Healthcare Real Estate as an Investment Class

Below from Paul Bubny back in April.  This discussion of stabilized assets rings true in every sector but particularly is of interest in the real estate investment industry.

We will occasionally discuss investment ideas on here and most certainly will look at Healthcare-related assets as an investment class unto itself.  While typically a more expensive monetary investment, medical buildings (MOBs, POBs, ect...) are solid investments with long-term leases by credit-worthy tenants.  Due diligence is critical when evaluating an asset for investment but that's why I'm here.  At Transwestern, we have an elite team of Healthcare Advisory agents who are here to serve you in whatever capacity necessary.  We have landlord reps, tenant reps, asset managers, and long term strategy advisers.  Next time you are thinking about a real estate investment, don't simply look past healthcare investments because the price tag scares you!  Call me and we'll talk about your needs and see if healthcare is a proper investment for your portfolio. 

04.14.09 

 Medical RE Seen as 'Perfect Recession Play'

By Paul Bubny NEW YORK CITY-Cash flow is king in healthcare-related properties but the asset class requires astute management, Noyack Medical Partners’ C.J. Follini told a Real Estate Lenders Association gathering Tuesday morning.
"Doctors need a lot of attention" as tenants, said Follini, managing principal of Noyack, a locally-based healthcare real estate investment and operating company. "It’s when they don’t receive that attention that you start to have trouble." With that said, Follini extolled health care real estate as a largely recession-proof oasis of stability and steady growth in a challenging climate.
The growth in the healthcare sector, expected to continue for the foreseeable future as the global population ages, is certainly a major factor in the strength of this asset class. Employment in physicians’ offices has grown 4.8% annually since 1972, compared to 1.8% annual growth in overall private employment, while the US population--ages 65 and over--is expected to more than double to 87 million by 2050.
However, Follini said much of the viability of medical-related real estate--which includes ambulatory surgery centers, specialty care facilities, medical malls, senior housing and parking facilities as well as medical office buildings--stems from the tenants themselves. They tend to renew leases at a higher rate than commercial tenants, he said, and as a result average estimated occupancy is expected to actually increase this year over 2007 and 2008 levels.
For investors looking to acquire medical-related properties, healthcare systems may be willing sellers for a variety of reasons, said Follini. For one thing, the systems are under pressure to monetize both their core and non-core businesses, and look to shed properties as a way to do so, often through sale-leasebacks. "Get rid of the real estate and bring on the cash," Follini said. Another reason for selling may be regulatory: healthcare providers are prohibited from self-referral by the Stark Laws in many states, and selling a multi-tenant medical office property removes the risk of running afoul of these laws.
To lenders who may be financing the purchase of healthcare properties, Follini advised ticking off a series of metrics. These include the property’s proximity to a hospital, the financial strength of the hospital, the quality of the tenants, the market rent delta, the quantity of available parking for physicians and their staff, the borrower’s equity and the borrower’s management experience.
As a case study in why "this asset class is a perfect recession play," as Follini put it, he cited his company’s purchase of a 28,000-square-foot medical office condo at One Hanson Pl., the former Williamsburgh Savings Bank building in Brooklyn. When Noyack made the $10.1-million buy last May, it was 75% occupied. Today, thanks to recent leases that stemmed from tenant referrals, occupancy has reached 100%.