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Case For Investing In Healthcare Real Estate Remains Strong: Panel Discusses Pros And Cons Of Sector

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As brick and mortar retail stores flounder and pricing for industrial and multi-family properties continues to soar, many investors in recent years have started to look to “niche” commercial real estate (CRE) sectors to round out their portfolios.

One of the more newly discovered niche property types are medical office buildings (MOBs) and healthcare real estate (HRE) facilities, which aren’t exactly very “niche” anymore.

“It just seems like all investors are talking about these sectors now — student housing, self-storage, life science, medical —  whereas before all the news was about office, retail, multi-family and industrial,” said Elizabeth Thomas, managing director with Boston-based Bain Capital Real Estate, which is a relatively new investor in the HRE sector.

Nicholas Buss, senior director of research for Atlanta-based Invesco Real Estate (NYSE: IVZ), agreed with Ms. Thomas, adding “The firm “broke away from its shell about two years ago and started looking at sectors around the edge as well. We like the secular (non-cyclical) drivers behind medical real estate and the durability of the property type that seems to continue through economic cycles and gives us some diversification in our portfolio.”

“Even though the amount of MOB square footage, at 3 billion square feet, represents only about 5 percent of the overall commercial real estate (CRE) sector, the space is very attractive and has been the focus of many new investors in recent years,” according to Daniel Klein, senior VP of investments and deputy chief investment officer with Milwaukee-based Physicians Realty Trust (NYSE: DOC).

Mr. Klein moderated an HRE investment panel session that included Ms. Thomas and Mr. Buss at the fifth annual Revista Medical Real Estate Investment Forum, which was held Feb. 6-7 in San Diego. The session was titled “The Case for Investing in HRE” and also included as panelists Peter Martin, managing director with San Francisco-based JMP Securities, and Charles Campbell, managing partner and CEO of Charlotte, N.C.-based Flagship Healthcare Properties, which also manages a private real estate investment trust (REIT) that owns MOBs.

The focus of the panel was to hear from investors – both those who have been in the space for years as well as newcomers – as to why HRE is currently so attractive and whether it will be for the long haul. While the focus was mostly on MOBs, the panelists also talked about other HRE facility types, such as senior housing and post-acute care.

“We like the fact that the property type is not a GDP (gross domestic product) dependent property type,” Ms. Thomas noted. “We like the strength of the demographics that will depend on senior housing, and we like the fact that clinical care is migrating from the hospitals out to where the patients are. In addition, the MOB sector is not fraught with speculative development when we’re looking to invest in other sectors we really have to monitor the amount of spec development taking place.”

“JMP Securities entered the HRE space in a number of different ways, including as an investment bank providing equity growth capital for operators, and then we moved into the REITs, funding apartment REITs before moving over the healthcare REITs,” Mr. Martin told the audience. “We’ve taken a value-add approach on the investment side, as our work on the healthcare side is focused on the dislocation created by different reimbursement changes. In the last five years, we’ve been building things and selling them back to the healthcare systems, who have been slow to realize they need more outposts to service their beneficiaries.”

“The company made a commitment to HRE a decade ago and is all in, with no discussion on whether we should allocate capital to other spaces,” Mr. Campbell of Flagship Healthcare Properties said. “The company started a private REIT in recent years that is largely funded by high net-worth individuals and family offices, including some foreign investors. When we sit down with our investors, they keep coming back to us about the stability, the risk-adjusted yields and the predictability of the sector. A lot of it comes down to our access to deal flow, and in our world there is a premium to having relationships with good operators to work with. Flagship REIT is a longer-term holder of its MOB assets, and we tell our investors we say we like to own for a minimum of five years. Unless you’re a ground-up developer or a value-add buyer, that’s how you benefit from the inherent stability of the product type. And, it’s also a good way to build relationships with the health systems, as they prefer ownership stability as well.”

 

Source: HREI

The Difference Between Patient-Centered and Patient-Centric Care Explained By Healthcare Development Company

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In an effort to help medical facilities provide more effective treatment, healthcare architecture firms, Simone Healthcare Development, explains the difference between patient-centered and patient-centric care.

The healthcare industry has advanced a great deal in recent years, and these leaps in knowledge and technology have started to change the way many providers and patients are approaching medical treatment. Patient-centered and Patient-centric care both have their strengths and weaknesses, but the industry as a whole continues to move toward the latter.

Discussed below are the differences between these two treatment philosophies and how they could change the way that facilities approach development and policy.

