Real estate investors bet on patients returning to doctors

Medical office buildings emptied during the pandemic when many patients switched to video and telemedicine appointments over in-person visits. That hasn’t stopped investors from pouring money into these properties.

Investors say there are a number of reasons to favor doctor’s offices, even as landowners are more bearish on conventional office buildings, which have been shaken by the new popularity of remote working.

On the one hand, doctors and medical offices paid their rent during the pandemic.

Homeowners have collected more than 95% of what they are owed, according to data company Revista LLC. Some office owners with mediocre assets, by comparison, had rent collection below 85%, according to market participants.

Patients are returning to the doctor’s office after in-person visits plummeted by 60% at the start of the pandemic, according to a study published by the Commonwealth Fund, a healthcare research foundation.

A nurse practitioner, far right, watched a telehealth session with a patient at his home in Massachusetts last year.


Elise Amendola / Associated Press

In December, telemedicine accounted for just over 8% of visits, according to the study. Doctor visits have rebounded in part because many exams and procedures cannot be performed remotely.

The sales volume of all commercial real estate fell 32% in 2020 from the previous year, Revista said, but medical office buildings were a notable exception. Investors bought US medical office buildings worth $ 11.2 billion in 2020, down slightly from $ 12 billion in 2019, and activity has picked up in the last few months of the month. last year.

“The fourth quarter has been one of the busiest quarters since we started tracking data,” said Hilda Martin, Co-Founder and Director of Revista.

The strength of medical offices is the latest sign that the pandemic is rearranging the winners and losers in the commercial real estate world.

Real estate with reliable income remains attractive in a world of low interest rates, as yields are generally higher than those on high quality corporate and government bonds. But investors who bought office buildings or malls in the past are now looking for outperformers like industrial buildings and even niche sectors like life sciences and cold storage.

The momentum of medical practices continued this year. A company including MedCraft Investment Partners launched a $ 200 million fund in January dedicated to medical practice acquisitions. Kayne Anderson Real Estate is on the verge of shutting down a $ 2.5 billion fund that will spend about half of its money on doctor’s offices, people familiar with the matter say.

New sources of capital include Alecta, Sweden’s largest pension fund, and Wafra Inc., a subsidiary of a Kuwaiti sovereign wealth fund.

“There are so many inbound calls about this,” said Peter Westmeyer, founder and CEO of Chicago-based Remedy Medical Properties Inc., which was the biggest buyer of medical practices in 2020, and Kayne Anderson recently purchased $ 600 million of Hammes Partners’ medical office property portfolios.

All this activity is driving up the prices of medical offices. In mid-March, acquisition returns were at a median of 5.7%, compared to 6.2% at the end of 2019, according to Revista. Yields fall when prices rise.

Investors say there are unique risks in the practice industry. Increasingly, one or two hospital and medical systems dominate health care in all parts of the country.

Doctors’ practices not affiliated with these systems are in the process of acquiring or closing. This can mean empty space for their owners, said Michael Hunter, global head of alternative investments for Nuveen Real Estate, who has been active in the company since 2015.

Telehealth – online exams – also remains a threat, especially for physicians who do not need physical exams, advanced technology or special equipment. “If you have a building full of psychiatrists, you should be concerned,” said Ms. Martin de Revista.

But demand is increasing from medical systems that are shifting practices from hospitals to outpatient facilities. A MD Anderson Cancer Center location, which was bought by investment firm Harrison Street last year for $ 115 million, provides patients with radiation therapy, medical imaging, physiotherapy, and even services such as support groups and nutrition.

“There will be a place for telehealth in the future,” said Mindy Berman, leader of JLL’s healthcare group. “But that won’t replace the need for bricks and mortar.”

Write to Peter Grant at [email protected]

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