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Still ‘Recession-Resistant,’ But Health Real Estate Could See Some Bumps

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Since the Great Recession of 2007-09, healthcare real estate (HRE) professionals have touted the strengths of the sector and the product type, going so far as to refer to medical facilities as “recession resistant.”

Healthcare facilities performed comparatively well during that crisis, as well as during the more recent COVID-19 Recession of 2020, reaffirming their status as a reliable commercial real estate investment – one with tenants that are more likely to continue paying rent than tenants in other types of facilities.

As a result, more and more investors, including a wide range of institutions, have entered the HRE space in recent years, driving pricing up and capitalization (cap) rates down for a wide variety of facility types, including medical office buildings (MOBs), ambulatory surgery centers (ASCs) and others.

However, despite the proven resilience of the HRE sector, a group of industry executives who recently met via Zoom acknowledged that there could be some bumps in the road, at least in the short term.

The discussion brought together members of the HREI Editorial Advisory Board, which comprises about 30 professionals involved in HRE facility investments, brokerage sales, development, ownership, leasing and law. The discussion was hosted by Murray W. Wolf, HREI’s founder and publisher, and John B. Mugford, editor.

 

Source: HREI

Where Medical Office Acquisition Opportunities Are

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Healthcare real estate in the US is in a state of absorption and expansion, as networks and organizations battle it out to claim the best practices and locations.

There is flux within the sphere, reported NAI Global last week, with medical REITs among the most active buyers in 2021, looking for product and paying big numbers.

One acquisition opportunity are point-of-access clinics, located within diverse communities. Another increasingly popular acquisition target are independent specialty practices—regardless of size—which are being absorbed by large systems. Meanwhile, other clinics are looking to break away, creating real estate disposition opportunities.

Buyers And Sellers In State of War

Additionally, off-campus, multi-specialty clinics and ambulatory surgical centers are seeking strategic locations for expansion and geographic reach, representing more opportunities. The current and foreseeable climate is one of “war,” according to one commentator to NAI Global, as firms compete for market share and dominance.

Medical office buildings have been incredibly stable throughout the pandemic with occupancy rates remaining unchanged and asking rates increasing. Their stability compared to other classes continues to draw interest from investors who see it as a “safe” investment despite construction costs increasing in 2021.

Finding Historically Low Cap Rates

Fully leased MOBs with credit tenants are expected to continue to trade at historically low cap rates in 2022. Large institutional owners have maintained their rentals, concession packages, and the like, while local landlords with mixed tenant profiles are more willing to offer competitive lease packages and incentives to attract and secure medical tenants.

The sector does face specific challenges though, NAI Global also says. Staffing shortages, including burnout of healthcare workers, will continue in 2022, resulting in pressure to both provide care and remain profitable. Additionally, costs for care will outpace inflation, as the overwhelming demand requires additional expenses.

 

Source: GlobeSt.

Analyst: 2022 Should Be Strong For Healthcare M&A

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2022 should be strong for healthcare M&A with a surge of buyers from big tech and retail giants following an aggressive 2021 for the buyouts, Irving Levin Associates, publisher of the LevinPro HC platform predicted.

“It has been a historic year for healthcare M&A, with more than 2,500 deal announcements, largely driven by private equity activity across a variety of sectors,” said Dylan Sammut, Editor of Health iCare at Irving Levin.

Health care merger and acquisition activity soared in the fourth quarter of 2021, hitting a record 733 deals with activity in sectors such as Physician Medical Groups and Long-Term Care drove much of the volume, with 138 and 122 deals, respectively, the firm noted.

Demand for healthcare real estate, such as medical office buildings and properties, helped drive the increase in healthcare M&A. While the number of deals were up, their average size was down.

Deal value in the fourth quarter totaled $120.6 billion, a decline of 11% compared with the $135.5 billion spent in the third quarter, based on disclosed prices. The spending in the fourth quarter of 2021 was 2% lower than the $123.6 billion disclosed in the fourth quarter of 2020.

“Activity in the Home Health & Hospice and Behavioral Health Care sectors remained stable thanks to more patients are seeking alternatives to facility-based care turning toward home health services, and anxiety caused by the effects of the COVID-19 pandemic is causing a surge in individuals seeking mental health treatment and services,” the Irving Levin report said.

The technology sectors saw a 5% drop in the third quarter with M&A activity in the eHealth sector remaining level, with 86 deal announcements.

“Although M&A demand for telehealth providers has softened compared with 2020, we’re seeing increased activity for providers specializing in care coordination and patient engagement as the industry moves to a value-based care system,” the report said.

 

Source: GlobeSt.