Patient-Centered Care

Patient-Centered care has been the traditional treatment format for many years, focusing on the physician’s authority as the driving factor behind medical decisions.

For the majority of modern history, medical care was handled almost entirely by a primary care physician. Although there is a push in the industry for patients to better engage with general practitioners, the fact of the matter is that patient care is often fragmented across many different specialists that may have minimal contact overal.

This lack of communication can be an issue when it comes to providing effective and comprehensive treatment for medical issues, as doctors may often not have the full picture of the patient’s medical history and collaboration with other doctors. Physicians make decisions with their patients’ best interests in mind, but without comprehensive knowledge, their ability to guide care has become more limited. It’s for this reason that patient-centric care has become more common – valuing the patient’s knowledge of their needs and values working in tandem with their practitioners’ expertise.

Patient-Centric Care

Now, more than ever before, patients are becoming a valuable authority regarding treatment for themselves. Medical facilities are starting to realize that the holes in their physicians’ understanding of the patient’s wants and needs have negatively affected outcomes – placing a renewed importance on the patient’s knowledge of their health and overall well-being.

In addition to coordinating care among multiple practitioners and facilities over time, patients also have an idea of their values and desired outcomes with treatment. While in the past, physicians may have made important decisions on their own, the modern healthcare field has made the treatment process a collaboration rather than a dictation.

Moving forward, patients themselves will become the go-to for information about their health and will be the catalyst for their treatment.

 

Source: HREI

Report: The Demand Drivers For Life Sciences Commercial Real Estate

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The investment and employment levels in the life sciences sector of commercial real estate has significantly risen according to Cushman & Wakefield’s new report, Life Science: Great Promise & Rapid Growth.

With the rapid influx of venture capital as well as billions of dollars in funding from the National Institute of Health, the life sciences sector has grown nearly five times as fast as the economy since 2000, adding 85,000 jobs, with roughly 70% of that job growth in the past eight years.

A significant driver of this growth is an aging population with increased longevity. By 2030, there will be 73 million Americans aged 65 or older, equating to 20.6% of the population, compared with 40.5 million Americas in this cohort in 2010. Demand for health services will continue to soar as the population ages and the technology enabling life science will continue to lead to a greater supply of new products, which in turn results in historically high investments in this sector.

“Life sciences is generally the industry that includes pharmaceuticals, biotechnology, medical devices, agbio (food), biofuel and biochemicals (fuel and industrial chemicals via biological processes). As evidenced by Elon Musk and others, there will be another very complicated and converging era wherein tech and biology are merged to enhance human (and animal) mental and physical capabilities and function,” says Greg Bisconti, Executive Director and leader for the Americas Life Sciences Practice Group, Cushman & Wakefield.

According to the report, lab space vacancy is 8.4% the 11 (life-science heavy) U.S. markets, well below the national office vacancy rate of 13.3%. Across the U.S., the average lab space rent has increased 33.2% in the past decade, compared with a 17% increase for U.S. office space. In extreme cases like the Boston/Cambridge area, NNN asking rents hover around $88 per square foot (psf), a 70.4% increase over the past 10 years.

The look and layout of lab space varies widely from user to user but it is generally heavy on lab-to-office ratio (70/30) at the start-up stage. That lab ratio tends to go down as a company has a product and other office functions such as clinical (clerical side) and sales grows faster than the research and development (R&D) side. The science of any given company guides its needs from biology to chemistry to a mix.

There are many companies with no lab space at all and who might entirely outsource their R&D functions. On the other side, there are large pharmas that will have a large R&D operation that is 60-70% lab. Lily (300,000 square feet), Celgene (350,000 square feet) and Takeda (165,000 square feet), for example, follow these metrics, Bisconti tells GlobeSt.com.

These life science labs are typically located in a suburban setting at established life science hubs such as Cambridge in Boston, the San Francisco Peninsula and San Diego. New York City, however, is setting a new standard for a high-rise urban life sciences presence. Life sciences hubs share a few commonalities such as major universities, research institutes, access to capital and proximity to water (which probably speaks to the lifestyle and a quality-of-life of scientists).

The universities, of course, provides the brainpower. Research institutes have now added government funding to that brain power, which leads to developing intellectual property and innovation. These areas tend to have clusters of wealthy angels, venture capitalists, hedge funds plus conventional banks.

“Essentially the tech area of healthcare, life sciences has been, and will continue to be, a major growth driver for the U.S. economy for decades,” says Bisconti.

 

Source: GlobeSt.