As They Scour Acquisition Opportunities, Which Assets Are High-Net-Worth Investors Favoring?

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As high-net-worth individuals (HNWI) and family offices survey the commercial real estate landscape, they’re seeing some peaks and some craters.

They assuredly lacked a roadmap for navigating a landscape marred by the coronavirus pandemic, though. However, HNWI and family offices are finding their way through this uncharted territory. And their compasses are pointing them toward commercial real estate investments that they believe are positioned for long-term growth.

In this climate, investors and advisers say, HNWI and family offices are steering toward acquisitions of medical assets, warehouses and multifamily properties.

“With real estate, my clients are willing to settle for lower short-term returns for stability. And the quality cash flow from real estate opportunities is attractive as a long-term investment for them,” says Mark Germain, managing director of Mercer Advisors Inc., a wealth management firm in Denver.

“In pursuit of stability and cash flow amid the current economic environment, HNWI and family offices are looking at recession-resistant asset classes,” says Charles “Chick” Atkins, principal of Atkins Cos., a real estate developer, investor and manager based in West Orange, N.J.

Atkins points to the medical office sector as a standout in this regard, thanks in part due to pandemic-spurred demand for health care services. This trend includes stand-alone offices, retail spaces, medical clinics and urgent care facilities, according to Atkins and others.

“Health care is essential, and people will still need to see doctors and other health care professionals no matter the economic conditions,” Atkins says. “While the use of telemedicine is on the rise, the aging population of baby boomers, coupled with the short supply of well-located, class-A medical offices, should help ensure a continued need for health care properties.”

Germain cites the warehouse sector as another one that’s attracting attention from HNWI and family offices. This includes supply chain warehouses (think Amazon) and refrigerated warehouses. In surveys by NAIOP, a commercial real estate group, 62.6 percent of commercial real estate and banking professionals reported acquisitions of industrial buildings in May, up from 57.3 percent in April.

During a May 28 call, Spencer Levy, chairman of Americas research at commercial real estate services company CBRE said “Although rental and vacancy rates for industrial properties will soften over the next year, the pandemic-fueled jump in e-commerce, the reshoring of manufacturing and the climb in business inventories bode well for long-term industrial demand.”

CBRE says a 5.0 percent increase in business inventories calls for an additional 400 million to 500 million sq. ft. of warehouse space.

“Industrial is not only going to perform better than any other asset class with the exception of multifamily, [but] we are actually more optimistic about industrial today than we were three months ago pre-COVID,” Levy said during the call.

Another sector drawing interest from HNWI and family offices is multifamily. NAIOP’s surveys indicate an uptick in multifamily acquisitions from April to May. CBRE data shows multifamily acquisitions totaled $38 billion in the first quarter, a year-over-year decline of just 1 percent.

In a June 1 report, CBRE said pandemic lockdowns and economic uncertainty lowered the multifamily turnover rate—the share of rented units not released each year—from 47.5 percent in 2019 to 42.1 percent in April. That’s the lowest turnover rate in over 20 years, according to the firm. This low turnover “is helping owners maintain occupancy and cash flows,” the report states.

An example of continuing faith in the multifamily sector: Greensboro, N.C.-based Bell Partners Inc., an apartment investor and manager, announced on June 3 that it had closed an apartment investment fund totaling $950 million. The fundraising goal was $800 million. The fund’s investors include accredited HNWIs.

The value-add Bell Apartment Fund VII empowers the company to spend more than $2.5 billion on apartments in its 14 target markets. The fund has already purchased three properties. Bell Partners has about 60,000 units under management.

“The fact that we were able to close Bell Apartment Fund VII above our target, despite the volatility caused by COVID-19, is a strong vote of confidence from our investors,” Jon Bell, CEO of Bell Partners, said in a news release.

Aside from industrial and multifamily properties, Cassidy senses an interest among HNWI and family offices in downtown office buildings in emerging markets.

“Whether they are core or value-add plays for investors, these spaces will be key components of these cities’ economic engines moving forward,” Cassidy says.

NAIOP’s surveys signal a dip in office acquisitions from April to May, primarily due to uncertainty over how the explosion in remote work will affect office demand.

