Five Healthcare Hows & Whys
During this week's 4th Annual Atlanta Healthcare Real Estate Summit, members of our first panel talked about the ingredients needed to work with hospital systems' real estate. “Aligning interests is always challenging,” says Ackerman & Co's John Willig. He says the best way to get their attention is to identify their strategic objectives for a particular location and present the real estate that best meets those needs. (Another way to get someone's attention is through dance, but nobody's that desperate.) “And it continues to evolve because their strategic objectives continue to evolve.”
“This is very much a relationship business,” says MedProperties Holdings' Darryl Freling, regarding commercial real estate work for healthcare systems. But it's also difficult to get into, Darryl says. The trick is to provide a way to drive costs down for health systems, in light of the Affordable Healthcare Act, while increasing customer acquisition. (You could always introduce devices that trip people entering the building, that's one way to acquire customers.) Darryl also warned developers about the seniors housing industry-- especially products without acute care facilities. “We see the seniors housing space as ripe for overbuilding today,” he says.
Bull Realty's Paul Zeman says some MOB investors today are buying properties with the expectation that rents may actually be lower in five or so years when existing leases begin to roll over. Darryl says, at least for his firm, he's a long-term buyer. “And clearly if rents are too high and too unsustainable… our buyer is going to be smart enough to figure that out,” he says.
Newmark Grubb Knight Frank's Todd Perman says there's a bifurcation happening in the healthcare industry: Big healthcare systems that have the capital sophistication can afford the sophistication on staff to figure out how to address real estate needs to make their system more effective. Those with challenges to their credit don't have the luxury of a big staff to figure that out. “Healthcare reform is happening. It can either happen to you like the weather… or you can change with it and try to drive a strategic mindset change through your system,” Todd says. (We all know the consequences of letting the weather happen to us.)
Griffin-American Healthcare REIT II's Stefan Oh says when investing in MOBs, his firm looks to the performance of the nearby hospital: The better performing the hospital, the better performing the MOB. “We're focusing heavily on the MOBs that are being occupied by the hospitals, whether on the campus or off the campus,” Stefan says.