Medical Real Estate

By Steve Barrett
Sunday, September 1, 2019

Demographics Spur Boom in Medical Real Estate

Well over 30% of Americans are now past age 50 — a factor that observers believe is driving a surge in healthcare employment. In fact, in 2018, health care became the single largest U.S. employment sector, according to the U.S. Bureau of Labor Statistics.

So it is no surprise that investment in medical real estate — the market value of which has surpassed $1 trillion — is also expanding rapidly. The sector includes everything from hospitals and life sciences facilities to senior housing and medical office buildings, real estate investment firm Clarion Partners notes in a recent white paper on the website for Legg Mason Global Asset Management.

Playing a key role in this, according to Clarion Partners: decentralization of care via the growing outpatient delivery model.

“A race to invest in this segment is well underway,” the company states, pointing to a 30% increase in ambulatory care employment since 2008.

Benefits of Medical Office Building Investment

Multiple factors make medical office buildings (MOBs) an attractive investment, according to Los Angeles-based commercial real estate firm RealtyMogul.

A few of those considerations include:

Built-in diversification. A wide-ranging portfolio is key to mitigating risk, and diversification is baked into the MOB cake. Investment options run the gamut from urgent care centers to women’s wellness facilities to lab and imaging services.

Reliable income. Insurer, government and out-of-pocket payments all contribute to medical tenants’ income stream. Further, those tenants may attract similarly appealing businesses, enhancing the asset’s value.

Financially stable tenants. While all potential tenants’ creditworthiness should be verified, those in MOBs typically enjoy solid credit. That can draw other valuable tenants who provide complementary medical services.

A Sector of Its Own

To put in perspective the impact of the rapid growth of outpatient care on medical real estate, consider this: In 2017, according to the American Hospital Association, net inpatient revenue for hospitals totaled about $500 billion. Net outpatient revenue came within a stone’s throw of that figure: a little over $470 billion.

This shifting medical landscape is part of the reason healthcare-associated real estate has steadily carved a well-defined investment domain for itself.

Whereas medical real estate was not even considered its own sector two decades ago, “Now portfolio managers want to have 8% in healthcare real estate,” Jeff Calk, a partner at Nashville, Tennessee-based law firm Waller Lansden Dortch & Davis, tells Modern Healthcare.

The number of outpatient facilities in the United States grew by slightly more than half from 2005 to 2016, rising from about 27,000 to almost 41,000, the magazine notes.