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A new report from BTIG shows that health care REITS are down nearly 26% year-to-date as opposed to the wider REITS sector, which is down about 14%.

The report states that health care “remains a sector of change.”

“The acute phase of the COVID-19 pandemic has led to different levels of operating stress across the healthcare system,” the report states…. “Potential disparities in outcomes based on insurance coverage during the pandemic could also lead increased calls for changes to government healthcare programs.”

The same report does show that medical office building REITs have held up pretty well and have been “relatively resilient.”

The report says that since April during the midst of the coronavirus pandemic, “outpatient volumes have risen to 69% of pre-COVID levels… Accordingly, our MOB (medical office building) coverage has collected 95% of second quarter rent on average, stability which is reflected in unchanging MOB dividends.”

As it pertains to senior housing trends, BTIG says senior housing facilities and their residents are taking the advice of health experts.

The numbers of seniors in such facilities who have contracted the virus has declined, BTIG says.

“Specifically, for SNR, less than 0.2% of residents and employees are positive for the virus, and the new case rate has declined 91% from peak levels in April,” the report says. “Thus, 90% of SNR properties have begun lifting restriction using a phased approach so that residents can return toward normality and new residents can begin moving in.”

The report concludes: “We expect this same-store operational and occupancy focus to remain at the forefront until REITs’ cost of capital improves enough to return to the acquisition market.”



Source:  GlobeSt.

Local officials in Orlando, are reviewing a newly unveiled master plan for a proposed “medical city” with a senior housing component.

The project would include space for residential use, offices for physicians and clinicians and emergency and surgical facilities. All told, the plans have room for 955 apartments, and will offer assisted living, memory care, stroke and hospice services.


Source: Senior Housing News

Soon after his death in Houston in 1939, the estate of Monroe Dunaway Anderson, a Tennessee cotton trader, wrote a $1,000 check to the Junior League Eye Fund. It was the first gift from a more than $19 million endowment that would eventually found the Texas Medical Center (TMC), a city within a city, squeezed between Rice University and the Houston zoo.

Today, Houston’s TMC is the world’s largest medical complex. With a gross domestic product of $25 billion, the center has gobbled up 2.1-square-miles of land supporting over 50 million square feet of medical institutions, housing and office space.

But even that isn’t enough—not in Houston, where the TMC has another $3 billion in construction projects currently underway, and not nationally.

The population aged 65 and older is expected to grow by 3.3 percent, or roughly 1.7 million this year. Over the next five years, that figure soars to 18 percent, or about 9.2 million, according to a CBRE report. Soon tens of millions of individuals will need health care services and assisted living facilities.

Meanwhile, health care employment has jumped by 47 percent since 2000, compared with 12 percent for total employment nationwide. The education and health services sector is expected to add nearly 1 million jobs over the next five years, according to the same CBRE report.

It’s a prospect that has developers eager to cash in on a niche within the commercial real estate market that is virtually guaranteed to blossom. Better still, health care is virtually recession proof, since, rich or poor, people will always get sick.

“Overall, the medical office market is strong,” said Andrea Cross, CBRE’s head of office research for the Americas. “It’s fueled by population growth, especially the 65 and older population, which is expected to double through 2055. We have seen health care employment growing at a much faster pace than overall job growth. It even continued to grow during the Great Recession. It was really the only sector to do that.”

The largest markets for health care services and development are areas with a perfect storm of aging residents, top universities and research and development activity, Cross said. Think Boston, Houston and South Florida. But she added that markets like Chicago, Columbus, Cincinnati and Indianapolis are seeing a lot of growth in the 65 and older population, fueling demand for medical growth in those areas.

Perhaps, surprisingly, New York City boasts the largest medical development pipeline of any major metro area in the nation, despite its restrictive and costly environment. Some 3.696 million square feet of medical office buildings are planned for the five boroughs, according to Revista data.

Medical providers have also become a major force in the battle for Manhattan office space. Cushman & Wakefield spokesman Michael Boonshoft said that seemingly overnight his firm was inundated with medical leases.

Boonshoft pointed to recent deals like 222 East 41st, where NYU Langone Medical Center took all 25 floors; 237 Park Avenue, where New York-Presbyterian Hospital paid nearly $251 million for 500,000 square feet of office space; 220 East 52nd Street, where Visiting Nurse Service of New York took 308,000 square feet; and 601 Lexington Avenue, where NYU Langone is in late-stage talks with Boston Properties to lease all 200,000 square feet. And that’s just to name a few.

