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Uncertainty in the commercial real estate market was the obvious message from Connect Media’s conference on Orange County CRE last Wednesday. On the following day, at Connect Healthcare Real Estate 2023, the sentiment was less doom and gloom, but somewhat upbeat as industry leaders agreed that healthcare real estate has its issues, but when compared to the other markets like office, it’s not nearly as daunting.
As industry leaders gathered at the VEA | Newport Beach Marriott on Thursday, it was clear that healthcare real estate faces some challenges, but nothing it can’t handle, according to the panels at the event, which started with a “Fireside Chat” with Murray Wolf of Healthcare Real Estate Insights and Jarrod Daddis of NexCore Group. The observations of the pair, and the question that was on everyone’s mind, “When will this all be over?”
“We are in a very different environment,” said Daddis, who noted that in his career he has never seen a market like this. “I really don’t know when the market is going to settle or how long this will continue, but it’s looking like 2025 might be the year when things will get better.”
While COVID is pretty much in everyone’s rear view mirror, the impact of the pandemic is still reverberating through the nation’s healthcare system as recovery, while not as severe as some markets, is taking time and by the feedback from the panels, may not be until 2025 until things are better. Yes, in-person visits and elective surgeries are back, but health systems and practices continue to suffer from increasing costs, labor and supply shortages and capital and an aging population.
According to a JLL 2023 patient survey of more than 4,000 U.S. residents in April of this year, Baby Boomers were more likely to seek medical care than other generations. In fact, the survey found that more than 70% of Baby Boomers received primary / preventative care.
The first panel, the State of the Market & The Future of Healthcare Real Estate, was the perfect place to start as moderator Peter Becronis of ShareMD Asset Management was joined by Troy Freeman of Banner Health; Garth Hogan of Newmark; Dan Klein of Physicians Realty Trust and James A. Schmid of Anchor Health Properties.
The panel began with a question about operating cost increases and the effect on the industry.
“We see different variables in different markets. There’s not a one size fits all approach. One thing that is pretty universal is cost pressure is going up and reimbursements are not keeping pace, so it puts a lot of pressure on the bottom line,” said Freeman.
All agreed it is a challenging market, however, as Hogan pointed out, the market was challenging before the pandemic. “Every year it seems to be a different catalyst. The catalyst this year is profitability.”
The second panel, Healthcare Real Estate Finance, was moderated by Emma R. Keyser of Polsinelli, who was joined by Gary Bechtel of Red Oak Capital Holdings; Michael Borchetta of Harrison Street; and Katelyn Girod of Capital One Healthcare. Keyser opened the panel, calling the state of the market “in flux.”
“I’ve never seen a market more confused,” said Bechtel. “Not just in the medical and healthcare side, but with all asset classes. We have in the market today the most rapid rise of interest rates in modern memory, which creates a lot of uncertainty and uncertainty, historically, repeats itself over and over again. You have a contraction from traditional sources, which steps back, not knowing where the market is going to go, they’re confused which creates uncertainty.” However, for the panel, one thing is certain: there are and will be winners and losers.
The remaining three panels included Healthcare Real Estate Development, Design & Construction: Not Your Father’s Healthcare Project, with moderator Jake Dinnen of PMB, Stan Chiu of Gensler and Mike Conn of Meridian; the Capital Markets & Investments: REIT’s Post-Pandemic Reversal panel included Toby Scrivner of Northmarq, who was the moderator; Travis Ives of Cushman & Wakefield; David Lari of Cox Castle and Tim Olivos of Ventas, Inc. The last panel, Policy, Proposals & Healthcare Inequity: Real Estate’s Role, was moderated by Dana Nialis of CBRE, with Jake Schack of Hoag and Steven Stubbs of Adventist Health.
Some of the talking points that emerged from these panels were: deals are getting done, but they’re taking longer; teamwork is much more important now; understanding the need of our users; the availability of capital and the ability to get creative; there will be winners and losers; a growing number of private equity is looking at medical and finally, optimism, but most agreed the road will remain a little bumpy in 2024.
Pictured: The State of the Market & The Future of Healthcare Real Estate panel.
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