Like aging, taxes, and a Cubs nail-biter, healthcare real estate is a sure thing. It outperformed other asset classes during the downturn and remains highly competitive as it consolidates by the day, we learned at Bisnow’s Chicago Healthcare Real Estate Summit yesterday.
More than 175 of you joined us at the Swissotel, where the reigning kings of investment and development touched on everything from hospital systems’ priorities to seniors living facilities’ attractions. We also asked them to share another one of life’s inevitabilities, their first jobs.
ESD VP Craig Kos (right) gave opening remarks, citing building infrastructure as often overlooked in outpatient healthcare real estate. The Affordable Care Act is focused on accountable treatment, and hospitals are reacting by developing an outpatient network that provides convenient touch points in the neighborhoods where their patients live, while also building the brand. This model allows for treatment that costs less than the ER, and frees up those beds for the acutely ill, he says. But delivery method of the space varies greatly depending on location and infrastructure. For example, building new could be best for a high-intensity use like a surgical center, while internal medicine could lease office space with just minor improvements.
Ventas SVP and Lillibridge CIO Vince Cozzi (left) started in the working world handing out flyers with his friends for a pizza place, and was paid in pizza and quarters for the videogame machines. He says Ventas’ recent major announcements regarding its pending acquisition of American Realty Capital Healthcare Trust for $2.6B, along with a separate acquisition of 29 independent living properties in Canada, is consistent with the company’s investment strategy. From individual properties and portfolios to larger M&A transactions, Ventas targets assets with tenant stickiness and stability in order to deliver consistently growing cash flow. And since the company is just 30% levered, changes in interest rates will likely not impact its cost of capital dramatically, he says.
Health Care REIT SVP, management services group Mike Noto says his first job that required work papers was being a gravedigger. (And now his properties heal people—what a circle of life.) Mike sees the emergence of private healthcare REITs carrying a short-term investment horizon (to fit their capital partners' four- to five-year life cycle) as a challenge to public REIT powerhouses looking to compete on investments. Unfortunately we’re still waiting for that wave of MOB monetization, since hospitals can’t seem to cut the emotional umbilical cords tying them to real estate, he says. But they are willing to talk if you’ll share operating risk on what happens inside the MOBs, he points out.
HSA PrimeCare president John Wilson got his first paycheck cutting grass and delivering papers. As a developer, he says it’s crucial to get involved with healthcare providers early on, since real estate is just the end result of a strategic plan process driven by government regulation, demographics, technology, and patient care. As reimbursements move from volume-based to value-based, hospital systems are working to extend their reach right to the patient’s doorstep, with services like urgent care, primary care, and specialties right in the neighborhood (possibly conveniently located in a retail shopping center). HSA’s projects range from 8k SF to the 200k SF “hospital lite” concepts, with most health services other than the beds.
For his first job, Medical Properties Trust SVP Frank Williams baled hay (a technique we’ve considered when cleaning the apartment). As the fourth largest owner of private hospital beds in the US, the firm’s development activities are typically focused on replacement hospital facilities. It has also invested in freestanding emergency departments in the past couple years, which take the pressure off ERs. And Medical Properties Trust’s recent acquisition of 11 post-acute rehab facilities in Germany was an effort to diversify while maintaining a focus on hospital investments, he says. (Hopefully that doesn't affect who they root for in tomorrow's match.)
Our panel was moderated by Blueprint Healthcare Real Estate Advisors managing director Jacob Gehl, who's team has been busy with $1B if deals during Blueprint’s first year. The REIT Investment Diversification and Empowerment Act (RIDEA) has REITs wandering away from the traditional model of buying cash-flowing assets, he observes. He also suspects international buys hold appeal for public companies because private REITs aren’t bidding up pricing as much in those spaces, and as we know the grass is always greener. Speaking of grass, Jacob’s first job was a lawn mowing business started with a friend down the street. Sadly, he learned he was allergic to freshly cut grass and his mom pulled the plug on the endeavor after two weeks.
We had to include this glamour shot of Bisnow Chicago office head Jonathan Hobfoll and our event-producing whiz Rachael Anagbo. We think they're ready for the runway. View more snaps from the event here.