Miami Fund Charts $300M Push From Hospitals Into Housing

Flagler Healthcare Investments rebranded as Sphere Investments in February, and now it’s launching a more well-rounded approach to its acquisition strategy. 

The Miami-based firm has raised a $300M investment fund to expand its portfolio beyond medical centers and into operations, senior living and workforce housing. Sphere will look to buy existing developments across the U.S. and expects to deploy at least $75M in South Florida. 

“This is not a shift. This is an expansion from our base,” Didier Choukroun, founding partner of Flagler and CEO of Sphere, said in an interview Tuesday.  

Flagler Healthcare Investments was founded in 2010 and amassed a portfolio of 28 inpatient and outpatient medical facilities in 11 states. Now, as Sphere, it is aiming to use $300M in equity to buy up to 15 assets this year that aren’t medical offices. Choukroun estimated the acquisitions would be around 50% leveraged. 

Sphere is also planning to spend up to $25M to buy into a partnership with an existing medical service provider that Sphere can leverage as it acquires different types of assets. The focus at first will be on assisted living facilities, along with senior and workforce housing, but Sphere plans to push into educational facilities, research labs and other secondary healthcare sectors.  

Choukroun said the firm already has a hospital under contract, declining to identify which, and said it will continue to acquire traditional medical assets. But the name change is meant to signal that the firm is broadening its scope and diversifying its holdings. 

Sphere’s executive team has ties to healthcare — the chief investment officer is a former surgeon, the head of business development is a physician, Choukroun went back to college to get a master's in public health — and the push outside of medical centers is as much about diversification as it is a recognition that health is impacted by the greater built environment, Choukroun said.

“This is also a way for us to expand from a very niche approach to something that has the ability to be active in other real estate aspects,” he said. 

Sphere is focused on acquiring existing developments and has identified around 1,000 properties across the U.S. that fit its acquisition criteria — 100 of them in South Florida. It is now exploring which owners might be open to a sale. Many of the deals will be sale-leasebacks, Choukroun expects. 

The investment firm is also spending additional funds outside the $300M commitment to expand in Europe. It has a portfolio of 14 senior living facilities in France under contract, Choukroun said.  

Sphere’s interest in assisted and senior living extends beyond a desire to turn a profit. The firm’s name is an acronym for Strategic Public Health Equities and Real Estate, and its medically trained executives hope to remove the stigma associated with senior living centers and turn them into a preferred destination for aging adults.   

“We think that today you are almost forced to go into those places, even if some of them are extremely luxurious, and focus on experience,” Choukroun said. “We think that the business model has to change to create an environment where you want to move in, not that you're forced to.”

Sphere’s second near-term focus will be on bringing workforce housing into the healthcare development conversation, Choukroun said. 

Choukroun’s team has spent the last eight months touring and speaking to leadership at 36 health systems across the country to develop a scheme to leverage housing as a way to “tackle the issue of recruitment and retention of their workforce,” he said. 

Sphere is in the final planning stages with one of South Florida’s largest healthcare providers to launch a prototype model of the program, Choukroun said, declining to name the partner. His hope is that the project’s success will be a proof of concept that can be replicated nationally.

The firm’s strategic expansion is into two sectors where analysts say significant investment is needed. The U.S. is short 7.3 million workforce housing units to meet demand, according to the Urban Institute, and it will need an additional 806,000 senior housing units by 2030 to maintain market penetration levels, according to the National Investment Center. 

Funding for Sphere’s first major investment round since the name change was raised primarily from institutional capital and high net worth individuals from the U.S. and abroad, Choukroun said. 

As the firm grows its portfolio and rolls out the new initiatives for senior living and workforce housing, Choukroun hopes to attract a broader investor base to accelerate its growth. 

“We're confident that, in the months and years to come, we're going to be able to directly access capital from pension funds and sovereign funds,” he said.