An interview with Nicolo Zuccarelli in El Periódico de España

Threestones Capital, the owner of 13 nursing homes in Spain, plans to continue investing in the Spanish market as the demographic trend shows that the population over 65 will make up a third of the population by 2035

  • Threestones Capital currently operates 13 elderly care facilities across various regions in Spain and intends to expand its portfolio.
  • The company has identified opportunities for growth in smaller municipalities as opposed to larger metropolitan areas such as Madrid and Barcelona.


Nicolo Zuccarelli, Manager – Fund management & Sustainability at Threestones Capital.

By Gabriel Santamarina
MADRID January 23, 2023

Please follow the link to read the interview in Spanish.

Threestones Capital is one of the largest nursing home owners in Spain, having entered the market in 2018. Based in Luxembourg, the company currently operates 13 nursing home facilities across a number of regions including Galicia, Extremadura, Asturias, Castilla y León, Catalonia, Aragon, Cantabria, and the Balearic Islands. These facilities offer a total of over 1,400 beds. Nicolo Zuccarelli, Manager – Fund management & Sustainability at Threestones Capital, discusses the current and future state of the nursing home market.

QUESTION. Please tell us more about Threestones Capital’s business.
ANSWER: We have been investing in nursing homes since 2009 and we are now in our fourth investment fund, currently during its investment period. Our investment journey began in Germany in 2009. In 2016, we expanded internationally, first to Italy and then to Spain in 2018.

Q. How do you see the nursing home market in Spain?
A. The demographic trend in Europe shows that the market for nursing homes is set to grow in the coming years. Spain and Italy are particularly affected, as it is estimated that by 2035, the population over 65 will reach between 31% and 33% of the total. That led us to a decision to invest in Spain. We find the market very attractive as it is highly fragmented and there are opportunities to acquire assets from family-run businesses that have been operating for 20 years and now wish to sell.

Q. How has the rise in interest rates affected cap rates?
A. The prime yields were ca. 4.8% and are now rising to 5.2%-5.3%. We have always invested between 0.5% and 0.8% above prime yield, depending on the location, operator and other details.

Q. That's a 10% drop in value to those who bought at 4.8%
A. Yes.

Q. What type of assets do you prefer?
A. Our investment strategy focuses on buying existing core or core+ assets (the safest on the market). On some occasions, we add value by performing extension or renovating the facilities. We prefer not to deal with the construction risks. Usually, we sign acquisitions at the notary, by also signing a new lease to a new operator. We do not have an ideal city profile where to buy. To create value for our investors, we prefer to go to decentralized locations, outside of Madrid or Barcelona. Unlike other players in this market, which are companies listed in the stock exchanges and therefore have different investment horizons, we invest via closed-end funds with an investment horizon between 6 and 9 years and we cannot buy at very aggressive yields. This is what happened in the market last year in the big cities, while secondary locations were offering higher yields . Our strategy is to buy individual properties or small packages of two or three assets for instance via sale & leaseback (purchase in which the seller remains a tenant) with operators. We do not intend to invest in large portfolios.

Q. What contracts do you sign with your tenants?
A. Our contracts in Spain are 100% triple net, everything is the responsibility of the operator: maintenance, insurance and taxes. It is the country standard.

Q. You have 13 residences after the acquisition last week. Will you keep buying?
A. Eight properties are from the portfolio in our third fund, which has finished its investment period and is now in its optimization phase. The last five acquisitions are part of our fourth investment vehicle, which is still in the investment phase. We want to further expand in Spain. Last week we closed the purchase a nursing home in Catalonia and we have two more potential deals under due diligence. Our interest in the country is stable and we are constantly looking for new operators to expand our network.

Q. When do you plan to sell your assets?
A. We intend to divest the assets in our third fund between 2025 and 2026; as for the other assets we aim at 2028 or 2029.

Q. Are you considering entering the Senior living market?
A. It is a concept that we know and have been working on for three or four years in Germany, where it is more established. In Italy and Spain we do not see a big demand for people to live in an assisted apartment paying 2,000 euros or more per month. In Germany, it is a more developed concept. We have looked at many opportunities, but we have not invested. In Italy we have two properties, but we thought the concept would be more appealing to the residents. In Spain, if new opportunities come and are well managed by an established operator, we can explore them further, but so far we have only received projects still under development with the intention to open in 2024 or 2025, with aggressive yields and rent-free periods of three to five years. These are assets that make sense to those who have investment horizons of 20 or 25 years, but not to us.

Q. Do you plan to buy hospitals or clinics, as some of your rivals have already done?
A. It depends. Residences account to 90% of our investments with assisted apartments reaching 5%. We have rehabilitation centres, which is something we have been looking at for a year and a half or two. It is a very interesting sector, but it has different market dynamics compared to the care home market. We look at what the market offers us and then, after some research, we look for the most profitable opportunities to our investors.

Q. What role can foreign citizens play in the Spanish nursing home market?
R. Foreign citizens, particularly retirees, will play a significant role in the dynamics of the Spanish market. In areas of Spain with a high number of sunny days, such as the coast, there will always be people coming from colder regions and countries. In fact, one of our investments located in Ibiza and managed by Colisée, has most of the residents coming from outside Spain.

Q. In which segment do you fit, luxury or affordable?
A. Medium segment. Quality is one factor, where our standard is quite high. However, the monthly fees that residents pay can vary significantly. Because we do not have many residences in major cities, we can offer greater accessibility to middle-class residents. For example, in Extremadura, fees are very affordable, while in Barcelona, they are generally higher. On average, in Extremadura residents pay 1,300 euros per month while in Barcelona almost 2,000 euros.

Q. How do you view Spanish operators compared to the European ones?
A. Each country has its own contracts and lease standards, and how contracts are structured may vary. For example, in Germany, all leases are double net, while in Italy, it is a mix of double and triple net, with property taxes and insurances paid by the landlord and not the operator. In Spain, everything is paid by the operator.

Q. How is the current situation affecting your business?
A. Currently, with our calculations, assets values are flat, with yields going up slightly. We have noticed significant differences in the market between this year (2022) and the last. Until the end of 2021, the market moved with a lot of momentum, where if you did not act quickly, someone else would. Now, we are in a different situation, where we have room to negotiate the price or add new conditions in the negotiations. During this year, we have been able to transfer 100% of inflation to half of our rents, while we have indexed less for the rest of the portfolio. No operator has complained, but we are seeing some compression of their margins because expenses for personnel, energy, food, and medicine have increased. We are aware of the current situation and prefer to look for alternative solutions to rent indexation, such as negotiating other lease terms with the operator, if they cannot make rent payments. Before indexing, we look at the profits and losses of our tenants.

Q. If you had to make a prediction for the next few months, what would it be?
A. The overall market conditions are not favourable at the moment. Some investors have bought properties at 4% and financed themselves at a variable rate for projects that are still under development and will be ready in three or four years. It’s possible that not all of them will be able to meet their financial obligations, and some may be bought out by larger companies. Listed companies have made purchases at very high prices and their stock values have already dropped by 50%. These are challenging conditions, and those who have taken on a lot of variable-rate debt will have a difficult time ahead.