PHOENIX—"Last year, and the year before that, we all wondered if things would continue to be as good in the medical office space as it had been. And it has proven to be a good year. It has met our expectations." That is according to panelist Darryl Freling, co-founder and managing principal at MedProperties Holdings LLC, who spoke on the opening capital update panel Thursday at RealShare National Healthcare Real Estate 2015.
Freling says there has been a growing interest in off-campus facilities in the community. "We are seeing cap rate compression in those assets and greater interest in those assets relative to interest in traditional campuses. We will continue to see that interest."
Panelist Jason Signor, COO and partner at Caddis, said that one surprise in the medical office space has been the struggle to buy. "It is harder to justify some of the caps," he said.
But a lot of the new buyers out there are relying upon lenders and the low interest rate environment, explained Luke Lee, VP of capital markets and structured finance at Transwestern. "That's where we are seeing a huge volume and it is driving cap rates to become so aggressive. They are into the buy-buy-buy before they lose their opportunity and interest rates go up."
For seniors housing specifically, it is shaking out to be another record year, panelists said. In 2013, the total volume in senior housing was $12.5 billion for the whole year and in 2012 was $11.8 billion, explained Lee. "I see a lot of new players coming into the seniors housing space."
And while Freling isn't a major player in the seniors housing space, he said that the demographic drivers are certainly there. "We see much lower barriers to entry," he said. "There are opportunities for overbuilding and that concerns us."
What is important, according to Freling, is having a good operator who knows how to run that space. "We go in as a JV partner… It is about underwriting the operator."
Panelists stress that diversification is key. Stefan Oh, EVP of acquisitions at Griffin-American Healthcare REIT III, explained that when you have equity you need to place, you have to do something. "It is either going to be reaching out to other classes within healthcare to diversify yourselves or being a bit more aggressive in your underwriting."
Freling added that when his company approaches underwriting deals, they take a more high level view and ask the question where and how healthcare will be delivered. "We look at if the facility is delivering the type of product where the industry is going as opposed to just looking at rents. We look at the building and who is in it."
The good news, according to Caddis' Signor, is that lenders are back. "It wasn't there two years ago… not at the same level that it is now."
When moderator Steven A. Kaye, a partner at Arnall Golden Gregory LLP, asked about crystal-ball predictions for the space, and what lies ahead, Gino Lollio, VP of investments at Marcus & Millichap, said the sector is fundamentally strong because of the aging population in the US. "It is undeniable, it is projectable and you can capitalize on that trend. It is long term. The aging population of the US will allow for strong investment in healthcare real estate going forward."
The 8th annual RealShare National Healthcare Real Estate 2015 event held Thursday at the Westin Kierland Resort & Spa in Scottsdale, AZ, drew more than 400 attendees. Check back with GlobeSt.com in the next day or so for more coverage from the event. The RealShare Conference Series is produced by ALM's Real Estate Media Group, which also publishes Real Estate Forum and GlobeSt.com.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
