Healthcare REIT market sees growth
Doctors’ ‘high-stick factor’ appeals to investors
CHICAGO – According to financial services firm Jones Lang LaSalle, healthcare real estate investment trusts (HCREITs) have raised $22.5 billion over the past 18 months, spiking third party interest in the medical property sector.
The estimated total value of all healthcare real estate assets in the U.S. is roughly $700 billion, including medical offices, hospitals, assisted living homes and skilled nursing facilities.
Public HCREITs raised $17.4 billion in equity and debt capital in the 18 months ending June 30, 2011, and non-listed HCREITs raised an additional $5.1 billion.
HCREITs are producing dividends in the 5 percent range, higher than other segments.
“What was discovered is that HCREITs are recession resistant because doctors stay in the same place for a long time,” said Mindy Berman, managing director of capital markets in Jones Lang LaSalle’s Healthcare Capital markets group. “There is what’s called a ‘high stick factor’ – a stability of property income with long-term leases. There is not a lot of variability in rent.”
This means that even when the economy takes a down turn, doctors stay in place and continue to pay their rent, which appeals to investors looking for stable revenue streams.
“Physicians tend to stay in a building for a long time,” confirmed Berman.
Likewise, senior housing and skilled nursing facilities are long-term lease properties with tenants commonly signing 15-20 year leases, said Berman.
Danny Prosky, executive vice president of healthcare real estate at Santa Ana, Calif.-based Grubb & Ellis, agrees the down economy is the reason for the strong performance of HCREITs.
“People are worried about retail, industrial and office real estate markets and about tenants going out of business. But, healthcare is recession-resistant. Even as jobs are being lost in other areas, healthcare is gaining.”
Prosky describes healthcare REITs as a “safe haven” for investors.
He believes healthcare REITs will remain a strong investment for decades. “This is not a 10-year trend. It’s a 40-year trend. The demand for healthcare REITs will not go down. I don’t see how the demand for healthcare can drop off,” he said.
He adds that there may be “short-term disruptions” as the fee-for-service reimbursement model transitions to fee-for-outcome.
“You may have winners and losers (as healthcare models change), but there is a margin for error because it’s a growth industry. The demand for services keeps going up. Losers may be bought by the winners, but from a real estate perspective, investors will be ok.”
Berman concurs. The stature of healthcare as an asset will only increase as healthcare reform becomes clearer and as hospitals and healthcare systems undertake efforts to further solidify the strategic management of their properties, she said.
For more on REITs, see bit.ly/hfn-capital.