Even though more employers are likely to switch fully or partly to remote work, MetLife Investment Management predicts the amount of occupied offices in the U.S. will reach 8.1 billion sq. ft. by 2030. That would represent an average annual growth rate of 1.4 percent from the 7.1 billion sq. ft. that’s occupied today. The historic average growth rate is 1.5 percent, MetLife noted in a May 14 report.

MetLife expects remote working trends arising from the pandemic will have “a relatively limited impact” on long-term demand for office space.

“Any stigma or fear that COVID-19 creates related to the office sector, especially as a growing number of firms announce real estate cost savings plans, could create investment opportunities,” MetLife says.

“HNWI and family offices also are watching hard-hit sectors like retail for potential bargains,” said Michael Finan, managing director of Chicago-based BMO Family Office LLC. “We are in a stressed period for real estate, but not distressed. There are many buyers on the sidelines with capital available, and new distressed property funds are being formed each day in anticipation of fire sale deals in the not-too-distant future. While distressed retail properties will certainly satisfy some investors’ appetite for deals, HNWI and family offices are also eyeing single-tenant net lease properties as sources of stable income. We recognize that brick-and-mortar retail is challenged, but not all consumers are satisfied with Amazon or Walmart.com.”

 

Source: NREI

New Children’s Hospitals In Texas Signal Pickup In U.S. Medical Building Demand

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Several new hospitals are in the works for Austin, Texas, as national healthcare construction is expected to reach its highest growth of the past five years, a positive sign for the U.S. economy and real estate industry in the pandemic.

Texas Children’s Hospital is building a $450 million hospital in North Austin in what is planned be its first hospital outside of its hometown of Houston, while Dell Children’s Medical Center of Central Texas has about 34 acres teed up for a $200 million hospital and medical office building in the same area. Both hospitals are planned for Williamson County, where iPhone maker Apple broke ground on a $1 billion campus in November 2019 that has the capacity to house up to 15,000 workers.

The new hospital and expansion projects represent hundreds of millions of dollars in real estate and construction costs and point to expectations that further population gains in the Texas capital and other cities could buoy economic activity during the downturn.

The healthcare industry is in a financial crunch because eliminating elective procedures in most cities and states to help slow the spread of the coronavirus during the height of the pandemic dealt a financial blow to many hospitals, prompting layoffs and furloughs among healthcare workers. However, construction industry analysts said the pandemic could spur a burst in demand for healthcare systems to expand their surge capacities using funds from the federal government’s coronavirus relief package.

After two years of negative or flat growth, Dodge Data & Analytics, a construction data company, is projecting healthcare building starts will rise 6% across the country this year, hitting $29.7 billion in new projects nationwide. Building starts are expected to rise 13% between 2020 and 2021 for a total of $33.6 billion of new projects, the highest growth for new healthcare building starts since 2016.

“Over the short term, there will certainly be financial issues due to the cancellation of elective procedures, particularly in place where COVID hit particularly hard, but at least we did see in terms of the fiscal stimulus $175 billion set aside to shore up finances of hospitals,” said Richard Branch, chief economist at Dodge Data & Analytics, in a May 21 webinar. “We do think that, as the cycle starts to progress this year and beyond, there will be significant investment starting to flow into that surge capacity, particularly on the in-patient side as opposed to the clinic side.”

Much of those investments could come in expanding cities such as Austin, where the metropolitan area was the third-fastest growing in the nation for population in the past decade. Its population grew about 30% from 1.7 million residents in 2010 to 2.3 million residents in 2019, according to Census Bureau data.

Planned Construction

Texas Children’s, based in Houston at 6621 Fannin St,, listed total assets of about $5.4 billion at the end of 2017, including $1.3 billion in buildings and $131 million in land, according to its most recent federal form 990 filed for tax-exempt purposes. The nonprofit health system closed two land deals in December for its first hospitals in Central Texas.

Texas Children’s plans to build a $450 million freestanding children and women’s hospital at the intersection of North Lake Creek Parkway and Texas Tollway 45, east of Lakeline Mall in northeast Austin in Williamson County. The 360,000-square-foot hospital is expected to create 400 jobs.

