“There is a significant learning curve among institutional investors. CPP underwrote us and underwrote the space for a year before they made their first investment. We recently acquired a site at 56th Street and Lexington Avenue here in New York City with Hines. When I first talked to Hines a few years ago about healthcare real estate, I don't think it was really on their radar screen. But having dealt with elderly parents in Manhattan and trying to find an appropriate place for them to live when that apartment on the Upper East Side just didn't work anymore based on their physical and cognitive issues, I will tell you that we had to move a parent to La Jolla, CA because there was no alternative in Manhattan. I found that unacceptable in the greatest city in the world, so we started to look for an alternative and to find a site in the middle of the city, really. I decided to try Hines again, and Tommy Craig, who runs their New York City operations, told me, 'Your call is so ironic, because Sarah Hawkins, our managing director here, has been pushing us to look at this sector. When can you come in?' Hines has developed some of the greatest buildings in the world and will continue to do so, but healthcare was a space they hadn't thought of.

'While I can't talk too much about the site, what's important is that it's going to be the first state-of-the-art senior living environment in the city of New York. It will bring a community that lives in the shadows into one of the most vibrant areas of Manhattan. It's important to me that those who live and work in that neighborhood see these people, because they are a growing percentage of our population. They can't be tucked away anymore. They should live in the community, and we who live and work in New York should get used to seeing, and dealing with, people who are frail and cognitively impaired. We used to die before we got to that stage, but we don't anymore. And we don't all move to Florida, either, because you only move to Florida if your kids live there.

'It's important to stay as part of your community; it's actually beneficial to all of the skills we lose as we age. If you can maintain familiarity in the environment, you go a long way toward improving quality of life. That's what we're doing at 56th and Lexington. There will be a retail concept on the first floor, which I will hope will draw the broader community and they see the people who take the elevator down to do their shopping in that environment. It's important that we do this in New York City. We're already doing it in places like Los Angeles and Washington, DC.

“Welltower is focused on the major urban markets. This is a private-pay business, and while I'd like to think that we could bring what we do to the hinterlands, it just doesn't make economic sense. We're focused on the positive-demographic markets in this country. There are 'hot spots' across the US where people have been concerned about oversupply in seniors housing; we don't really own much in those hot spots. Our skill-set combined with the expertise of our partners allows us to go into high barrier to entry markets. We would love to be able to go deeper into the cores of Boston, DC or L.A., for example, and we will look to partner with the best-in-class developers in those markets, whether it's an international developer like Hines or a very strong regional company.”

NEW YORK CITY—Last week, GlobeSt.com published part one of a discussion with Thomas DeRosa , CEO of Welltower Inc ., who focused on the reasons that the healthcare real estate continuum needs to be re-evaluated. “We have so much infrastructure in this country that has to be taken out of service and rethought,” DeRosa told GlobeSt.com. “A lot of acute-care hospitals have to be taken out of service and replaced with state-of-the-art outpatient networks that are connected to other providers of healthcare, whether it be skilled nursing, assisted living or other forms.”

In part two of this EXCLUSIVE interview, DeRosa talks about the learning curve for institutional players making their entry into healthcare real estate, and why urban locations represent the future, both for his Toledo, OH-based REIT and more generally. An edited version of that conversation appears below.

“We have two capital partners that are known for being among the major real estate investors in the world, namely the Canada Pension Plan Investment Board and PSP Investments. They get this. When we first went to see CPP in the summer of 2014, they told us that they had never invested in healthcare real estate; it didn't seem to be of institutional quality compared to corporate office buildings or shopping malls. I said, 'Let me show where the opportunities are in this sector and how it can meet your requirements for the institutional threshold.' Today, they're our partner. We bought 50% of the outpatient medical infrastructure of a little town called Beverly Hills, CA, where there's a moratorium on medical building. CPP understands high-barrier-to-entry markets for office buildings, in this case for doctors. But they also made an investment with us this year in a company called Discovery Senior Living—high-end independent living for seniors in Florida. That sends another signal, that they've now gotten comfortable with the seniors housing space.

“I don't know how many new office buildings or shopping malls are needed in major metro areas. So if you're CPP and need to invest money in quality assets for the long term so that you can pay your beneficiaries, where do you look? I think there's a huge opportunity in healthcare.

“There is a significant learning curve among institutional investors. CPP underwrote us and underwrote the space for a year before they made their first investment. We recently acquired a site at 56th Street and Lexington Avenue here in New York City with Hines. When I first talked to Hines a few years ago about healthcare real estate, I don't think it was really on their radar screen. But having dealt with elderly parents in Manhattan and trying to find an appropriate place for them to live when that apartment on the Upper East Side just didn't work anymore based on their physical and cognitive issues, I will tell you that we had to move a parent to La Jolla, CA because there was no alternative in Manhattan. I found that unacceptable in the greatest city in the world, so we started to look for an alternative and to find a site in the middle of the city, really. I decided to try Hines again, and Tommy Craig, who runs their New York City operations, told me, 'Your call is so ironic, because Sarah Hawkins, our managing director here, has been pushing us to look at this sector. When can you come in?' Hines has developed some of the greatest buildings in the world and will continue to do so, but healthcare was a space they hadn't thought of.

'While I can't talk too much about the site, what's important is that it's going to be the first state-of-the-art senior living environment in the city of New York. It will bring a community that lives in the shadows into one of the most vibrant areas of Manhattan. It's important to me that those who live and work in that neighborhood see these people, because they are a growing percentage of our population. They can't be tucked away anymore. They should live in the community, and we who live and work in New York should get used to seeing, and dealing with, people who are frail and cognitively impaired. We used to die before we got to that stage, but we don't anymore. And we don't all move to Florida, either, because you only move to Florida if your kids live there.

'It's important to stay as part of your community; it's actually beneficial to all of the skills we lose as we age. If you can maintain familiarity in the environment, you go a long way toward improving quality of life. That's what we're doing at 56th and Lexington. There will be a retail concept on the first floor, which I will hope will draw the broader community and they see the people who take the elevator down to do their shopping in that environment. It's important that we do this in New York City. We're already doing it in places like Los Angeles and Washington, DC.

“Welltower is focused on the major urban markets. This is a private-pay business, and while I'd like to think that we could bring what we do to the hinterlands, it just doesn't make economic sense. We're focused on the positive-demographic markets in this country. There are 'hot spots' across the US where people have been concerned about oversupply in seniors housing; we don't really own much in those hot spots. Our skill-set combined with the expertise of our partners allows us to go into high barrier to entry markets. We would love to be able to go deeper into the cores of Boston, DC or L.A., for example, and we will look to partner with the best-in-class developers in those markets, whether it's an international developer like Hines or a very strong regional company.”