Healthcare Real Estate: Looking Beyond The Indicators

I don't know who is reading this blog in India, but thank you very much! If you've got investors in Pune who in interested in property over here, give me a call.

Healthcare Real Estate: Looking Beyond The Indicators is such a good article that I am posted some of it here. It was published 10 days ago by Wayne Grohl for The Source blog.

With only a few exceptions, the mood was decidedly up at Thursday’s Healthcare Real Estate Conference in Chicago.  The investors, brokers, tenants, developers and managers who met at the University Club came to hear about strategies and trends in development, management and capital for medical properties ranging from medical office buildings (MOBs) to large healthcare campuses to retail outpatient facilities. 

 Superficially, the first indicator from 2012 was a drop in medical facility construction starts. Usually, when a sector sees a drop in national groundbreaking, it's kind of tough to read the tea leaves as anything other than a negative.

That wasn't the diagnosis at the conference.

On a panel including Shawn Janus of Jones Lang LaSalle's Healthcare practice, the drop in starts was likened to a deception associated with long-term factors finally clearing up. "We saw a decrease due to the capital markets still rebounding, and a SCOTUS ruling on ACA, then an election," said Janus. "With all that behind us we're going to see greater activity. On the acute care side, that has dropped off. Community hospital starts has slowed down. But we're going to see high-acuity activity driven into the outpatient environment. 

On a side note, my colleague Linda agrees with the conference's tone. This field is growing steadily, but now cautiously. She works extensively in healthcare real estate and sold two hospital sites in the last two years. The third, which was to be a community hospital, was indefinitely delayed. 

•  Acute care: more or less means large hospitals.

• High acuity: medical interventions for seriously ill people. Typically conducted on inpatients, that is people who stay over night. But the general trend in medicine and the incentives are to take some higher acuity patients and treat them not in hospitals, but in specialized outpatient settings. One classical example of this trend is the dialysis clinic. There was a time that dialysis for kidney patients was conducted primarily inside a hospital: that has changed in a great many places today.

• Outpatient: a patient not hospitalized overnight.

What he's describing is a trend - several trends, in medical payments, technology and facilities management- that will cause an explosion in non-hospital medical facility utilitization for outpatients. Strip mall spaces, office renovations, all manner of off-campus medical facilities are going to form the demand nationally going forward. Consider it a retailization of medicine.

Read the rest of the article by clicking the link at the top of the page.

A. Joseph Marshall 
Coldwell Banker Commercial
Commercial Real Estate Advisor 
Savannah, Ga 
912-790-6999

U.S. Federal Reserve Atlanta District Report 2012 2nd Quarter

The following is from the U.S. Federal Reserve Atlanta District Report.

Real Estate and Construction. District residential brokers indicated that home sales were flat to slightly up compared with year-ago levels. Reports indicated strong sales at the middle price points, while several brokers noted that declining inventories of foreclosed homes were limiting investor-driven sales. Brokers also reported that the decline in inventories has helped stabilize home prices in many areas. Most brokers reported that home prices were flat to slightly up compared with a year earlier. However, contacts continued to note some downward pressure on home prices resulting from low purchase offers and appraisals that were coming in well-below asking and offering prices. The sales outlook among brokers remained positive with most anticipating continued modest year-over-year home sales gains.

District homebuilders reported that new home sales and construction rose modestly compared with year-ago levels. The majority indicated that new home inventories declined further on a monthly and an annual basis. Most builders reported that new home prices were flat to slightly up compared with a year earlier. Price gains were strongest among Florida builders. Contacts noted that multi-family construction remained robust. In the near-term, homebuilders expect sales and construction to post modest gains compared with a year earlier.

Apartment sector gains drove improvements in the District’s commercial real estate markets as occupancies rose and rental rates increased. The region’s office and industrial sectors saw small improvements as vacancy rates moderated somewhat; however, reports on District retail real estate continued to be more mixed. The majority of commercial contractors said that construction activity was flat on a year-over-year basis. The majority of contacts anticipate a modest increase in private commercial construction activity through the remainder of the year, while public works projects are expected to decelerate.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

New Census Report Is Good News for Commerical Real Estate

Well the U.S. Census Bureaus’ latest construction spending report sends good news to CRE investors. The news is certainly encouraging to the construction industry, but also to new multi-family housing and commercial REIT investors.

In their latest report, private spending on commercial construction is up 1.2% over last month. As a whole we’re going to focus on that good news and not think about the fact that number also means a 5.1% decrease in spending from May last year.

We all know that multifamily housing is going to be in demand due at least to the fact that over 4.5 million home owners were foreclosed on since the recession began. And the census report shows it- construction for lodging is up 2.8% since last month. This seems to indicate there may not be enough rental units to house everyone in the future. I think we’ve noticed an uptick in apartments locally, like the renovation of the apartment buildings between Abercorn and Habersham near Habersham Village. Dawson Long, owner of The Chelsea at Five Points, also says vacancies are way down.

The slow increase in construction spending hasn’t gone unnoticed by major corporate investors, either. Michael Cembalest, JP Morgan’s CIO of Global Wealth Management, as reported by Business Insider, says that “there’s less new construction to impede a recovery, and prices have been marked down to reflect a new era of cautious underwriting.” And after suffering billions in losses in the CRE market, he’s recommending that people invest in commercial real estate. That goes for REITs as well as physical property. Chaster Johnson, CEO of CharlesFund, says REITs are a very hot topic among his investors. Cembalest sums up the situation: “The new realities of the commercial property markets have finally arrived; while they are painful for existing (pre-crisis) holders, they are more promising for new ones.”

Note: I am not a statistician and these statistics are reported by the Charleston Regional Business Journal.

A. Joseph Marshall
Savannah Commercial Real Estate Agent

How the construction industry is affecting your neighborhood

(Originally published October 2010)

You might think the construction industry only affects your neighborhood when a new house or business is built nearby. Nothing could be further from the truth. Construction in any area affects the economy in terms of tax revenues, jobs and growth.

Currently, local new home and commercial construction costs are at record lows; 10%-15% less than they were 3-4 years ago. However, these costs will go up during the next 6-24 months, but builders won't be able to charge more for their work.

Builders are only guaranteeing their quotes for 30 days because materials prices are fluctuating.

When build costs increase that does not mean the price of the building will. Unfortunately, most of these costs will come out of the builder's profit margin and the consumer will make up the rest.

Financing for large projects is still very difficult to obtain. Federal regulators are tying banks up and private investment money is hard to come by. Therefore, smaller, local investors are really the only ones available to fund new construction.

The $8,000 buyer tax credit, which was great for Realtors like me, slammed home builders. For example, let's say a builder finished a house on April 30, 2010 and planned the closing in 30 days. Then the program deadline was extended another 90 days. Suddenly that builder is left paying loans on their construction for 120 days instead of 30, which significantly decreased their profit.

Construction is most hampered by foreclosures, which are still steadily coming on the market. A home buyer will go to the bank for a loan, and upon telling the banker she intends to buy a new home, the banker will say, "Why do you want to buy a new home when we've got all these great foreclosures at bargain basement prices?" Suddenly that new home is not sold.

It happens just like that every day.

The bottom line is the local construction industry is 60% off what it was 3 years ago and putting downward pressure on our economy. But, if you have the capital and want to build your business or dream home the timing is perfect.