Panelists: Healthcare Can Rise Above a Recession

SCOTTSDALE, AZ—The GlobeSt. Healthcare conference held at the Andaz Scottsdale Resort on Tuesday brought together a panel of healthcare real estate leaders under the theme “State of the Industry: Impacts of a Disruptive Year.” The panel discussed the perceived threats of an impending recession and examined whether the fear of a downturn still holds a grip on the economy. The consensus among the panelists was that, contrary to concerns, a recession has not occurred, and they predict that there won’t be one in 2024.

“As a professional in the healthcare real estate space, a recession doesn’t significantly impact the demand for healthcare services. The healthcare sector has proven its resilience,” said Darryl Freling, managing principal of MedProperties Realty Advisors LLC. 

According to Freling, the unique dynamics of the market during a recession helps healthcare real estate in terms of decreased interest rates which present opportunities. “In this upside-down world, interest rates decrease in a recessionary market, making deals more favorable so a recession isn’t necessarily detrimental to the healthcare sector,” he said.

“We’re currently seizing opportunities to acquire core assets at around 6%, and as interest rates drop, cap rates will follow suit,” he added. “While closing deals is challenging due to tighter underwriting, we are making it happen.”

Panelist Steven Reedy, managing director of First Citizens Bank, expressed optimism about stability in 2024, anticipating that bank spreads will remain steady. He acknowledged the unprecedented rise in interest rates over the past 18 months but highlighted recent easing. 

Reedy also emphasized that while the interest rate market has raised concerns for those with debt from a few years ago, it isn’t catastrophic. He noted the occurrence of negative leverage and emphasized the importance of sponsor flexibility in managing debt.

David Lari, partner of Cox Castle, acknowledged that deals are still progressing but have become more complex. “We observe a lot of recalibration,” he noted. “The duration of deals lasting three, four, or five months is on the rise. While there might be localized recessions, the global perspective suggests we aren’t in a recession. San Francisco, for instance, appears to be facing challenges. The market is confounding because it’s neither uniformly great nor uniformly bad.”

For panelist Chris Bodnar, vice chairman of CBRE, he agreed that “If we want interest rates to decrease, a certain degree of market pain might lead to a more responsive Federal Reserve, creating a better lending environment.” From a transactional standpoint, Bodnar highlighted the diversity in capital preferences, noting that core capital with aggressive cap rates is prevalent, but the lending market needs further development. He expressed hope that more lenders entering the space in 2024 would be beneficial.

Check back with GlobeSt.com for more from the healthcare conference and click the stories below for related stories you might have missed. 

Marcus & Millichap’s John Chang Optimistic About Economy, State of Healthcare 

Healthcare Deal Making On the Rise; Panelist Urge Audience to Be Creative