COVID-19 continues to cut investors in most types of commercial real-estate. But many of those that own health care properties are feeling good.
While the pandemic jacks up vacancy, hampers property ideals and raises critical questions concerning the future of the retail and food and traditional office sectors, healthcare office buildings have been largely without any those economic symptoms.
Properties are trading with prices similar to or higher than those compensated before the crisis began, rent series have barely felt a touch and new sources of capital are searching for a way in. Even the specter associated with more patients receiving medical care practically and eroding some of the need for in-person treatment hasn’t scared off property investors, which are betting heavily that this coronavirus will instead accelerate the particular trends that have made medical workplaces more popular in recent years.
It’s a signal that healthcare real-estate, fueled by a global health turmoil, is poised to grow from a niche market, defensive wager for investors spooked by a downturn into a trendy choose. And the Chicago area could be a large target market with several large wellness systems moving quickly to increase their outpatient footprints.
“This pandemic has just increased the need for the type of facilities all of us acquire and operate, ” states Peter Westmeyer, CEO of Chicago-based Remedy Medical Properties, whose company has more than 20 million sq . feet of properties in its profile.
Buildings that will house medical practices started sketching far more investors over the past decade for many reasons. One is demographic: By 2030, there will be 30 million more individuals age 65 and over countrywide than there were in 2012, according to a good estimate from the U. S. Census Bureau, driving unprecedented demand just for healthcare. Major health systems, in the mean time, have been pushing more services in to outpatient facilities thanks to advances within technology and new payment versions, boosting the market for buildings using the infrastructure to handle clinical testing plus lab work.
Hospital systems have also been consolidating plus acquiring more independent physician groupings, making massive health systems—which usually come with a high level of credit—the point tenants of office buildings rather than small private practices. Seventy-one % of all medical office building projects that will broke ground last year were associated with hospitals, up from an average of close to 60% during the previous few years, based on healthcare real estate research firm Revista.
Locally, increasing chains including Amita Health and NorthShore University HealthSystem, as well as academic private hospitals like Rush University Medical Center, possess invested heavily in outpatient treatment both on and off their campuses.
All of that helps describe why sales of medical workplace buildings more than doubled between this year and 2017 to $14. seven billion, and why annual quantity has remained above $13 billion dollars since then, according to a July survey from brokerage Jones Lang LaSalle. And more money is pouring within: In 2019, dedicated medical workplace real estate funds raised nearly $7. 4 billion in capital, 47% more than they did the year prior to, according to financial data tracking firm Preqin.
DEAL VOLUME FALLS
The coronavirus vulnerable to derail that momentum, along with deal volume falling during the 2nd quarter to its lowest tag for that period since 2014, based on data from real estate investment banking company Hammond Hanlon Camp. Telemedicine grew to become the norm for patients during all those months, raising questions about how a lot in-person care it would replace completely. A May report from talking to firm McKinsey projected that $250 billion—or 20%—of all spending on health care in the United States could be done virtually within the wake of the pandemic.
But it hasn’t taken really miss real estate investors to get over these concerns. While property values meant for offices nationwide were down somewhat year over year nationwide within July and August, medical workplace property values were up simply by 1%, according to data from analysis firm Real Capital Analytics.
Matt Campbell, originator of Chicago-based healthcare real estate creator MedProperties Group, says the introduction of mainstream virtual care “is probably the first real competitive component that’s come into our world in the last two decades, ” but it’s unclear regardless of whether it will substantially slow the effective forces driving demand.
“We’re as surprised since anybody at how strong the particular demand is, pushing all the way through the particular pandemic. It’s been shocking, ” states Campbell, whose company recently pennyless ground in Buffalo Grove with an outpatient facility leased to Southwest Community Healthcare and is planning one more medical office building in downtown Recreation area Ridge.
Campbell is so bullish about demand ongoing to soar that MedProperties has become seeking permits to build a seven-story, 78, 000-square-foot medical office building close to Oakbrook Center mall on rumours, or without any tenants signed. The particular firm landed an equity companion to fund the project, which will be section of a larger $500 million redevelopment from the former McDonald’s Plaza office real estate.
“It depends upon what is the lowest-cost way to provide treatment, ” he says, and “hospitals are likely to continue to push more of the simpler, simple care they’re providing to healthcare (office) campuses. ”
There are still headwinds facing healthcare property landlords further than the rise of telemedicine. Whilst hospital systems consolidating and nipping up private practices helps, additionally, it leads to redundancy of outpatient places in a given community, meaning a few leases won’t be renewed. Major store pharmacies such as CVS and Walgreens Boots Alliance are also adding more medical space to serve their towns, posing more competition for certain providers.
Plus, not every health system tenants are successful bets. Some are being stretched towards the financial brink by low compensation rates from insurers, one cause cited by both Westlake Medical center in Melrose Park and MetroSouth Medical Center in Blue Island whenever shuttering last fall. The United states Hospital Association estimated in a latest report that hospitals nationwide experienced “catastrophic financial challenges” between the starting of March and the end associated with June, collectively missing out on $50 billion dollars in revenue per month.
But that distress may also help medical office landlords because hospitals—which own more than half of all healthcare office buildings nationwide, according to Revista—turn to selling and leasing back again real estate to fortify their stability sheets.
In a single recent deal, Chicago-based sale-leaseback professional Oak Street Real Estate Capital, that is best known for buying retail and commercial properties that are rented back to the particular sellers, paid $204 million for any 23-building portfolio of medical workplaces leased back to West Reading, Pennsylvania. -based hospital system Tower Wellness.
Many medical center systems have sold outpatient buildings recently to generate cash, says Oak Road co-founder Marc Zahr, but throughout the COVID-19 crisis, “the ones that will had historically had a stronger watch about not doing so have started to discover it. ”
” Is definitely medical real estate immune to COVID? inch originally appeared in Crain’s Chicago Company .