In 1972, an extension of Medicare was passed to cover the cost associated with dialysis treatments for any US citizen who was suffering from End Stage Renal Disease. This provision along with the rise of Type II diabetes and hypertension as more common ailments has helped to set the stage for the rise of private specialty providers of dialysis treatment. The two largest in the US are DaVita and Fresenius.
The special carve-out for dialysis in the Medicare legislation means that there is universal coverage for this treatment. This distinguishes renal disease from all other ailments. Uniquely, it's the only condition for which a provider is guaranteed to be paid for the services provided. The government payout to the provider is predictable if not a bit on the low side. With more and more people in need of dialysis care, the pool of potential patients/customers is expanding. Given the low reimbursement rates and recurring nature of the care, many hospitals would prefer not to provide this service except on an emergency basis. Taken together, these factors have created a perfect storm in which private providers like DaVita and Fresenius can flourish.
Net lease investors purchase DaVita and Fresenius tenanted properties because of the strength of the credit (BB+ and BBB- respectively), the demand for their services and the slightly higher rate of return that one can enjoy with them compared to similarly rated tenants in other verticals. Over the last 12 months, cap rates on DaVita and Fresenius deals have averaged 6.47% and 6.81% respectively. Deals will often close in the $2-3 million range. The leases offer a healthy return but are often double net leaving the investor with some landlord responsibilities, like the roof.
Net lease investors in DaVita and Fresenius can rely on a recession proof tenant who provides a critical service to their patients and their communities.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
