Health care and medical related real estate continues to be a successful niche for industry leaders, but the learning curve can be daunting for those looking to break into the market, said a panel of prominent professionals.
While other markets slowly recover or remain stuck in a rut, many real estate professionals have looked to niche markets such as medical office buildings
and senior care facilities. While proprietors of this industry are bullish on its present and future, they are quick to warn the uninitiated that it is a business with many pitfalls and challenges.
“This business is not for the faint of heart,” said Patrick Lee, vice president of acquisitions for Senior Lifestyle Corporation at a ULI breakfast seminar in Chicago. “People think it is the hot market, but senior housing is a grind. So many issues pop up through the course of a project.”
While there is a real estate element to the senior housing industry, owners and operators must take on more than a typical project by often implementing a healthcare component to their services.
“This is a very highly regulated industry,” said Kevin Poorman, vice chairman at Vi.
Todd Lillibridge, CEO of Lillibridge and executive vice president with Ventas, specializes in developing medical office buildings. Like senior housing, real estate is a secondary concern in his business. The primary goal is to find the right medical partner.
“With medical office it is less about the real estate and more about the health care provider,” said Lillibridge. “Sponsorship is key.”
The challenges that lay ahead in the medical office industry have more to do with hospital systems cutting costs to deal with the influx of Medicare patients. Lillibridge used local Advocate Health Care as an example. The system currently receives 40 percent of its business from Medicare. By 2020, that figure should be close to 50 percent, which could amount to $120 million in lost revenue. Hospital systems will be forced to consolidate and alleviate costs where they can.
“Health care providers are looking to cut costs,” says Lillibridge. “That will continue to put pressure on rents and occupancy.”
Yet despite heightened risks and numerous challenges, all the panelists agreed that their industries will grow in the future. The reason is simply one of demographics.
Lillibridge cited the Baby Boom generation entering its retirement years, with more than 7,000 Americans gaining access to Medicare benefits daily. It will come with the aforementioned problems of revenue, but it will also mean more guaranteed business for health care providers and practice groups.
The lack of development in the past few years has also bolstered the industry, as portions of the industry are now primed for immediate growth.
“I’m bullish on ambulatory facilities,” said Lillibridge. “The pause in the industry was a good thing. About one-third of slated projects were halted.”
Senior housing providers see the demographic wave as well, but temper expectations of how it will affect their industry in the short-term.
“The average age for a senior facility resident is 85-years-old,” said Senior Lifestyle’s Lee. “It is difficult to get people in their 70s out of their homes. We won’t see the Boomers for another 17 years.”