’s largest city, São Paulo. Located with 70 metre frontage on one of the world’s busiest roads, “Marginal”, Moby’s new store is 100 metres long.

Moby’s will be working hard to bring this severely undersupplied service to customers nationwide over the coming years, with 3 more facilities currently in development.

Address for Moby’s new facility in São Paulo:
Avenida Embaixador Macedo Soares, 3955
Vila Ribeiro de Barros
05095-035, São Paulo – SP

Find more at:
www.mobystorage.com.br

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The Prolifico Report (October 2017) – Brazil: the recession is over!

12.10.2017

Although the storm clouds surrounding the political establishment in Brazil continue to cast their shadow, there is finally some light breaking through and Brazil is now officially in recovery. Two consecutive quarters of positive GDP growth, falling unemployment, low inflation and falling interest rates, all bode for brighter times ahead. President Temer has faced two […]

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Although the storm clouds surrounding the political establishment in Brazil continue to cast their shadow, there is finally some light breaking through and Brazil is now officially in recovery. Two consecutive quarters of positive GDP growth, falling unemployment, low inflation and falling interest rates, all bode for brighter times ahead.

President Temer has faced two criminal charges over the last three months and, although it was unclear whether he would be able to survive the first one, it is now likely that he will survive the second charge. His position has been reinforced over recent weeks, helped by some mistakes made by the prosecution and also by the positive economic figures recently announced.

Investors’ view on Brazil is now becoming positive, with Brazil’s stock market reaching all-time highs in September and October. Forecasts are also improving. David Beker, economist with Bank of America Merrill Lynch, has doubled his growth forecast for next year from 1.5% to 3.0%.

In the real estate market, the Self Storage sector continues to enjoy the media spotlight, as another major Brazilian magazine highlighted its growth during the recent recession. Lastly, the co-working space in Brazil has lift-off, with the arrival of the USD 20bn start-up WeWork in Brazil.

If you would like to read more – access the full report here.

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The Prolifico Report (February 2017) – 2017: A Year of Reforms?

17.02.2017

2017 is set to be a year of reforms in Brazil. Finally, the country seems to be back on the right track and is beginning to experience the signs of recovery. Inflation is now converging to its target range of 4.5% (+/-2%) and ended 2016 at 6.29%, down from 10.67% in 2015. The Central Bank […]

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2017 is set to be a year of reforms in Brazil. Finally, the country seems to be back on the right track and is beginning to experience the signs of recovery. Inflation is now converging to its target range of 4.5% (+/-2%) and ended 2016 at 6.29%, down from 10.67% in 2015. The Central Bank has started lowering the benchmark interest rate, for the first time in 4 years. Since last October, the bank has reduced the Selic by 125 basis points.

Michel Temer’s administration has scored its most important win to date, in congress, with the approval of the spending cap, a constitutional amendment that will freeze public spending in real terms for up to 20 years. After this victory, President Temer now plans to approve the reform of Brazil’s pension system, aiming to save up to BRL 45.9bn over the next 3 years. The market is confident that Temer will get this reform approved. According to Valor, “analysts believe the government is very skilled politically and will negotiate pension reform wisely with congress”. UBS sees these two measures as very important, stating that “while the spending cap will increase budget discipline, pension reform will open a path to stabilising public spending as a share of GDP over the next five years”.

In the real estate market, the self storage sector continues to grow, proving its ongoing resilience to the recent downturn and Prolifico continues to expand its platform, purchasing distressed assets and delivering high yields.

If you would like to read more – access the full report here.

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Moby Self Storage Launches New Location in Rio de Janeiro

26.10.2016

For those looking to downsize in Rio, organize their home, reduce clutter, move or travel for some time, or are just in need of a place to store important belongings, the recently opened Moby Self Storage is here to help. The new self storage company provides 24-hour security in a modern, technologically advanced facility, with […]

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For those looking to downsize in Rio, organize their home, reduce clutter, move or travel for some time, or are just in need of a place to store important belongings, the recently opened Moby Self Storage is here to help. The new self storage company provides 24-hour security in a modern, technologically advanced facility, with ample parking and easily accessible to Zona Sul (South Zone), Centro and Zona Norte (North Zone).

Launched by a group of British investors, Moby Self Storage opened last August in the historic neighborhood of Gamboa in Rio’s harbor district. One of the principles, British expatriate Harry Taylor, is originally from Oxford, and took inspiration from the self-storage businesses seen in his home country and wanted to provide the same solution and level of service in Rio.

