A favorite target for investors? Healthcare real estate

Article originally published by RE Journals


It’s a simple formula: The larger the number of patients a hospital system can reach, the easier it is for these medical providers to succeed economically. That’s why so many medical providers today are expanding their footprint, opening freestanding clinics and emergency care centers across the country.

The Midwest is no exception, as hospital systems continue to open new treatment centers outside of big cities. Toby Scrivner, senior director based out of the Tulsa, Oklahoma, office of Stan Johnson Company, sees this firsthand. And he doesn’t expect this growth in healthcare real estate to stop anytime soon.

“When you spread the footprint around, there are economic advantages for hospital systems,” Scrivner said. “The larger the patient population they manage, the better they are able to hit their economic goals.”

At the same time, expanding into new communities provides a marketing benefit for medical providers, Scrivner said. When a hospital expands into a suburban or rural community, it is also putting that brand name in front of potential future patients, something that also pays off economically.

“When people need healthcare services in the future, they can identify a brand name where they can go for those services,” Scrivner said.

Stan Johnson Company has seen just how strong the healthcare market has been with the Bellin Health System in Northeast Wisconsin and Michigan’s Upper Peninsula. This medical provider is now trying to grow its market share. Important in this effort is the system’s network of family medical clinics.

Stan Johnson earlier this year marketed for sale one of these Bellin health clinics, this property located in the community of Escanaba, Michigan. The facility is located in Michigan, but it also serves patients in Wisconsin and nearby Green Bay.

Scrivner said that the clinic is now under contract. It took less than five months for the sale to close. And Scrivner said that if the property was in a major market, it would have gone under contract even sooner.

“There is such demand out there from investors for healthcare properties, this clinic going under contract quickly is not a surprise,” Scrivner said. “The challenge for this particular asset was its location. Had this been in a major market, it would have been tied up under contract in the first week of marketing.”

Scrivner said more remote locations, such as in Escanaba, Michigan, are more challenging for investors. An outside investor from, say, California or Texas, probably won’t make it to Escanaba on a regular basis to see the property.

“That makes it challenging for the investor who wants access to the asset to see it occasionally,” Scrivner said.

Still, that hurdle didn’t prevent the Escanaba property from going under contract, more proof of just how strong healthcare real estate is.

One of the reasons for this strength is a fairly obvious one: the country’s aging population. As the country gets older, it places greater demands on the existing healthcare infrastructure.

“The question I have is whether the existing facilities in place are sufficient to meet that growing demand,” Scrivner said. “I don’t believe they are. As more demands are placed on these existing facilities, hospitals have to get more creative. It’s all about capturing market share.”

Not only is the country getting older, its residents are getting choosier about how they receive their medical care. As Scrivner says, a growing number of patients don’t want to travel to sprawling hospital campuses for basic services.

It’s clear why: Big hospitals in the center of cities are inconvenient for many patients. They can be difficult to get to. Parking can be a challenge or expensive. Finding your way around a large hospital building can be confusing.

Smaller, decentralized medical facilities, though, are often located closer to the homes of patients. They usually provide free parking. And they are far easier to navigate.

“Hospitals are trying to be better at catering to these needs of more demanding consumers,” Scrivner said. “One way to do that is to get into the communities in which these people live and play.”



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