REITs Active in Healthcare Sector

GlobeSt.com quoted David Lari extensively in a Feb. 27, 2013 article about how more and more REITs are considering the healthcare sector for investment opportunities because they are looking for safe haven following the recession.

“I think that healthcare has been a relatively stable and strong sector of real estate because many investors view it as lower risk and somewhat recession proof,” Lari told the publication. “While most real estate sectors were negatively impacted by the most recent economic downturn, the impact on the healthcare sector was not, generally speaking, nearly as dramatic. We have an aging population with a growing number of Baby Boomers entering the senior citizen demographic, resulting in an overall increased need for healthcare services. In addition, the Affordable Care Act is anticipated to provide millions of currently uninsured Americans with access to primary healthcare services.”

Lari expects the trend toward healthcare-related activity to continue, calling it “a hot sector in terms of acquisitions and transactions of medical-office buildings and other healthcare assets.” He also noted that REITS that haven't traditionally considered such investments are now eyeing them.

“REITs in general are doing well, but healthcare is one of the more popular sectors,” he said. “The success of the healthcare REITs is not going unnoticed.”

Lari said that REITS tend to seek “relatively safe transactions involving quality assets with high occupancy rates which provide a stable income stream. Some private investors on the other hand, in part due to the competitive market for stabilized quality healthcare assets, are seeking higher risk, higher reward opportunities—these investors desire assets that they believe are undervalued based on potential growth as opposed to current revenue.”

He added that stock prices of some healthcare REITS continue to rise and would likely do so until the end of the year.

“As other sectors of real estate start to improve—which I think they have been—people may start to go into other sectors that could provide greater returns,” he said. “The only worry would be an oversaturation of demand, which is hard to predict.”

To ensure that supplies continue to be available, brokers have been talking with hospital and medical group to see if they are willing to sell their assets, Lari said.

“Typically speaking, owners will have a price. The demand is such that more and more brokers are creating more supply by seeking out assets that were not on the market and either bringing them to market or structuring off-market deals.”