Healthcare is real estate heavy. Not until healthcare reform was formally introduced were the majority of private and public healthcare providers scrutinizing their swelling real estate portfolios with similar risk assessments and accountability measures as their employee-dense corporate industry peers.
Over the past decade, healthcare providers have increased outpatient care, both close to hospital campuses and, more recently, in retail settings. Inevitably, the growth will have to continue to accommodate the transfer of patients into more efficient care settings. Yet with statistics such as: 1/3 of all hospitals will need to find alternate use, healthcare costs and infections are at an all-time high, and technology rapidly reducing redundancies, any new or adaptive real estate use will certainly be scrutinized.
Given the tremendous task of analyzing a property or portfolio in today’s capital complacent, regulation rich healthcare real estate environment, it is important to note that the potential buyers and sellers of these transactions take note of the following:
Real estate, which may consume up to 50% of providers’ balance sheets, is valued at book value. So, determining the fair market value (FMV) of a portfolio may be difficult without true comparisons especially noting the separate and distinctive build-outs in the field. This lack of transparency typically favors the seller, especially in locations where a lack of supply and pent-up demand exists.
Currently, hospitals with whom we are speaking are more interested in monetization now, than possibly any time in the last decade. Determining what to keep and what to sell is commonplace. With regards to a future merger, the real estate assets are being used as a source of financing for the transaction. Thus, determining the hierarchical distribution of assets as they pertain to compensatory value is necessary. We are noticing that most providers typically sell their weakest ancillary units first. Some buyers may look past their first few purchases for future consideration of a larger portfolio.
Healthcare is very attractive as it holds a high barrier to entry. Large amounts of capital have been raised over the last few years all the while interest rates have been moving lower. This allows providers that are seeking to sell real estate the opportunity of selecting several long term capital partners or buyers at attractive prices, especially when given the credit of the provider is strong. EBITDA’s are certainly shrinking for all medical real estate deals.
To grasp what is moving and why -or- to request a proposal for a property or portfolio, please contact MREA for one of our experienced medical real estate advisors.