Healthy Prospects

U.S. healthcare has been the subject of much debate over the years. It has repeatedly been compared to what’s offered in other countries, as politicians, insurance executives, medical professionals and a variety of other players consider new alternatives. From managed care to universal healthcare and Medicare to the Affordable Care Act, it has undergone a number of iterations, and it will likely experience more in the years to come.

Changes at the real estate level have been more recent, and they are no less interesting. Driven by economics, regulation and even marketing strategy, treatment is increasingly shifting from the hospital to outpatient facilities—and now clinics in malls, under the theory that the best way to attract business is to go where the people are. That is certainly an intriguing idea, as it both gives the clinics high visibility and helps mall owners lease up space vacated by retailers that are downsizing their brick-and-mortar presence. A report from consulting firm Deloitte termed such retail clinics “an important and growing part of the U.S. primary care delivery system.” In fact, the concept is not entirely new; clinics have existed in drug, grocery and big-box stores for years, and in 2008 Deloitte called them “a disruptive innovation with a sustainable value proposition.”

The real estate ownership, too, is shifting. Doctors continue to sell and lease back their properties, and they are increasingly leasing from hospitals, which are striving to integrate medical offices into their own campuses. And while healthcare real estate remains highly fragmented, it is increasingly being snapped up by investment firms. Those deals have historically been dominated by the big public REITs, but as more investors step onto the playing field, attracted by the untapped potential, their variety is expanding. Real Capital Analytics Inc. data detailed in a recent report from CBRE Group Inc. found that, as a share of medical office building buyers, last year public REITs dropped to 19 percent, down from 43 percent the year before, while private investors increased their share to 36 percent from 21 percent in 2012. Other investors included institutions, equity funds and private REITs.

And medical office buildings are not the only target. Investors plan to increase their involvement across a broad variety of healthcare real estate, according to a survey by Newmark Grubb Knight Frank that is discussed in this month’s Special Report: “Rx for Growth.” “The good news about healthcare is that it’s a growth industry,” Griffin-American Healthcare REIT II president & COO Dan Prosky told CPE senior editor Paul Rosta.

Long-term investors caution that involvement in healthcare real estate requires a more specialized expertise than buying an office, multi-family or other more traditional asset. But given the dearth of strongly returning opportunities in the current market, such a growth sector offers intriguing possibilities. And what’s more interesting than a learning curve?

Suzann D. Silverman, Editorial Director