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What you need to know about investing in healthcare real estate

Top players and advisers on deal structures and areas of high interest

(Credit: iStock)
(Credit: iStock)

In fragmentation, there is real estate opportunity. And that makes healthcare one of the most interesting spaces for private equity real estate investors, generating billions of dollars in trades over the past year, according to top players and advisers in the space.

“As we are reaching the end of the cycle, people are seeing healthcare as a safe place to invest capital and find enhanced yield in healthcare as compared to other asset classes,” Ben Ochs, CEO of Anchor Health Properties, said at a recent event organized by GlobeSt. But, he warned, “you have to understand the true demand for a facility and the location. In terms of real estate investors, if we are going to develop or contemplate purchasing one, you really need to peel back the layers and make sure it works.”

JLL’s Chris Wadley, who moderated the discussion, noted that construction costs will rise 10 percent over the next decade, making it imperative you choose what to build carefully.

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Jon Foulger, who heads acquisitions at Med Properties, said on the panel that high-net-worth investors are showing a greater appetite for risk, while institutional investors continue to put a premium on consistency. He said he believes that while some other real estate asset classes are showing signs of unrealistic pricing, “there is still some level of sanity in underwriting healthcare real estate.”

The space has certainly been abuzz with activity. In September, Healthcare Trust of America paid $85 million for a Westlake medical office building in Los Angeles. The seller was Stockdale Capital Partners, which is looking to build a $250 million medical office tower in nearby Beverly Grove. And in October, a company tied to Meridian Senior Living paid $60.9 million for a community near Boca Raton, Florida.

Matt Bear, founder of investment-sales brokerage Bear Real Estate Advisors, said that his clients won’t buy buildings if they have a pitched roof.

“Functional obsolescence is real,” Bear said. [GlobeSt] — TRD Staff