LOS ANGELES—During times of economic uncertainty—or, for that matter, prosperity—diversifying your real estate investments is always a wise move. Often discussions revolve around the typical asset classes—retail, industrial, multifamily and commercial—but have you looked at medical office buildings? Healthcare real estate or "med real estate" refers to offices, buildings and campuses leased to medical providers or healthcare organizations, which are often owned and operated by unrelated third parties.
“Med real estate” transactions run the gamut from acquisitions of hospitals (including acute medical/surgical facilities and specialty hospitals such as rehab or assisted living) to development/financing/construction/leasing of MOBs or specialty medical facilities such as diagnostic imaging facilities, dialysis or plastic surgery facilities. In each case, the physician, health system or hospital can preserve cash and capital resources for their core business—providing medical services—and delegate responsibility for owning and managing real estate to those who know it best: real estate investor/developers.
Healthcare is one of the fast growing segments of our economy, so it's not surprising that healthcare related real estate transactions are also on a fast track.
From an investor point of view, this asset class can operate as a hedge against typical asset classes prone to the ups and downs of the market. With MOBs, tenant users have a more dependable revenue stream (insurance companies and the federal government), thereby providing a steady income stream to service debt and provide returns to owners. And MOBs tend to enjoy high occupancy rates because they are usually located on the campus of a major medical center or at least within walking distance of a hospital, where physician tenants can easily check in on hospitalized patients. Many MOBs, frequently class A buildings, are owned by adjacent hospitals which require tenants to maintain medical staff status, thus supporting hospital bed occupancy. This model provides integration opportunities with medical staff members and assists in physician recruiting, while providing the building owner multiple secure sources of revenue.
Expansion and dispersion of medical facilities into suburban submarkets is another emerging trend, where a single destination may house multiple targeted medical specialties. A suburban shopping center, may, for example, include urgent care, orthopedics, radiology and pediatrics, all using a common waiting area (and parking lot). And the many amenities of the shopping center setting make the visit to the doctor attractive—offering post-procedure shopping and restaurants as a reward. More and more, health systems are recognizing the need to enhance the 'customer experience'—creating convenient access and a pleasant environment.
Particularly as the Baby Boom generation ages into the golden years of medical care, amenity-rich retail medical centers, close to patients' homes, are becoming a booming new trend in med real estate. Whether you're an owner, developer, equity investor, property manager or lender, it will be hard to reliably do better than this sector in the next 20 years.
Dina Tecimer and Tom Muller are partners in the Los Angeles office of Manatt, Phelps & Phillips LLP. The views expressed in this column are the authors' own.
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