“In 2017, medical became a major player in the top five industries that move the office market. It was a big surprise,” Boonshoft said. “Before a lot of these deals were taking place outside of Manhattan. That is the biggest change.”

One of the things that makes it possible for hospitals and medical care providers to lease space, he said, is super-pricy Manhattan is that they have become more efficient with their space. For instance, hospitals used to need huge amounts of space because they kept their offices in house, Boonshoft said. Today, hospitals tend to house their main offices off campus in less valuable space.

Paul Wexler, a New York-based Corcoran broker specializing in leasing medical facilities, said that the emphasis from his clients is on being patient centric, efficient with space and close to public transportation. He pointed to 555 Madison Avenue, where NYU Langone Medical Center expanded the Preston Robert Tisch Center for Men’s Health—a spa-like ambulatory health care center—at 555 Madison Avenue from approximately 14,000 square feet to 32,000 total square feet.

“We are also working on a brand new medical development [at 38-01 Queens Boulevard] in Sunnyside right now, half a block from the 7 train. On the first four floors there will be a Regal cinema and above it 120,000 square feet of medical space.”

So across the U.S. health care providers and developers have looked at the numbers and shaken hands. But it is yet unclear whether enough is being done in the right places to meet the impending demand—despite a national medical office building development pipeline of 229 buildings with a total of over 11 million square feet in the fourth quarter of 2017, according to CBRE (CBRE notes that their data excludes smaller medical offices that might be, say, at the base of a new condo building in Manhattan). The market clearly seems to believe that it could handle quite a lot more.

“Two years ago there was an estimated shortage of 63 million square feet of ambulatory medical office space. Now, that is in an ideal world. But in my opinion the demand is probably two thirds of that today,” said Chris Kay, the president and COO of Hammes Company, which is ranked the largest developer of medical properties in the nation by Modern Healthcare, a trade journal.

“There is a lot of demand and there is a lot of inventory,” Kay said. “It is just that the inventory that is out there is not well aligned for the with what the industry is pushing. The industry is pushing experience-based interaction between the physician and the patients. The trend today is for collaborative interdisciplinary environments. But a lot of the traditional medical office buildings out there were built in the 70s or 80s and are outdated.”

Christopher Bodnar, the vice chairman of CBRE’s Healthcare Group, added that “there is pent up demand by developers, who are compressing yields down to win deals. On the acquisition side there is a significant amount of demand to place capital.”

So what gives? Why isn’t more being developed to meet demand from both developers and patients now and in the future?

That is where things get complicated.

Politics, technology and the highly specialized nature of the industry means that health care providers are slow to act and that few developers are actually equipped to deliver.

For instance, changes to the Affordable Care Act could leave millions uninsured, and typically, health care developers and providers target areas with a highly insured population.

Kay said that as it stands the American health care system has already left developers and providers scratching their heads.

“Projections show that there will be all of these old people in the world and we are going to need to take care of them via assisted living or senior housing. I’ll buy that. But if there is so much demand, why is occupancy in these facilities only 82 to 90 percent?” he said. “The reason is the reimbursements. These places are expensive. On the very low end, depending on what part of the country you live in, they are about $4,700 a month. If you are in New York, they are $12,000 a month. The national average is $6,500 a month. So how does a person afford that? It is very, very difficult when social security or Medicaid only pays $1,200 a month.”

The average stay in an extended care facility is one or two years, depending on the type, he said. And that’s because, by that time, most people have blown through their savings.

“You have big turnover,” Kay said. “Everyone is trying to figure out models for making this work. How do you lower the cost of taking care of patients?”

Meanwhile, rapid technological advancement and the rise of video conferencing mean that facilities are shrinking.

In recent years, IBM, Google and Amazon have all been jumping into the health care space with artificial intelligence technology with the goal of bringing care out of the hospital or doctor’s office and into a patient’s home.

That is having an impact on what is actually being built and at what pace. Less space is necessary than in traditional facilities and parallel practices are being crammed into the same buildings.

“The anchor to a building may be a surgery center. Then a parallel practice may want to go into that building. For instance, an orthopedic group,” Bodnar said. “These buildings are like ecosystems.” A typical medical office building is between 30,000 and 70,000 square feet today.