The 48-bed hospital, which does not yet have a name, is expected to be complete by the fourth quarter of 2023 with 1,200 parking spaces. Texas Children’s bought 24.5 acres for the hospital for an undisclosed price from seller Austin 129 LLC in December, according to Williamson County deed records. There isn’t an official address yet for the hospital, but Williamson County records list the land at 10520 Lakeline Mall Drive with an assessed value of $8 million.

Dell Children’s, which is owned by Ascension and affiliated with the Dell Medical School at the University of Texas at Austin, opened its first and only hospital in 2007 at its Mueller campus in Central Austin. Now it is planning to build its second hospital in North Austin as part of a $192 million project on 34 acres. Plans call for building a 135,000-square-foot children’s hospital at Avery Ranch Boulevard in Williamson County. Construction on the 36-bed hospital is expected to start in February 2021 and be complete by November 2022. Plans also call for a 60,000-square-foot medical office building and parking garage, which could cost at least an estimated $47 million, according to state filings.

The hospitals are near where Apple is transforming former ranch land into a sprawling 133-acre campus that’s expected to be built in four phases, according to permit filings with the city of Austin. The 3 million-square-foot campus at 6900 W. Parmer Land is about 14 miles north of downtown Austin.

Elsewhere in the Austin area, Texas Children’s purchased about 23 acres in South Austin, about 13 miles south of downtown and 3 miles north of Buda off Interstate 35 and Puryear Road near Old San Antonio Road, according to a statement. The hospital system bought the land at the site called the Estencia property for an undisclosed price from SLF II Onion Creek LP in December, according to Travis County records.

Dell Children’s second hospital is expected to open in north Austin in 2022. (Dell Children’s)

The Houston-based healthcare system has urgent-care and specialty-care clinics in Austin, but not any hospitals.

“Our promise to Austin remains strong — to deliver specialized care closer to you through our multiple locations across the city,” said Michelle Riley-Brown, executive vice president at Texas Children’s, in a statement.

Meanwhile, Dell Children’s plans to continue expanding its footprint in Central Texas over the next five years, the healthcare system said. It is expanding its Mueller campus and hospital with a 4-story tower with 72 beds. Three parking garages with 2,600 parking spaces also are planned for the campus. And the healthcare system broke ground in March on a 161,000-square-foot pediatric outpatient facility adjacent to the hospital. Called Children Specialty Pavilion, the outpatient facility is expected to be complete next spring.

“The ongoing challenges related to the COVID-19 pandemic have made it even more evident that we must continue to focus on expanding access to pediatric care so that families in Central Texas never have to leave home to receive exceptional care, especially for the most complex cases,” said Christopher M. Born, president of Dell Children’s Medical Center, in a statement.

For the Record

Texas Children’s hospital in Williamson County does not have a construction start date, but McCarthy Building Cos. is the general contractor and Page is the architect, a hospital spokeswoman said in an email. Public renderings of the hospital are not available.

 

Source: CoStar

Catalyst Breaks Ground On 100,000 SF Multi-Tenant Medical Office Building In Naples, Florida

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Catalyst Healthcare Real Estate (“Catalyst HRE”), a national healthcare real estate developer, has announced breaking ground on a multi-tenant medical office building adjacent to Physicians Regional Medical Campus – Pine Ridge.

The four-story medical office building will create a premier healthcare destination and feature Physicians Regional Healthcare System outpatient services such as imaging, cardiology, orthopedics, primary care, physical therapy, surgical specialties, and a walk-in clinic.

“We are proud to form a partnership with Physicians Regional Healthcare System and be part of their mission to deliver the best patient experience”, said Brandon McFarren, Vice President, Development & Leasing of Catalyst HRE.

The 100,000 square foot medical office building will be home to Physicians Regional Healthcare System and will offer additional clinical space for other various specialties including Naples Heart Rhythm Specialists, Naples Cosmetic Surgery Center, Levine Heart & Wellness, Florida Gulf Coast Ear, Nose & Throat, Steven S. Goldberg, MD – Orthopedic Surgery & Sports Medicine, George A. Gamouras, MD – Cardiology, and Premier Optical Group.

“This new Medical Office Building will allow for an expansion of inpatient beds at our Pine Ridge location”, said Scott Lowe, CEO of Physicians Regional Healthcare System. “We are excited to expand our hospital beds in order to keep up with the community demand and still have the ability to have our specialists in close proximity to the hospital”.

 

Source: HREI