CHICAGO- “We tend to be very picky on the transactions we pursue,” says Ray Braun, the managing principal of EnTrust Healthcare Properties, a Chicago-based acquisitions firm affiliated with The Alter Group. EnTrust started about one year ago and will shortly announce their first acquisitions, two medically-related properties in the Midwest that total about 265,000-square-feet and worth roughly $80 million. EnTrust will join the many firms attempting to take advantage of the developing market in medical office buildings, which although last year it totaled $5 billion in transactions, Braun says the potential is far larger.
“There’s still a large segment of buildings out there that have not been traded,” and many people in the healthcare field will soon consider monetizing their real estate. He estimates that the country has about $1 trillion of healthcare real estate. And that number should increase very quickly.
“On the real estate side everything is changing.” In the attempt to control spiraling costs “there’s been a huge push to the out-patient arena and the demand is going to increase for these types of buildings.” In last government jobs report, the economy added 32,000 healthcare jobs, and 13,700 of those were in ambulatory healthcare services, which provide services on an outpatient basis.
“Banks are very interested in lending on these types of properties,” he adds. “Everybody’s looking for stability and good returns and this class delivers that. I spent a lot of my career on the suburban office market side,” and the anemic job growth in most sectors of the economy does not bode well for its future health. “But you’re going to have a huge demand on the healthcare side, the population is aging, we’re going to have 70 million people over the age of 65 and 30 million more people with insurance” which means “more patients that have the ability to pay.”
Medical offices have an average vacancy of only about 9%, compared to about 17% in the general office market and that means “you just don’t see a lot of broken deals out there. If you see a property with a high vacancy rate there’s probably a good reason for it and it’s a sign to stay away.”