“The digitization of the health care industry is changing things so quickly that it is creating uncertainty,” Kay added. “Nobody knows where it is going to go or what is needed.”

Those factors mean that speculative development in the health care field is basically unheard of. Each project is essentially a one-off custom job that meets the specific needs of specific tenants.

“The amount of developers out there who would like to be building medical buildings on behalf of providers is significant. But the health systems have been very disciplined in their expansion strategy,” Bodnar said.

And not just anyone can do it. Far more so than in traditional commercial development, medical developers work closely with the nonprofits and provide them with everything from market research to the physicians themselves.

“There is a lot of nuance to medical development that goes beyond brick and mortar,” Bodnar said. “That’s why these groups that specialize are able to do it across the country.”

The top medical developers, according to Modern Healthcare, after Hammes include Navigant, JLL and Nexcore Group.

“Providers usually need a developer who can provide services like market strategy—which has to do with determining the size of the building,” Bodnar said. “They look at physician supply and demand. They are doing heat maps to find voids in patient service areas. They do physician recruitment, so a specialist developer needs to be accustomed with how a physician works. These developers are talking about optimizing workflow and talking about fostering collaborative care environments. And in some cases, they are providing specialty design, so that the ambiance conveys a sense of healing.”

But even at the current pace, naysayers exist.

At a conference last year, David Park, the senior vice president of real estate and construction at Novant Health, forewarned of a bubble in the medical office sector, saying, “MOBs are not like bank branches.

“At some point in time, what you start looking at is: When does that population growth, that bell curve, start down?” he said at the Bisnow event in Atlanta. “At some point that number is going to drop.”

It’s just another example of how complex and opaque the market for health care facilities is—a fact perhaps reflected in the caution being seen on the provider side.

Back in New York, where the pipeline is largest, hospitals and providers are looking more carefully than ever, Wexeler said.

“There are really only pockets of development. There is just not a lot of opportunity for medical to be developed,” he said. “Everyone is being diligent.”

Source: Commercial Observer

When Juana Monroy moved into Hollenbeck Terrace in 2015, she learned that the towering senior apartment building was once a busy hospital that had appeared in dozens of movies and television shows.
Then she heard the rumors that the old Linda Vista Community Hospital building was haunted. “I was a little scared,” said Monroy, 60.
But she hasn’t seen a ghost yet, and now she loves living in a building with such history. “It’s gorgeous,” she said.
Across the country, hospitals that have shut their doors are coming back to life in various ways: affordable senior housing in Los Angeles, luxurious multimillion-dollar condominiums in New York’s Greenwich Village, a historical hotel in Santa Fe, N.M. In the Capitol Hill neighborhood of Washington, D.C., a hospital that opened in 1905 to care for the poor was remodeled and reopened this summer with 139 apartment units, a rooftop deck and an indoor dog wash.
Such conversions can pull at the heartstrings of communities in which residents often have an emotional attachment to hospitals where family members were born, cured or died. Nevertheless, the changeovers can also be welcome, particularly when hospitals have been long closed, their buildings left empty and dilapidated.
Closing a hospital and converting it to another use is not exactly like renovating an old Howard Johnson’s, said Jeff Goldsmith, a health industry consultant in Charlottesville, Va. “A hospital in a lot of places defines a community — that’s why it’s so hard to close them,” Goldsmith said.
In Charlottesville, he noted, Martha Jefferson Hospital closed its downtown facility in 2009 to move closer to the interstate highway, and an apartment building recently took its place.
The trend of converting hospitals to condos and apartments comes as real estate values have soared in many U.S. cities, and demand for inpatient hospital care is on the decline. Surgery and other health services are being moved increasingly to freestanding outpatient centers, and the average number of days patients stay in hospitals has dropped significantly.
Against this backdrop, the hospital industry is consolidating, and many institutions are shutting their doors. The number of hospitals in the U.S. has declined by 21 percent over the past four decades, from 7,156 in 1975 to 5,627 in 2014, according to the latest federal data.
In addition, many older hospitals are too outmoded to be renovated for today’s medical needs, which include large operating room suites and private rooms, said David Friend, chief transformation officer at the consulting firm BDO in Boston.
Real estate investors say the location of many older hospitals — often in city centers near rail and bus lines — makes them attractive for redevelopment. The buildings, with their wide hallways and high ceilings, are often easy to remake as apartments.
Some of the changes have elicited controversy, however — particularly in New York, where many hospitals have been converted to residential housing in recent years.

