Health care real estate investment trusts, or REITs, have been aggressive investors in the senior housing market, with acquisition volume reaching peak levels in the past few years. Historically, their investments have been limited to real estate, with the REITs functioning as passive landlords, leaving management to the senior housing operators (independent living, assisted living and skilled nursing, in particular). However, this insulated level of participation changed with the passage of the REIT Investment Diversification and Empowerment Act, or RIDEA, which allowed the REITs to share in profits from operations through the ownership of the operators. While this has so far served as a reward to REIT investors, it has also created additional risk, including exposure to new and dangerous theories of liability, many of which are untested against this relatively new structure. This article will explore the litigation risks posed to health care REITS.
REITs and RIDEA
Health care REITs have long viewed the senior housing industry as a source of low-risk, steady income in an ever-expanding market. Historically, REITs purchased senior housing properties and then leased them back to operators through a triple-net structure in which the independent operators exercise control and responsibility over health care and facility operations. Essentially, the REIT acted as a passive, out-of-possession landlord, collecting rent from the operator. Fueled by billions of dollars of capital and demand for investment yield, the publicly traded health care REITs have transformed the landscape of property ownership in the industry. From a litigation perspective, the triple net also provided a liability shield against claims associated with building-based operations.
