Prevarian Sees Brighter Days Ahead for Healthcare Deals

Ever since the Federal Reserve began hiking interest rates in 2022, buying demand across CRE has cooled down. But at least now sentiment is starting to change thanks to the central bank finally deciding to cut rates for the first time in four years – and healthcare is one asset class that could benefit soon.

In fact, Allan Brown, partner, at industry development firm Prevarian Companies, sees things changing in the short term.

“I think there’s a fair healthy degree of optimism looking forward to the next year,” Brown said, who will be a speaker at GlobeSt.’s healthcare panel discussion, taking place from December 2-3 in Scottsdale.

“We deal with a lot of private equity groups that clearly [have] had it, and they’re ready to get back out there and start doing things.”

DEALS WILL PICK UP BUT MAYBE NOT PROFOUNDLY

But he did caution that while more expected rate cuts will have a positive impact, it won’t be a “profound” one. It could be gradual but Brown thinks deal-making will start picking up. Regardless, it’s far better than the tough environment that surrounded CRE last year. The appetite from buyers was not there, given where rates were and the cloudy outlook surrounding them. Much work needed to be done to tame inflation – so the next rate cut felt like it was an eternity away.

But we are passed that point and inflation is near the Fed’s target, which is two percent. Brown believes that the cost of the cost of doing business will go down, which will ease access to debt and capital.  Within the next 12 months, he said that increases in construction costs should “level off,” while the land prices might continue to go up.

“We’ve been in the winter-time too long. And we need, we need a little ray of sunshine here,” Brown said.

EYES ON PROJECTS AND REGIONS WITH NEEDS

As lenders still face a lack of appetite from buyers and deal with regulatory issues that also make acquiring capital tough, Brown said that the Prevarian is “very busy in Florida right now,” and is focused on other southern-located regions such as Phoenix. For healthcare, that’s where he sees demand for inpatient and behavioral health.

Particularly, the company, which specializes in acquiring and developing a range of assets from senior housing communities to inpatient and outpatient healthcare real estate, has its sights on areas that need solutions - and that’s not necessarily exclusive to ones with encouraging population growth.

“We’re looking in multiple other states, Iowa, Ohio, and Kansas. Not so much Sun Belt population growth states, but the places that have been living with a shortage of resources for so long that it’s finally catching up to them, and local health systems starting to look for solutions,” he said.

Moreover, Prevarian is working on multiple projects. This includes a rehabilitation hospital under construction in Dallas, and multiple behavioral health centers (three in Florida and one in Arizona). Most of which, are “brand new free-standing buildings,” with the exception of one medical-to-behavioral conversion project located in a Florida region, according to Brown. All of the properties are long-term tripled net leases, that include a single tenant in each of them.

For its tenants, Brown said: “We’re going out and doing the market research and finding the opportunities where there is a clear statistical bed need, a clear opportunity to align with a local health system that is struggling under the burden of these behavioral health, psychiatric diagnoses, and patients that are showing up in their emergency rooms, boarding in their hospitals and creating a financial and operational challenge for them.”

But before things hopefully pick up, Prevarian must get through the remainder of the year and the headwinds. Uncertainties remain with the upcoming November election, and where interest rates will wind up. With the Federal Open Market Committee set to meet from November 6-7 following the election, next week CRE players and investors could get big answers.