Strategizing on Healthcare Investments During Uncertain Times
Among other challenges, here are financial headwinds faced by health systems due to surgery volumes not yet reaching optimal levels
SCOTTSDALE, AZ—During a fireside chat at Tuesday’s GlobeSt. Healthcare conference in Scottsdale, AZ, panelists discussed notable shifts in healthcare real estate, observing a decline in sales volume, pricing, and an uptick in cap rates.
Andrew Haslam, VP of real estate strategy at Providence St. Joseph Health, highlighted the financial challenges faced by health systems due to surgery volumes not yet reaching optimal levels. Despite macroeconomic challenges, he mentioned a successful sale of approximately $100 million in real estate last year.
Haslam emphasized a strategic approach to real estate management, identifying core assets essential to the business. Recognizing the burden of owning excessive properties, he stressed the importance of mindful landlordship and outlined a beneficial adjustment made during the pandemic. Instead of the traditional practice of funds from asset sales being absorbed by the larger health system, the proceeds are now allocated to the specific service area where the assets were sold, he said. “This redirection of funds supports strategic initiatives, including investments in real estate products.”
Panelist Bill Bernart, VP of Acquisitions of Vitalis, also looks at assets from a strategic standpoint and shared his strategy of disposing of non-core assets. He highlighted investments in unique acquisitions, such as pharmaceutical manufacturing facilities and a Phase 1 clinical trial facility. Bernart emphasized the ongoing importance of pharmaceutical spending for breakthrough drugs and treatments.
In terms of medical office space Bernart pointed out that healthcare real estate continues to be attractive and he underscored the need for creative thinking, identifying opportunities in the behavioral health and non-outpatient sectors to achieve higher yields. Bernart also expressed a forward-thinking approach, aiming to anticipate trends before they become mainstream.
According to Haslam, they are converting some of their space and repurposing it to do something clinical with it. “It has been great. There is a cost associated with it up front but from an asset management standpoint, the buildings are more beneficial to us. We look at what the business is within an asset to make sure it is core to what we want to do.”
Read our earlier coverage from the conference.
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