“We wanted to offer the residents of Rio de Janeiro the level of self-storage product that is common in the U.K. or the U.S. today,” Taylor explained. “By that I mean having a purpose-built warehouse, with a 24-hour security entrance, a large private carpark, individually alarmed rooms, loading docks with industrial-sized elevators, and a clean, well-lit, pest-free environment in which to store your possessions safely.”

Of course, starting any business comes with challenges, and for a self-storage business, one of the biggest is the creation of the space itself. In Moby’s case, this involved the construction of a massive 13,000-square-meter warehouse in one of the oldest neighborhoods in Rio, but Taylor was up to the task. “Finishing the construction on time and on budget was challenging, but we managed it!” he exclaimed.

Also, introducing the self-storage concept to Rio, where it had not previously existed, at least not on the level of Moby, comes with other unique issues. “Without question, educating the market here that this product [self storage] exists will be our biggest challenge,” says Taylor, “We need to demonstrate how self storage can help people here de-clutter their lives, and use Moby Self Storage like a spare bedroom for their apartment or as an extra storage room for their business.”

For a country in the midst of a deep recession, self storage is argualbly arriving to Rio at the perfect time. “In these economically difficult times,” explains Taylor, “it makes sense for growing families to use their space better to avoid increased rent on a larger apartment, or for businesses to put their spare furniture, extra stock or filings in a cheaper space per square meter than cluttering up their expensive offices or shops.”

Moby provides plenty of options depending on the client’s needs and budget, ranging from units as small as one square meter to as large as thirty square meters. Custom sized units are also available. Importantly, all the units, from the largest to the smallest, are protected by their own security alarm.

“Security is such an important factor here in Brazil, and having the very best security system for self storage, which includes every room or box having an individual alarm was a big challenge to install here.” Taylor added, “Without doubt it sets us apart from other storage warehouses.”

With the first Moby location firmly establishing itself, Taylor and the team already have plans for scaling Moby Self Storage to help even more of Brazil’s spatially-challenged residents.

“We will be opening at least one more store here in Rio next year, and also opening our first store in São Paulo next year.” Taylor expressed, “We have a long-term plan for expansion here in Brazil over the next ten years.”

Source: The Rio Times

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The Prolifico Report (October 2016) – Reigniting Brazil’s Flame

13.10.2016

As with the passing of the Olympic flame, the presidency has now officially been handed over to Michel Temer, of the centrist, business friendly PMDB party. Like a well-executed relay handoff, Temer has taken the presidential baton and is quickly advancing with a number of critical reforms. Confidence levels are rising and macroeconomic forecasts gradually […]

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As with the passing of the Olympic flame, the presidency has now officially been handed over to Michel Temer, of the centrist, business friendly PMDB party. Like a well-executed relay handoff, Temer has taken the presidential baton and is quickly advancing with a number of critical reforms. Confidence levels are rising and macroeconomic forecasts gradually improving. However, Temer’s task ahead will not be a sprint and will not be without multiple hurdles, one of which is to persuade congress to continue to back these necessary measures. Two of the most important are a constitutional amendment to eliminate real increases in budget spending for twenty years and social security reform. In regards to the spending cap, Temer has already cleared the first major hurdle in the lower house, with the approval of 366 votes, 58 more votes than the minimum required.

In the real estate market, the increased political and economic stability has caught the attention of a growing number of top international investors. Goldman Sachs recently announced a USD 185m commitment into an early stage Brazilian Self Storage company, while Equity International announced its first acquisition in four years. So as night falls on the successful summer Olympics in Rio, Brazil’s torch is starting to burn stronger again and out of the recent darkness, its future is now looking brighter by the day.

As for Prolifico, since the last newsletter we have successfully closed on two additional self storage transactions and the firm continues to source and execute distressed, off-market deals.

If you would like to read more – access the full report here.

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Q&A with Peer Buergin, Founding Partner & Chief Financial Officer at Prolifico Group

12.08.2016

Family Office Insights sits down with Peer Buergin, Chief Financial Officer at Prolifico Group to discuss his firm’s business model, what differentiates them in the industry and why he and his team believe in Brazil. Q: What does Prolifico do? A: Prolifico is an alternative real estate and private equity investment management firm focusing on […]

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Family Office Insights sits down with Peer Buergin, Chief Financial Officer at Prolifico Group to discuss his firm’s business model, what differentiates them in the industry and why he and his team believe in Brazil.

