Has Healthcare Real Estate Become its Own Unique Asset Class….?

By: Benjamin E. Bivens, CCIM

February 12, 2020

Charlotte, NC - Many real estate investors are hearing that investing in medical office or healthcare real estate is something they need to look at or get into based upon solid fundamentals such as less volatility, low tenant turnover and credit worthy tenancy. More and more non-medical focused investors from Private Investors to Pension Funds to REIT’s are seeking to enter the space and buy into what has turned in to a “healthy” asset class all on its own. In fact, many do not think about it this way, but all of the major food groups of commercial real estate are represented within healthcare real estate. So, this begs the question; Should healthcare real estate be considered its own unique asset class within commercial real estate?

Consider the following mirror of the major asset classes represented within healthcare real estate, to include, but not limited to:

Multifamily = Seniors Housing

Office = Medical Office Buildings

Industrial = BioLife Sciences, R&D, Medical Device Manufacturing and Healthcare Data Centers

Retail = Urgent Care, Dentists, Eye Care, Medi-Spa, Pharmacy, Fitness Centers and Veterinary Clinics

Mixed Use = Health Plexes with living, fitness, medical and retail components

Special Use = Post-acute Care Rehab, Ambulatory Surgery Centers, Dialysis clinics, Proton Centers, School of Medicine teaching facilities and Mortuary Clinics

So, an investor looking to invest in healthcare real estate could potentially build a portfolio within all of the major food groups of commercial real estate essentially following the “life cycle” of care continuum even all the way down to end of life care. Each major class feeds the life cycle of the other. This brings up the question; Has healthcare real estate become its own unique asset class within commercial real estate? My answer is an emphatic; Yes….!

Healthcare real estate has a whole sub-set of diligence and nuance that necessitates special attention to detail within the industry. Regulations such as Certificate of Need (CON) laws, Stark Law compliance and HIPAA to name a few. It is way different than general office use or multifamily use. It’s not a subclass of industrial or a subclass of retail. In fact, healthcare real estate is its own unique asset class - all of it. 

According to Revista, a healthcare real estate data firm, in 2019 investment sales of Medical Office Buildings (MOB) surpassed $10 Billion. Additionally, a report issued by BGL indicated that total investment sales volume for MOB topped out at $11.2 Billion for 2019.  These figures obviously do not take into consideration total sales volume for seniors housing and bio-life science, R&D and manufacturing as well as retail and specialty uses. These are mature numbers for the industry. These are numbers indicative of a unique asset class.

In fact consider what Darryl Freling, managing partner of MedProperties Realty Advisors, was quoted saying at a recent GlobeSt Healthcare Real Estate conference as written by Realty NXT in an online article entitled “Why is Healthcare Real Estate a Solid Investment?” Darryl said “there is a growing awareness over the last five years from investors. Healthcare has become such a huge national topic generally, and the awareness now of healthcare as an independent asset class is huge.” 

Additionally, we see from the investment ownership side that owners are intentional about diversifying within the product type itself.  Jennifer Francis, who is the President and CEO of Newton, Mass.-based REIT Diversified Healthcare Trust (formerly Senior Housing Properties Trust), was quoted recently in a news release: "Over the past 10 years, we have made considerable progress in diversifying and enhancing what was once a pure-play senior living portfolio by strategically acquiring state-of-the-art life science properties and well-located medical office buildings in order to meet the broader real estate needs of the continually evolving healthcare industry." Regarding changing the name of the REIT, she said, "more accurately depicts both our portfolio of diverse, high-quality healthcare real estate and our strategy moving forward."  This type of specialized investment diversification begs the question; what asset class are they diversifying in? Office? Multifamily? Industrial? Nope. Its Healthcare.

To supplement the anchoring of the premise that healthcare real estate is its own unique asset class is the fact that spending on healthcare in the US for 2018 was $3.65 Trillion. That’s approximately the same as Canada’s economy in total. The figure has hovered around just shy of 18% of total US GDP for the past several years. That’s a big chunk of our economy and it’s still growing.

Think about this; there will always be a need to go and see your physician to get poked, prodded, sliced open and sewn back shut. You cannot outsource those types of procedures overseas. Healthcare real estate fundamentally will benefit over and over again from an aging population as well as a healthy population from here and beyond. No matter what the political climate, you’re always going to have a need to see a doctor in a specialized building somewhere. 

Healthcare Real Estate is, in fact, its own unique asset class.

Benjamin E. Bivens, CCIM

Principal

MedSouth Healthcare Properties

MedSouth Management

Office: 704-910-1777 

6827 Fairview Rd, Suite B Charlotte, NC 28210

www.MedSouthHCP.com  

Licensed Broker in: NC, SC, TN 

Benjamin E. Bivens is a co-founder of MedSouth Healthcare Properties and MedSouth Management and focuses on healthcare real estate investment solutions throughout the southeastern United States. Benjamin focuses on sale-leaseback structures to allow healthcare organizations the ability to unlock the equity held within their real estate. Let’s face it, that frozen equity could be making more money if rolled back into the healthcare organizations core operations than it ever could being stuck in the real estate.