"I fell into healthcare real estate in early 1992, at American Health Properties in Denver," Prosky tells Forum. "A three-week temp assignment turned into a permanent job. In 1999, AHP was acquired by Healthcare Property Investors, the largest healthcare REIT at the time, and I worked there until 2006 as an asset manager and acquisitions officer. I was at the right place at the right time."

Mathieu Streiff, principal and general counsel, served as EVP and general counsel of Grubb & Ellis, where he oversaw all legal matters for the company, including its investment-management and real estate services operations. Prior to his appointment as general counsel, Streiff was SVP of investment operations and chief real estate counsel for the Grubb's investment management subsidiary. He handled all real estate-related legal matters and directly oversaw the operations of the company's public, private and institutional investment vehicles, including acquisitions, dispositions and structured-finance functions across a diverse range of investment offerings. Before that, he had served as an associate in the real estate department of Latham & Watkins LLP in New York, where he represented principals, developers and lenders in structuring commercial real estate transactions for clients including General Electric, Goldman Sachs and Healthcare Properties Inc.

"We all joined the predecessor to Grubb around the same time in 2006 and really worked together closely for the past six years," Streiff says. "We helped expand the investment-management platform and the institutional platform as well. At that point, the Grubb & Ellis investment-management portfolio contained properties both inside and outside of the healthcare space."

In forming AHI, the three principals teamed up with partner Griffin Capital, whose founding principal is Kevin Shields, to assume co-sponsorship Griffin-American Healthcare REIT II. GAHR II was formed in late '09, and the team bought its first asset in 2010. There are currently 40 employees at AHI, the majority of which have been together since 2006 and have made acquisitions as a fixed team, forming two publicly registered, non-traded REITs in the healthcare sector. Stefan Oh, AHI's CIO and head of acquisitions, spent 12 years at Health Care Partners as well, working on the second-largest publicly traded healthcare REIT.

"We've done about $15 billion in combined acquisition/disposition transactions, $8 billion of which was done at Grubb," says Hanson. "We look forward in terms of the evolution of AHI to continue to run one of the most-successful public non-traded REITs, but I see us going back to some of our roots to attract institutional capital to acquire additional healthcare real estate, diversify the equity sources of our broader platform."

Those who have worked with the team since its Grubb & Ellis days say their individual expertise is what sets them apart from other firms. "They understand that it's a relationship business, but they know who's good with what," says Chris Bodnar with CBRE. "Stefan, Brian and Paul [members of the AHI acquisitions team] are good on the acquisition side, but after that point they bring in their asset-management group. Chris Rooney [who leads AHI's asset management division] comes in and has a great demeanor for working with tenants and doing due diligence. It's a very standardized process that enables them to execute on a transaction very quickly."

All of the principals agree that healthcare is the right sector to be in right now, and that the aging of America is driving tremendous growth for demand in healthcare services and therefore demand for healthcare-related real estate. Healthcare is the largest component of the American economy, comprising nearly 20% of our GDP. In fact, according to the US Department of Health and Human Services, Americans spent $2 trillion on healthcare in 2008, and by 2020 they are expected to spend more than $4.6 trillion per year. (For more on Healthcare, see "Just What the Doctor Ordered?" page 45.)

"We have both a growing and aging population, and it's easy to track," says Prosky. According to the US Census Bureau, the number of people above age 65 in this country is projected to nearly double over the next 40 years to 87 million. "We're optimistic about future healthcare demand."

There are 86 million baby boomers and seniors, and the oldest baby boomers just began turning 65 last year, as per the Census Bureau. An average of 10,000 people a day turn 65 and will through 2030, and Americans today live almost 50% longer than what the average American was expected to live 50 years ago in this country.

"Healthcare is already the single largest component of the nation's GDP, but also the fastest-growing," says Hanson. "It's driven by demographics." In fact, during the recession, more than eight million American jobs were lost, demographic demand drivers led to the creation of 700,000 new healthcare jobs nationwide, including doctors, nurses, x-ray technicians, pharmaceutical workers and other areas, reports the Bureau of Labor Statistics. The BLS also predicts that between 2008 and 2018, the healthcare job sector is projected to grow by more than 22%, generating 3.2 million new jobs—more than any other industry.