Q: What does Prolifico do?
A: Prolifico is an alternative real estate and private equity investment management firm focusing on Brazil. The company pursues a differentiated investment strategy, targeting real estate dependent business models that are resilient in all macro-economic environments, such as self storage, senior living, student housing and data centers. Since it was founded in 2009, Prolifico has grown to a team of 14 people across Sao Paulo, Rio de Janeiro, London, Lisbon and New York. Prolifico enters into joint ventures with best-in-class industry partners to operate its real estate assets in these alternative sectors. An example is the firm’s self storage business where it partnered up with James Gibson, CEO and co-founder of Big Yellow PLC, one of the leading self storage companies in Europe.

Q: Why Brazil?
A: In many ways Brazil is similar to the US. It has a huge, culturally and racially diverse population of 200 million people. It is a consumption driven economy, rich in natural resources yet only 10% of its GDP is export related.

By contrast, while the US middle class incomes have been declining for many years, Brazil has only recently become a middle class country (now accounting for 60% of the population). The tremendous prosperity growth over the last decade has resulted in the opportunity to bring various business models to Brazil that have succeeded in the US, with similar scalability factors.

Using the self storage example again, there are over 50,000 self storage facilities in the US, compared to the mere 150 in Brazil. Besides Prolifico, the likes of Blackstone and Equity International have recently entered the self storage market, which means this number is expected to grow rapidly over the next five to 10 years.

Brazil has gone through some tough times recently, hit by the compounded effect of a recession and political turmoil. However the recent successful progress in the impeachment of the current populist president, Dilma Rousseff and resulting entry of a business friendly, reformist and centrist government is expected to put the economy back on track. In the short term, the current recession in Brazil is providing some of the best investment opportunities seen in over 20 years.

Q: What differentiates Prolifico from other real estate/ private equity managers?
A: Doing business in Brazil can be a minefield. So picking the right partner is absolutely critical. What our investors especially appreciate about us is that we are a multi-national team with deep know-how and experience across a number of relevant disciplines and sectors. The founding partners have a strong European DNA, which helps bridging know-how transfer and operational excellence from developed markets into Brazil. We focus on long-term relationships with our investors, proven by the fact that many of our investors have reinvested in subsequent raises. Thanks to our focus on alternative real estate and by applying resilient business models such as self storage (which even perform well during downturns), we are able to offer our investors access to the currently available distressed prime assets in city centers and then generate high yields for them from the get-go.

Q: Who are Prolifico’s current investment partners?
A: Prolifico grew organically. It started off with commitments from high net worth individuals in the partners’ circle of friends and family and subsequently brought in European family offices, including one of the continent’s largest as an anchor investor in the firm’s first fund. Since then, we have raised capital from a number of family offices and high-net-worth individuals across Europe, the US and Asia, including global real estate family offices.

Q: What are Prolifico’s future plans?
A: Our current focus is self storage because the distressed assets currently available in the market lend themselves well to that business. However, we have also formed joint ventures with top international and local operating partners and will be looking to expand our other alternative real estate platforms, such as senior living, student housing and data centers. Although these are niche sectors, there are major supply-demand imbalances and there is tremendous growth and scalability potential across Brazil.

Source: Family Offices Insights

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The Prolifico Report (June 2016) – Brazil’s “Dream Team”

22.06.2016

If Brazil’s government was a contender in the football at the fast approaching Rio Olympics this summer, there would be a number of very worried fans. However, a new manager has been appointed in the form of Michel Temer, who has replaced Rousseff as the acting president. He has formed a new team, spearheaded by […]

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If Brazil’s government was a contender in the football at the fast approaching Rio Olympics this summer, there would be a number of very worried fans. However, a new manager has been appointed in the form of Michel Temer, who has replaced Rousseff as the acting president. He has formed a new team, spearheaded by the key economic strikers that Goldman Sachs have dubbed the “dream team”. The government has already presented its first set of measures and reforms and after already achieving 3 wins in congress, there is rising confidence that the country will soon be back on a level playing field.

Temer is enjoying broad support in congress, in contrast to Rousseff’s last months in power. The new coalition parties share a greater affiliation than the previous one and once the impeachment and “car-wash” probe are off the pitch, forecast for August and December respectively, Brazil can once again emerge as one of the top teams in the world with enormous potential, for investors to start supporting again.

In view of the above, Prolifico is continuing to close on a number of distressed deals, whilst the window of opportunity remains open.

If you would like to read more – access the full report here.

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The Prolifico Report (April 2016): Brazil – Time for a change?

