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Plenty of people are stymied into inaction about the future shape of healthcare, but The Alter Group has formed a new division within its Entrust Realty Advisors subsidiary to acquire $100M of medical office properties annually.
EnTrust Healthcare Properties head Ray Braun
This morning, EnTrust Healthcare Properties head Ray Braun told us hospital systems need places to put the physicians they're hiring out of independent practice. (We can't just have lemonade stand-style medical care like Peanuts?) Ten years ago, 25% of physicians worked for hospitals. Now it's 60%. That means tenant demand is up for off-campus buildings that are near hospitals and even for those farther out but related to a hospital. That's good for owners, but there's acquisition opportunity here, too, as hospitals sell on-campus properties to liquidate cash. A big reason for doing that is that hospital reimbursements (and thus revenue) have decreased or at least become unpredictable (a side effect of ongoing healthcare reform).

States with CON programs
EnTrust Healthcare is raising funds from institutional and private investors. Phoenix, Atlanta, and Chicago—where Alter has offices—are the easiest markets for it to act on, but metro areas with dynamic hospital systems and growing population are where there's potential. Baltimore, for instance, is now the 20th-largest MSA and is approaching three million people, Ray says, not to mention the JHU and UMD teaching hospitals and other healthcare systems. Ray also tells us EnTrust will favor the 36 states (including Maryland) that have certificate-of-need programs (in purple) to keep healthcare property inventory in check.

Restrictions sign
Besides cash flow, two other factors should drive MOB sales, Ray tells us. The Stark Law prevents hospitals from doing real estate favors for physicians, but that doesn't stop nearby doctors who refer a lot of business to the hospitals from asking. Getting the real estate off the hospitals' books removes that headache (so does aspirin). Hospitals are also realizing that they can maintain control over tenant pools—through ground leases of on-campus buildings and restrictions negotiated into their off-campus leases.