"Whenever the local paper posts a story about the top 10 job growth sectors, healthcare is on the list," Prosky says. "1992 was the last year we didn't see positive job growth in healthcare in the US. Despite multiple recessions, the number of healthcare jobs has continued to grow."

AHI principals believe that this growth naturally extended to the medical real estate sector. Hanson says that even during the recession, the country didn't see devaluation in healthcare real estate that was significant as many other sectors, although the growth rate did decrease.

Prosky points out that healthcare is not recession proof, but rather, was less affected by the most recent recession. Discretionary healthcare spending was more affected than necessary healthcare, but necessary healthcare increases as we age. "People spend more on healthcare as we age, and we're living longer than in the past. Unfortunately, we're also living a less healthy lifestyle than in the past. But we've continued to push up the age of longevity."

According to the Centers for Medicare and Medicaid Services, more money is spent on healthcare for the average 80-year-old than the average 65-year-old, and we spend a lot more on the average 65-year-old than on the average 45-year-old. "Demographic realities are causing healthcare costs to mushroom in this country the way they are," says Hanson.

Speaking of healthcare costs, the Affordable Care Act has further accelerated the demand for healthcare and related real estate, the executives emphasize. They believe that the population is demanding coverage for healthcare that wasn't covered adequately before the Affordable Care Act, which is good for supply/ demand fundamentals at the healthcare real estate level. "I think simply put, regardless of how you view it as a taxpayer, and regardless of the political situation, from an investment-management firm that focuses on acquiring healthcare real estate, we expect Obamacare to drive demand for healthcare real estate ownership," says Streiff.

In talking about Griffin-American Healthcare REIT II, Hanson says the REIT had a robust year despite a necessary transition at the sponsor level. "We're pleased with the growth of the REIT's portfolio, which has more than doubled to approximately $1.1 billion in value since Jan. 1, based on aggregate purchase price."

In addition to being a real-world example of the emergence of healthcare real estate as a major investment class, the portfolio is also well diversified across 25 states.

"Griffin Capital Corp., led by Kevin Shields and David Rupert, has been a phenomenal partner," says Hanson. "They have done an exceptional job on the distribution side and has been a hand-in-glove fit for us as a co-sponsor of the REIT."

Prosky says to date the firm has invested in about 121 different buildings, mostly in the clinical healthcare sector, including medical office, skilled nursing, assisted living and hospital. "Payor mix matters. Our tenants generate their revenue at our buildings, so it's important to us that our tenants generate sufficient cash flow to pay their rents. We also want to ensure that revenue generated across our portfolio comes from a wide range of sources."

Hanson is proud that the REIT's portfolio is 96.5% leased, with an average remaining lease term of almost 10 years. Roughly 50% of the REIT's portfolio is leased long-term in single-tenant leases under bond net leases. Three of the four product sectors in the clinical classes are single tenant; the firm doesn't operate hospital facilities, but buys the brick-and-mortars and leases them back to the operators who run its real estate. The leverage across its portfolio is 27%; the leverage averaged at quarter end was roughly 26%.

So, was starting AHI worth the effort for the team? "Any transition is a challenge, especially given the circumstances," says Prosky. "This is a strong management team that ultimately did what was necessary to successfully complete a sponsorship transaction."

Streiff adds the transition was a challenging time, but also very exciting. "Not just the three of us, but the entire team believes in what we're doing and is excited about what we're doing."

Hanson adds that healthcare is clearly the depth and breadth of the firm's focus, and it has executed it across 32 states and also across different equity sources. He stresses the importance, when building a company long term, of achieving some level of diversity. "We're doing great at currently engaging to expand beyond retail equity and obtain ultra-high net-worth investors as well as institutional capital. Eventually, we will do this under a separate account basis and then ultimately, it will become its own fund."

Streiff points out that the team has raised roughly $3.6 billion to $4 billion in equity over a six-year period. "We are a healthcare real estate company, but we're very comfortable in the institutional arena. We're focusing on our non-traded REIT right now, but we envision ourselves going back to what we've done in the past: a welldiversified platform with different investment vehicles. Were building our company going forward."