Uncertain Times for Healthcare Real Estate

Princeton Healthcare System CEO Barry Rabner says opportunities remain in slower growing parts of the country, such as the Northeast (though Boston should see an uptick in sports championship celebration-related injuries), especially by realigning the relationship between physicians and hospitals in a way than improves outcomes but also cuts costs. Outcomes are going to be increasingly important in reimbursement, and a key consideration for healthcare systems as they expand is providing acceptable levels of care at the lowest possible price.

Astute owners, operators, and investors in healthcare real estate can make money if they pay attention to changes in demographics, policy, and trends, such as fast-moving consolidation. Universal Health Services CEO Alan Miller says UHS is honing in on growth markets, such as Florida, Texas, and California, by aggressively developing hospitals and MOBs. Consolidation is a major force in healthcare, and that's going to continue, because scale matters a lot. (Our doctor says the same thing about the scale.) As reimbursement drops, it will be very difficult for independent hospitals or even smaller systems to make a go of it. EwingCole principal Natalie Miovski Hagerty moderated Barry and Alan on the CEO panel.

NIC's John Blumer, a seniors housing expert, says there's been about $13B worth of transaction volume on a rolling four-quarter basis in the seniors space, and "we really don't see that slowing down." (People sure don't get any younger.) That's up from 2012, but slower than the ultra-busy 2011 ($27B that year, as the really big deals went down). Even with the recent uptick in interest rates, deal volume hasn't slowed down, he says. On the other hand, while the number of deals is going up, their average size is down, as smaller portfolios trade hands. Buyers are chasing yield in smaller markets, and foreign investors and life companies are fishing in the seniors housing space more than ever.

More than 350 real estate pros came to hear from a wide range of experts on how to cope with that lack of certainty. For instance, Newmark Grubb Knight Frank executive managing director of global healthcare services Todd Perman says that hospital systems that need to develop more patient-centric facilities off campus but don't have the capital are exploring alternative financing strategies. Physician groups have also been rapidly affiliating with hospital systems, he says, which represents a swing of the pendulum back toward the model of physicians employed by hospital systems--for the time being, their reimbursements are higher.

Snapped: Anchor Health Properties CEO Paula Crowley, one of our panelists, and Wohlsen Construction Co business development manager Tom O'Keefe. Paula, whose company specializes in developing and owning outpatient projects, tells us that she's been busier in the last few years than at any time before. There are many hospitals struggling to deliver healthcare better, and there's a huge opportunity for skilled real estate developers to help these hospital systems solve their problems through strategic development of outpatient facilities.