By Michael Ulin, Vice President, Brokerage, JLL Atlanta
Both healthcare and real estate have experienced recent turbulence, so many health systems and private physicians are pursuing “intelligent evaluation” of their real estate facilities and needs as well as the investments and related capital cost required.
Healthcare reform’s impact on private physicians’ practices remains uncertain. But many physicians and medical groups are committed to their practices and may want to reside in their space for longer periods of time. As rental rates increase nationwide, many physicians based on or near a hospital campus are evaluating investing in property surrounding a hospital campus for ownership/occupancy purposes. Many consider the underlying real estate as an investment vehicle—an income source that will complement their practice and possibly serve as a retirement income source.
Buying a well-located property in good structural condition means its value will inevitably appreciate over a long enough period of time and provide fixed mortgage payments over many years, as rents continue to climb.
In some cases joint ventures and development for new buildings has been beneficial in linking multi-specialty partners and creating a resulting referral pattern. With interest rates low and easy access to capital and/or a line of credit (LOC) for additional improvements, it is a good time for private physicians to invest. Many submarkets may still offer unique value or foreclosed properties—or even in a joint venture, if they want ownership interest in a building.
The current market has also afforded growing health systems opportunities. For example, vacant or foreclosed assets or land support the “retail-ization” of healthcare.
Older, “dead” retail centers located near a hospital campus or enabling expansion of medical services out into communities can be acquired and repurposed. However, as health systems focus on reviewing their cash needs, they are also closely following the strength of U.S. capital markets and the overall investment climate, as investors today have developed a voracious appetite for on-campus medical office buildings (MOBs). Some hospitals have been divesting themselves of property and deploying the funds into developing their health system, gaining efficiencies and restructuring space and occupancy costs.