Healthcare Real Estate Scope is Broadening

IRVINE, CA—The healthcare real estate sector is becoming more diverse than ever as medical care moves away from the acute-care setting and Baby Boomers become seniors. In a recent article in GlobeSt.com's sister publication Real Estate Forum, executives from this sector said that there are more product types than ever in which investors can place their money and get a good yield.

Danny Prosky, founding principal of American Healthcare Investors and president and COO of Griffin-American Healthcare REIT II Inc., says that the scope of properties to invest in has broadened, particularly for his REIT. “We buy medical-office buildings, hospitals, senior living and skilled nursing, and we compete with others in those categories. It's also going toward life sciences and biotech. All of those clinical-healthcare classes are in favor, although some types—such as medical office, senior housing and skilled nursing—certainly tend to trade at lower cap rates than others.”

Skilled nursing is leading the pack a bit more than the other healthcare asset classes, but this category along with medical office and senior housing are “definitely the most popular,” Garth Hogan, executive managing director of Global Healthcare Serviceswith Newmark Grubb Knight Frank, told Forum. “They're the safest choices of the healthcare REITs.”

The problem with healthcare investment isn't where to invest in order to get a safe, yet profitable deal, but simply finding the deals themselves. “There's a dearth of deals right now,” Daniel Turley, VP for healthcare in the capital markets group of JLL, told Forum. “Anybody with product that is ready to harvest right now is going to have a lot of friends because everyone is chasing institutional-quality opportunities.”

Turley adds that his firm has seen a lot of investors honing in on the post-acute care spectrum, which includes rehab hospitals and behavioral health. “From our point of view, medical office has become a much more accepted niche asset, and while cap rates have compressed on the MOB side, there is still greater yield in this post-acute care spectrum. It's become a natural extension for healthcare investors to reach outside their standard strike zone for some of these asset classes. However, we're seeing a strong contraction of yield going on there as well. There are so many people chasing the healthcare space, and the demand is putting a lot of pressure on pricing and yields. “

In the search for yield, many US-based healthcare investors are looking at investing abroad. Jeff Walraven, a partner at international accounting firm BDO USA LLP, told Forum that overseas, healthcare real estate capital is also being spread among a broad base of assets, but large transactions have occurred in the senior housing continuum and the acute/post-acute care continuum.

For Scott Peters, CEO of HTA, one of the largest dedicated owners of medical office buildings in the US, no matter which healthcare asset class you look at, you can't lose. “Healthcare as a whole is still a very attractive investment for different types of people,” Peters told Forum. “There are great macroeconomic trends behind it. What medical office has in its favor is that it's more directly impacted by the ACA, plus it also typically has three- to seven-year leases in multitenant buildings, so it can see quicker improvement in rents as the economy improves.”

Peters adds that some of the money is also going to more mid-sized healthcare REITs rather than the large ones. “Depending on the asset class, we have the opportunity to be more targeted in our acquisitions and the ability to be a little more specific in what we buy with the mid-sized REITs. To grow 10% takes a lot more if you're $3 billion than if you're $18 billion.”

From the perspective of Sonya Dopp-Grech, SVP/director of healthcare services for NAI Capital, senior living and assisted living are currently a big focus for healthcare investment. Also, larger medical groups are buying practices and acquiring real estate as a result. “Many medical groups are putting their real estate dollars into smaller buildings, retail centers and urgent-care locations,” Dopp-Grech told Forum. “And hospitals are repurposing and repositioning their real estate with a focus on branding.”