St. Vincent’s Transformation

St. Vincent’s Hospital in New York, which traditionally cared for the poor and treated survivors of the Titanic’s sinking in 1912, the first AIDS patients in the 1980s and victims of the 9/11 terrorist attacks in 2001, went bankrupt and closed seven years ago. Developer Rudin Management bought it for $260 million and transformed it into a high-end condo complex, which opened in 2014. Earlier this year, former Starbucks CEO Howard Schultz reportedly bought one of the condos for $40 million. The shift from a place that cared for the poor to a home for the rich upset many residents in Greenwich Village.
Jen van de Meer, an assistant professor at the Parsons School for Design in New York, who lives four blocks from the former St. Vincent’s, said people in her neighborhood were sorry to see the hospital close for more than just sentimental reasons. “Now, if you are in cardiac arrest, the nearest hospital could be an hour drive in a taxi or 20 minutes in an ambulance across the city,” van de Meer said.
St. Vincent’s is one of at least 10 former hospitals in New York City that have been turned into residential housing over the past 20 years.

Spurring Development

In some circumstances, a conversion provides a much needed lift for the community. New York Cancer Hospital, which opened on Central Park West in 1887 and closed in 1976, was an abandoned and partially burned-out hulk by the time it was restored as a condo complex in 2005. Developer MCL Companies paid $24 million for the property, branded 455 Central Park West.

“The building itself is fantastic and a landmark in every sense of the word,” said Alex Herrera, director of technical services at the New York Landmarks Conservancy. He noted that it retained some of its original 19th-century architecture.

Friend, who was on the management team that tried to revive St. Vincent’s financially after it filed for bankruptcy in 2005, noted that real estate is one of the most valuable assets a hospital has. “A hospital could be worth more dead than alive,” he said.
Repurposing them does not come without friction, however.
Nicky Cymrot, president of the Capitol Hill Community Foundation in Washington, D.C., a neighborhood group, said that when Specialty Hospital Capitol Hill sold off a little-used 100,000-square-foot wing of its facility to developers who planned to build apartments, neighbors weighed in with concerns about aesthetics and traffic. But the builders of 700 Constitution — the hospital-turned-apartment house a few blocks from the U.S. Capitol — preserved the old architecture, which pleased residents.

“They did a beautiful job,” Cymrot said of the three developers of the building — Urban Structures, Borger Management and Ronald D. Paul Co.

The renovation cost $40 million and took nearly nearly five years to complete in part because of delays building an underground parking garage. At 700 Constitution, one-bedroom apartments rent for nearly $2,600 per month.
It’s not the first hospital in the district to make such a conversion. Columbia Hospital for Women, which had delivered more than 250,000 babies since it opened shortly after the Civil War, closed in 2002 and reopened in 2006 as condos with a rooftop swimming pool in the city’s fashionable West End. The developer, Trammell Crow Co., paid over $30 million for the property.
Some former hospitals are used for purposes other than housing. In San Diego, Point Loma’s Cabrillo Hospital closed in 2007 and was transformed into a language school nine years later, providing economic stimulus for nearby businesses.
In Santa Fe, N.M., St. Vincent Hospital moved into a new facility in 1977 and the old structure downtown was reborn as a state office building. Later, it was abandoned and locals listed it as one of the spookiest places in town. In 2014, the building reopened yet again as the 141-room Drury Plaza Hotel.

‘A Building With Tremendous History’

Linda Vista Community Hospital, which overlooks a park in L.A.’s Boyle Heights neighborhood, opened in 1905 to serve railroad employees. Budget problems and declining patient rolls led to its closure 86 years later, and the abandoned six-story building fell into disrepair.
But the empty patient rooms, discarded medical equipment and aging corridors soon attracted film crews, who shot scenes for movies such as “Pearl Harbor” and “Outbreak.” The hospital also attracted trespassers looking for ghosts and groups such as the Boyle Heights Paranormal Project, said Francis Kortekaas, assistant superintendent at Amcal Multi-Housing Inc., which bought the property in 2011 and redeveloped it.
The company turned patient rooms into affordable senior apartments and renovated everything from the intensive care unit to the medical library. Amcal retained many of the building’s original features, including mailboxes, dumbwaiters, windows and stainless-steel doors.