11.04.2016

Brazil’s political debacle is becoming like a Hollywood movie; increasingly unbelievable and every time one thinks they are clear on the ending, there is another twist. From one day to the next, the probability of president Rousseff being impeached is fluctuating like a samba dancer at the Rio carnival. March was a busy month for […]

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Brazil’s political debacle is becoming like a Hollywood movie; increasingly unbelievable and every time one thinks they are clear on the ending, there is another twist. From one day to the next, the probability of president Rousseff being impeached is fluctuating like a samba dancer at the Rio carnival.

March was a busy month for the political protagonists (see page 6 of the report) with the deposition of a high-ranking figure of the ruling workers’ party, the arrest and subsequent attempt to shield the ex-president Lula from the corruption probe, the tapping of phones and the mass protests all increased the likelihood of impeachment. The vote to decide if Rousseff will be forced to step-down to face trial for allegedly manipulating government accounts is expected to take place over the next days.

If she is ousted, vice-president Temer, from the centrist PMDB, will take over as president, which would likely mean higher consensus in congress and an unlocking of the political deadlock. Aécio Neves, leader of the largest opposition party, the centre-right PSDB, said his party would give support to a “transitional government with an emergency agenda”. The macro outlook is improving with a record trade surplus in March and inflation finally showing signs of abating. This is now back in single figures, which has led to the market forecasting that it may even hit the target range 4.5% (+/-2%) this year and subsequently interest rates will start to come down in the near term.

Like every carnival, this madness will come to an end and once this impeachment is off the table in the next month or so, the government will be able to focus their attention back on economics rather than politics and with this should come more transparency, stability and visibility into the future.

Prolifico is about to complete the development of a new Self Storage facility in Rio, which will open doors in the next 2 months and continues to expand its distressed asset focused alternative real estate platforms across Brazil.

If you would like to read more – access the full report here.

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The Globalization of Senior Living

25.02.2016

The good news is that around the world, we are living longer. The bad news is that around the world, we are living longer. Yes, you read that right. Living longer cuts both ways. It means more economically productive time, more time to spend with friends and family, and more time to experience the world. […]

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The good news is that around the world, we are living longer. The bad news is that around the world, we are living longer. Yes, you read that right. Living longer cuts both ways. It means more economically productive time, more time to spend with friends and family, and more time to experience the world. But it also means higher spending on healthcare, strained pensions, and new ideas about what it means to continue to participate in culture and community in ways that historically have been viewed as unusual and unexpected, but going forward will be very typical – and thankfully so.

With the realization that we are all living longer in mind, now is the time for American and European senior living companies to begin laying the groundwork for the globalization of senior living. The same BRIC economies that created much of the economic growth over the last thirty years are now coming to terms with their own aging population. What this means is that healthcare and senior care operators from more developed western economies have the same type of opportunity to export their commercial and care models as their industrial counterparts have taken advantage of since the 1980s.

In each of the BRIC economies, a set of factors are coming together to create the opportunity for privately run senior living and home healthcare businesses: aging populations, an emerging middle class, lack of public sector solutions, and in a handful of cases government incentives designed to facilitate private investment. These factors are most developed in China, which since 2009 has been aggressively working to develop a senior living industry; however, countries such as Brazil, India, Malaysia, Mexico, the Philippines and Thailand are developing early care models that suggest how western care models might be localized for overseas markets. Most interesting are the handful of countries that are also pushing forward on key reforms designed to attract foreign direct investment (FDI) into senior care.

The opportunity in China is the export opportunity that is most well known: by 2050, the country will have more elderly aged 65 and older than the total population of all ages in the United States. Consequently, China’s largest real estate and insurance companies are moving to build very large Continuing Care Retirement Communities (CCRCs), many in partnership with American senior care providers. A handful of domestic Chinese companies are working on very innovative models that have the potential to deliver a true middle-class solution in contrast to the higher end projects that have been launched. Western pioneers such as Merrill Gardens from the United States, Aveo from Australia, and Orpea from France are all early into their own strategies in China.

Overlooked, but very much worth the attention of western senior care providers is India, where the country’s aging is going to present an even greater problem, and opportunity, than in China. As a study on India’s own demographic time bomb pointed out, “While the overall population of India will grow by 40% between 2006 and 2050, the population of those aged 60 and above will increase by 270%.” In real terms this means an increase from 100 million elderly to over 300 million by 2050. A smaller number of western senior care companies have targeted the Indian market, with initial partnerships crafted by the American senior care operator One Eighty and Signature Senior Living already launched. India’s own domestic developers and entrepreneurs are expanding their own offerings across the country, most noticeably the work done by Antara Senior Living, Ashiana, and Vedaanta to name only three. In addition, pioneering home healthcare models are exploding across India, significantly outpacing similar efforts in China as measured both by the level of sophistication of the care model, the type of technology utilized in the home, and the number of patients receiving care.

