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CHICAGO-The Ziegler Companies Inc. has closed its fourth and smallest fund yet, with plans to invest the $5.6 million into existing and to-be-developed medical facilities. The money was raised from 87 investors to form Ziegler Healthcare Real Estate Fund IV. John Sweet, managing director of Ziegler’s Healthcare Real Estate Funds, says the company has three years to invest the fund, but that the money will most likely be placed in properties or developments, primarily in the Midwest and Southeast, within the year.

Sweet says medical properties are a sound investment, especially in the current tumultuous economy, because the facilities are occupied by what he sees as a recession-proof industry. “This is as deep a recession as any of us have seen, but to date, healthcare has not been impacted to the extent that other industries have,” Sweet tells GlobeSt.com. “We’re an aging society and are going to demand higher levels of care. Medical as a whole industry is reasonably stable.”

Sweet says third party investment in medical real estate has become increasingly desirable for hospitals and other users. “Historically, hospitals have had about 40% of assets tied up in brick and mortar,” Sweet says. “We knew the hospitals were trying to cut back on the amount of capital they have tied up in buildings, and so selling properties as a means of monetizing and freeing up cash. Also, as healthcare has become more of an outpatient service, there has been the need for more outpatient buildings and for third parties like ourselves to build and own state-of-the-art facilities.”

Ziegler’s current portfolio resulting from its previous three funds consists of 21 properties across 12 states. The properties represent a total of 690,000 square feet and $164 million in value, the company said. Sweet says this fund’s rank as the company’s smallest yet is due in large part to the economy. “People have become more cautious about where they place their money,” Sweet says. “The times have had an impact on everything, including capital raising.”

Sweet says medical office buildings are built on spec far less frequently than other property types. Five of Ziegler’s own properties have been built on spec through a partnership with a developer in which they provide the capital, and in Sweet’s experience, medical properties built on spec are at least 70% preleased by the time construction begins. The buildings are also sound investments due to the fact that “patients (are) loathe to move and there tends to be a convenience factor where they come to be a patient because they’re close by, so historically, you have a highly occupied building and low turnover rate,” Sweet says.

At the same time as the demand for such investments has been on the increase, so has the amount of people looking to make such moves in real estate. “There is a growing number of interested parties from a development standpoint, as well as an investor standpoint,” Sweet says. “There’s more capital being raised now for medical developments, and we’re running into more competition now than we have in the past few years.”

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