It’s been a frustrating last couple of years for commercial real estate operators but conditions and the outlook are starting to improve. The expectation of more rate cuts could fuel more activity for the healthcare sector, according to Benjamin Ochs, CEO of Anchor Health Properties, which has been seeing strong fundamentals in the sector.

"I think the industry is going to benefit from more transactions and more participants in the market,” he said, who will be a speaker at GlobeSt.’s annual industry event in Scottsdale, from December 2-3.

But as things stand currently, business isn’t exactly booming. While there’s some activity, it’s “muted,” according to Ochs. Over the summer, momentum was starting to pick up after it was anticipated that the Fed would start cutting rates in September. However, the 10-year Treasury ticked up after that – and everything changed in the short term.

STABLE NOT VOLATILE

“A lot of the optimism from the rate cut was more than offset by increases in long-term rates,” Ochs said.

“Some of the enthusiasm that we saw towards the end of the summer and beginning of the fall has now been moderated a bit alongside that run-up in rates.”

On the bright side, things are stable, rather than volatile. This is because the healthcare sector is typically tied to bonds with weighted average lease terms, which are above what health system corporate ones trade at, according to Ochs.

“It's viewed as slow and steady with strong underlying tenant fundamentals,” he said of the state of the market. Those fundamentals include supply and demand, tenant financial strength, high occupancy, and low levels of delinquencies.

“I think most folks have seen occupancy pick up across their portfolios. We certainly have record levels of occupancy in fact,” Ochs highlighted, whose company manages nine million square feet of healthcare real estate.

DEMAND IS IN KEY SUNBELT STATES

The appetite in the healthcare sector is strongest in the states with looser regulations. This includes Texas, Florida, and Arizona, according to Ochs.

“You don't need a Certificate of Public Need to do many types of health care procedures and overnight stays and that sort of thing within those states,” he said.

Not only are those states friendly for new construction - but they are also luring in senior citizens, which represents the bulk age group in the healthcare industry.

“There's a real need to provide additional services in those markets,” Ochs said.

OPPORTUNITIES IN THE MARKET

Given the current state of healthcare, Anchor has been focusing on new development opportunities. Plus, it might be a great time to be a buyer in the market.

“I think that if you're a buyer today, you're buying at a better cap rate than you'll eventually be able to sell it at,” Ochs noted.

“If you're finding something opportunistic, it's usually going to be on an off-market basis, if you're able to come across it.

While there’s optimism, CRE players might still need to navigate around headwinds in the high interest rate environment for a little longer. The Fed will next hold its meeting from December 17-18, where the central bank could decide to cut rates again. For the last couple of years, the adage in the industry has been “survive until 25” – and now that’s almost reality.

Instant Insights /

Anchor Health CEO Predicts More Activity Amid Signs of Recovery

Related Stories

Recommended For You