Brazil has its own early innovators in senior care, companies like Prolifico who both acquires existing properties and pursues greenfield senior living projects, in partnership with former BUPA executives who manage 400 assisted living properties internationally. Peer Buergin, Prolifico’s COO/CFO recently shared with me that their own efforts to build assisted living facilities across the country is being met with very positive response by the market. As Peer put it, “we are in the very early stages of senior living in Brazil. Now with the demographic need in Brazil growing, and with increased wealth we see this sector as getting ready to grow.” The WHO projects that by 2025, Brazil will have the 6th most populous elderly population in the world.

Peer pointed out a challenge that other countries have also struggled with: “Real estate prices have historically been the issue, making it sometimes challenging to find the right properties in the center of an urban area” This same problem plagues nearly every other BRIC economy working through how to develop an aged care sector, most chronically in Hong Kong and Singapore.

From purely a demographic point of view, both Hong Kong and Singapore should be markets ripe with opportunity for senior living projects. Even more so given the fact that both have relatively sophisticated healthcare systems – especially when compared to their regional peers – and both have well developed middle classes with adequate accumulated net worth to make senior housing solutions in particular possible. Yet neither market has developed a vibrant private sector solution, a realization that David Lane the Chairman at Thomson Adsett, an Australian based architect and solutions provider for senior care companies, believes reflects policy decisions made years ago.

According to David, “No real attempt was made by the Government sic -Lands Department – to innovate policy options to incentivize a new senior housing product and no recognition was given for the risks attributable to both the not-for-profit sector and the for-profit sector with the construction of such products.” This was particularly problematic because in markets such as Hong Kong, that have extremely high land costs. David recognizes that in Hong Kong there was a missed opportunity in the late 1990’s as he sees it, to “incentivize GIC land (government, institutional and community) to actively promote the Seniors Living Sector at the same time give alternative cash flow streams to the charitable sector in particular. Concurrent with this, there was no serious attempt to optimize site density opportunities – for example encouraging air right options over underutilized GIC land leased to NGO’s or provide for flexibility in mainstream residential projects with discounted/incentivized land premiums to encourage integrated developments.” Having seen similar efforts in other markets yield positive results, David believes that, “Had this been done a win-win for both the operator and the government would have been achieved creating a vibrant new emerging industry that addressed a pressing social problem.”

Senior living projects in Malyasia, most noticeably AraGreens as well as projects like Absolute Living in Thailand or G&P Builders in the Philippines all point to the growing awareness by real estate developers and institutional investors that senior living is quickly becoming a globalized service and product offering. The question is which American, European and North Asian senior living operators are positioned to capture these opportunities.

Four internal issues need to be addressed for these western providers to execute on the globalization of senior living. First, the management team needs the bandwidth and expertise to navigate within foreign markets. This is a new skillset for most western providers, and as such, many companies dual task an existing executive who has other responsibilities to also investigate international opportunities. This rarely leads to the type of robust in-depth analysis required to make a sound strategic decision, let alone build an executable plan.

Second, the company needs to honestly evaluate their risk tolerance for going overseas. Several American senior living companies, most notably Sunrise in Germany, have struggled to be successful overseas. This lesson has not been lost on other operators who wonder if others have not been successful, can they be?

Third, western senior living companies need to get beyond the short-to-mid term opportunities in their domestic markets. The American Baby Boomers represent another ten to fifteen years of growth for senior living companies, but after this, those groups that have built a real international strategy will be fundamentally more sound and able to deliver growth and profit to shareholders than their competitors who stayed purely focused on domestic opportunities.

Fourth, senior living companies need to carefully weigh the real trigger for senior living overseas; specifically whether lifestyle or needs-based solutions are what will open the door. In foreign markets, with relatively un-developed long term care insurance vehicles, inadequate public or private pensions, and newly minted middle classes, pure lifestyle solutions may not have the initial traction they had in western markets where these factors were more developed.

As the WHO put it in their study of global aging, “Population ageing is unprecedented, without parallel in human history—and the twenty-first century will witness even more rapid ageing than did the century just past.” The globalization of senior living is just beginning, and western senior care companies need to begin taking the opportunities to identify and scale internationally more seriously than they ever have. Domestic competitors are closely watching how the industry is emerging in China and India, with an eye to ultimately create their own brands that if successful will limit the upside potential for western companies that come to terms with the global growth opportunity too late.

Source: Forbes

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