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Healthcare Real Estate Developers Are Adapting To A Changing Landscape

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Anyone who has kept an eye on the healthcare real estate sector over the past several years is aware of the property type’s reliability amidst increasing economic uncertainty, which has resulted in growing interest among investors.

However, for what has become one of the hottest investment sectors in recent years, transformations underway within the healthcare industry will bring changes to the asset class over the next decade.

The market fundamentals are easy to understand. According to a recent report from Real Capital Analytics, United States-based healthcare real estate assets account for over $1 trillion in market value. Physician visits by baby boomers are expected to nearly double in the next decade; it is also projected that by 2060, one in four people will be over 65 years old. These factors make it clear that this already large market is positioned for continued growth.

However, in crowded regional healthcare markets like Philadelphia, which features several large competing healthcare systems and a variety of growing specialty networks, that growth will not just be more of the same.

Changes in Delivery

Traditionally, the American healthcare delivery model centered on hospitals, which meant that medical office buildings tended to be clustered near hospitals and other large inpatient medical facilities. These facilities were easy for doctors to access and provided enhanced services close to individuals’ primary points of care.

In recent years, the healthcare delivery model has undergone a dramatic shift, with outpatient and ambulatory facilities becoming primary points of care. This trend has unfolded almost simultaneously with the wave of consolidations and mergers that has swept through the industry in the last decade.

Working in tandem, these two trends have created a healthcare industry that is dominated by large healthcare systems searching for enhanced geographical footprints to better and more conveniently meet the health and wellness needs of the populations and communities they serve.

Key User Demands

Real estate plays a key role in a healthcare system’s ability to make quality care more accessible. As such, the demand for well-located, quality space continues to rise, attracting a greater number of investors than in prior years

Although location still plays a vital role in healthcare real estate investment, the criteria behind what makes a location desirable has shifted. Since medical buildings no longer need to be immediately proximate to hospitals, today’s best locations are those where people already are living, shopping and working. Whether this comes in the form of a purpose-built medical office building in the heart of a growing community or a retail location next to popular cafés and shopping destinations, today’s healthcare consumers prioritize convenience above all else.

Visibility is also playing a larger role in site selection for new healthcare projects. Expanding networks want their names out in the market, and they want people to be aware of their presence in the local community. This “retailization” of healthcare is highlighted by many medical office tenants’ requirements for signage and high visibility in their search for space.

Flexibility is also a main factor in today’s marketplace. Physician groups and healthcare systems require spaces that can accommodate the shifts in how care is delivered while also provide the flexibility to cater to telemedicine and other technologies that are transforming how people access care.

Project Example

Just outside of Philadelphia in Washington Township, New Jersey, the 35-acre Washington Square Town Center development addresses all of the factors discussed above.. With an increasingly cross-generational population and changing delivery model, medical space was a key component to the mixed-use project.

Working closely with Rothman Orthopaedic Institute, one of the region’s largest independent orthopaedic practices, a 40,000-square-foot, state-of-the-art medical office building was created at the gateway to the community that includes multifamily housing and retail options.

The healthcare trend has even been extended to the project’s residential component, with a 110-bed assisted living facility currently under construction to join the 330 residential apartments and 100 townhomes on the property. Today, the Rothman Medical Building stands fully occupied, and the retail component has seen tremendous interest from both medical and traditional retail tenants.

Not only do projects like the Washington Square Town Center allow the community to enjoy increased access to diverse medical services in a variety of settings, they also provide growing regional networks with a highly visible footprint in new communities to foster their continued growth.

Looking to the next decade, the healthcare real estate industry is positioned for tremendous growth. Leading this growth will be the developers and investors who truly understand the needs of an increasingly consolidated healthcare industry and can creatively imagine projects to meet both its short- and long-term needs.

 

Source: REBusiness Online

Medical Office Building Investors Will Be Chasing Deals In 2020

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As we prepare to swing into the new year, the outlook for the medical office sector is good…largely.

Underpinning the market, as it always has, is the continual aging of the population and the increased medical services that come along with it.

But, despite this sure-bet demand, the sector is not without its challenges, as Al Pontius, SVP and national director of Marcus & Millichap’s Office and Industrial divisions, makes clear. Those concerns arise as a result of the massive industry trend toward consolidation and the move on the part of many formerly independent care providers to saddle up with national care brands.

The firm’s second-half Medical Office Buildings Report defines the growth of the merger movement:

“Hospital and health-system merger activity continues to transform the medical office sector, driving a reduction in physician-owned practices in recent years. In 2012, nearly half of locations were physician-owned practices, but in 2018, just 31 percent were owned by doctors.”

And therein lie the concerns for the existing stock of medical office buildings (MOB).

“There’s a lot of older-vintage product that’s not located where the health systems want to be,” says Pontius. “Some assets may not accommodate the desired configuration of services that the major health systems see as appropriate, modern enough or technologically supportive enough. Consequently, there are a number of buildings that will under-perform relative to newer properties in the sector as well as other asset classes.”

But while there might be assets that sit on the sidelines as healthcare needs grow, few investors, be they institutional or private, are doing the same.

“The consolidation has supported investor sentiment as major providers create efficiencies and broaden service coverage,” says the report. “A sizable pipeline of new space and major expansions by high-credit tenants will sustain elevated investment activity through the end of this year.”

 

Source: GlobeSt.

Investor Interest In Medical Properties Continues: JLL Closes $142.9M Sale Of 50-Property National Investment Grade Portfolio

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JLL announced today that it has closed the $142.9 million sale of a 50-property national investment grade portfolio totaling approximately 430,000 square feet across 22 states.

JLL represented the seller, Elliott Bay Capital Trust, and procured the buyer, a publicly traded REIT.

The sale of the Elliott Bay Dialysis Portfolio is a multi-state portfolio containing single tenant dialysis clinics leased to the two largest U.S. dialysis providers, Fresenius Medical Care and DaVita. The net lease properties are 100 percent occupied and backed by investment grade credit or New York Stock Exchange public companies.

Well located across 22 states in desirable major U.S. metro areas, the properties have mission critical infrastructure providing life sustaining dialysis treatment.  The significant investment in the fit out at these locations and arduous Medicare certification and state licensing creates high retention rates and long-term, inelastic tenancy – one of the main drivers for dialysis clinic investment.  Dialysis remains a fundamental and non-discretionary segment of healthcare services that has a long-term trajectory of growth and profitability regardless of the macroeconomic environment.

The sale was a collaboration between JLL’s Healthcare, Corporate Finance and Net Lease verticals led by Managing Director Mindy Berman and Vice President, Brannan Knott, Senior Vice Presidents Peter Bauman and Tivon Moffitt.

Knott, from JLL Capital Markets, Healthcare, described the portfolio as, “a rare, highly durable income portfolio, tenanted by the nation’s leading dialysis providers.  This is the exact investment profile attracting many investors into this sector and is supported by macro demographic trends of the nation’s aging baby-boomers and increased incidence of end-stage renal disease driving significant increases in dialysis demand for the foreseeable future.”

“JLL sees no slowdown in demand for medical office investments,” Berman added.  “We’ve seen consistent annual sales of $9 to $10 billion in the medical office sector and 2019 should be on pace with recent years.”

“Due to the portfolio mix of investment-grade and high-quality dialysis clinics, JLL was able to achieve excellent pricing for the seller with an accelerated closing time period,” Bauman said.

“Single-tenant medical properties and portfolios remain in high demand across various capital sources,” Moffitt added.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.

 

Source: HREI