“They really rescued a building with tremendous history … while providing really needed low-income senior housing,” said Linda Dishman, CEO of the Los Angeles Conservancy, a group dedicated to preserving and revitalizing historic structures. “It is such an iconic building in the neighborhood.”

Source: California Healthline

It’s a great time to be in the medical office sector, according to several seasoned experts.

“Right now we’re in the sweet spot for medical office,” Matthew Johnson, a managing director in Morgan Stanley’s Investment Banking division, said during a presentation at BOMA International’s 2017 Medical Office Buildings and Healthcare Real Estate Conference in Denver on May 11.

The medical office sector has “really outperformed” in the last five to 10 years, Johnson explained, noting that the performance is being driven in part by strong headwinds in other sectors.
There’s “significant development” in senior housing, for instance, and a lot of Medicare-related pressures in the skilled nursing sector, Johnson said.

“That puts medical office—a true, steady asset class—on the forefront of predictable,” he explained.

More Competition Ahead

The attractiveness of medical office sector is only going to make the space more competitive for all investors, according to Ryan Severino, JLL’s chief economist.

“You’re dealing in a globalized world with competitive capital sources that are looking for attractive investment opportunities,” Severino said during the BOMA presentation. “It’s certainly going to start to make the landscape more competitive.”

Foreign capital sources are beginning to set their sights on medical office assets in the U.S., Severino said. Many of these capital sources are from Asian countries.

“You’ve definitely seen, from China, probably a surprising amount of investments, certainly in recent periods,” Severino explained.

Additionally, health care real estate has “significantly matured” in the public markets—and that’s likely to continue.

“The opportunity is really compelling in medical office, and the perception of it being sort of a riskier property type or one that doesn’t quite have some of the key distinguishing elements that investors like about some of the major property types—maybe that’s not the right thesis to have,” Severino concluded.

Source: Medical Office News

Senior Housing

Health care REITs face some challenges, which we expect to result in slower, albeit still positive, earnings growth in 2017. These challenges include slowing fundamentals for the senior housing sector and rising capital costs.
Over the past several years, health care REITs have expanded their senior housing portfolios substantially. Health care REITs are attracted by the sector’s focus on private pay sources of revenue and good demand from the growing population of seniors, which is living longer and wants residential care that offers assistance with daily activities and light medical needs. However, new supply of senior housing is rising and wage expense pressures are building in many U.S. markets. These trends are credit negative for health care REITs, and as a result, we expect more modest earnings growth for the REITs in 2017, particularly as many REITs have assumed more operating exposure via the use of taxable REIT subsidiaries. These subsidiaries allow the REITs to directly realize the properties’ net income after paying a third-party management fee. Health care REITs also invest via triple-net-lease structures, which limit the risk to the operators’ ability to keep making rent payments.
The operations of the taxable REIT subsidiaries have been a strong source of profit growth over the past few years for health care REITs. This profit growth has already begun to slow, however, and we expect it will continue to decelerate as more supply comes on line and as higher labor costs persist in 2017.
The extent of the downside for REITs will depend on the strength of their operating partners, as well as supply-demand characteristics within their sub-markets. For their triple-net-lease portfolios, tenant diversification and strong rent coverage ratios (1.2x or greater) are other key mitigating factors.
Another key challenge is the increasing cost of capital. Health care REITs rely on cost-effective access to debt and equity capital to finance acquisitions that drive their earnings growth. They also rely on external capital to refinance ongoing debt maturities, given their limited structural ability to retain cash flow. However, their debt costs are rising and their stock prices remain volatile owing to the prospect of rising interest rates, a situation that is resulting in compressed spreads earned on new investments and higher refinancing costs.
We expect rising capital costs to remain a credit challenge for health care REITs in 2017. The 10-year US Treasury yield rose to 2.48 percent as of Feb. 1, 2017, up from a low of 1.37 percent as of July 5, 2016. Moody’s Analytics expects the 10-year to rise to 2.9 percent by year-end 2017, and to 3.7 percent by year-end 2018.
Longer term, we expect health care REITs to reap some benefits from rising rates. Higher borrowing costs will affect all potential real estate buyers, both private and public, prompting asset prices to come down from the current, historically high levels. However, it will take time for prices to adjust to the changing rate environment, and we expect the earnings growth of health care REITs to slow accordingly this year. This modest growth outlook could present credit challenges if it were to incent REITs to use more leverage or riskier transaction structures to boost their profitability.

Source: CPE