Healthcare trends

|

SAN RAMON, CA—With healthcare systems vying for market sharewhile trying to manage member health and a legislative environmentthat keeps everyone guessing, amid record numbers of developmentsthroughout the country, John Pollock, CEO of Meridian, says it's an exciting time to be in healthcare. He recently discussedhealthcare investment and areas with the most activity in the firstof a two-part exclusive.

|

GlobeSt.com: Are healthcare investments following acertain trend line or is it specific to geography?

|

Pollock: It is hard to imagine that we will seeanother year like 2017. The sales activity in 2017 hit a high-watermark as capital continued to pour into the sector and owners werepersuaded to become sellers. Prices rose, cap rates compressed andthe sub-5% cap sales price was not uncommon for the most prizedassets. Transactions exceeded $10 billion in 2017 and included theDuke Realty portfoliosale, which was $2.7 billion alone. There were several othersmaller portfolio sales that also contributed to the salesvelocity.

|

While there are still healthy spreads between cap rates andtreasuries, that gap will continue to narrow as the Fed continuesto push the interest rate up. If sellers don't recalibrateexpectations, it will be tough to get the supply needed to keep thevelocity up. Healthcare REITs have taken a beating in 2018 and willlikely be a lot less active in at least the first half of theyear.

|

Also interesting are the results of CBRE Group's survey, “2018Healthcare Real Estate Investor and Developer Survey,” which pointsout that there is a 25% reduction in the amount of equity allocatedto healthcare real estate transactions in 2018. This is the lowestamount in the past three years, yet was still sufficient to fundall of the activity of 2017.

|

GlobeSt.com: What areas are most active for investing orare all areas of the country seeing activity with the agingpopulation?

|

Pollock: Baby Boomers continue to drive up theaverage age of the US population and that trend is expected tocontinue for the next decade as 10,000 Boomers a day turn 65. Bythe time the last of this generation approaches retirement age in2029, 18% of the country will be at least that age, the PewResearch Center projects. Couple this with the increased demand forhealthcare services as people age, these demographic shifts willcontinue to make for an active investment market across thecountry. That being said, there appears to be an outsideopportunity along the 'smile states' where there is a greaterpopulation density and/or a migration by Boomers as they seekwarmer climates and a lower cost of living.

|

GlobeSt.com: How is healthcare development evolving,with the changing demographic finding convenience a highpriority?

|

Pollock: As a developer of healthcare realestate, we love this trend since it often results in the need fornew space. As an investor in healthcare real estate, we must bevery careful about the building that we choose to reposition.Healthcare providers and systems want locations that are easy fortheir patients to navigate, not buried in some massive hospitalcomplex. Accessibility is just as important to Boomers as it is tothe busy soccer moms who need to get their children seen by doctorsbetween school and extracurricular activities.

|

With an increasing amount of consolidation and competition formarket share within the healthcare industry, the strategy teams atthe systems are also weighing in on the accessibility discussion.Their focus tends to be on the visibility side of convenience asthese teams look to extend their respective brands.

|

The healthcare systems' need for convenience and visibility havecollided at the intersection of retail and the dialogue has shiftedto traffic counts and right-in and right-out locations. We havealso seen healthcare real estate departments that are beinginfiltrated by retail refugees as these systems look for the bestlocations that will enhance the patient experience and increase thebrand's visibility. Often called the retailization of healthcare,we have had numerous assignments that involve the reposition ofexisting buildings, like the conversion of a former post office toan office of statewide health planning and development-3 outpatientclinic in a grocery-anchored shopping center in Walnut Creek, CA,or the ground-up development of a clinic with a freeway pylonsignage in a Home Depot outparcel in Pomona, CA. These locationstick the box on convenience since most are surface parked and easyfor patients to find.

|

Meridian is a full-service real estate developer and owner ofmedical and general office real estate with properties located inthe western United States.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.