Health Care REITs Raise $22.5B for Investment

CHICAGO-Investors have been increasingly chasing the stability and ROI attractiveness of the $700 billion worth of medical property in the United States, including hospitals, outpatient facilities and senior housing, according to locally based Jones Lang LaSalle.

According to a recent report by the firm’s Healthcare Capital Markets group, about $22.5 billion alone has been raised in debt and equity for the sector in the past 18 months by the groups easiest to track, the public and private real estate investment trusts. Mindy Berman, managing director of capital markets for the group, tells GlobeSt.com that the trusts are the easiest investment group to track.

“If you look closely at the figures, health care trusts make up about 12% of all REITs, but they have raised about 25% of the total US REIT investment, a disproportionate number,” Berman says. “That’s not including the non-trust asset management, developers and investors that are also expressing an interest in this product.”

Three of the trusts alone – Grubb & Ellis Healthcare REIT II, Healthcare Trust of America and American Realty Capital Healthcare Trust – acquired more than $500 million of medical properties in 2011. The three trusts acquired 55 properties, more than a third of all medical office assets traded hands during the period.

Berman attributes the strong interest to a few factors. Primarily, ROI has shown to be an average 5.3% for health care properties, as opposed to office, industrial and retail properties with an averages all less than 5%.

“You have demographics in your favor, as health care is going to increase in demand no matter what,” she says. “Plus with the reform, you have the 32 million of uninsured individuals that will get coverage by 2014, though those numbers will be offset by certain planned reductions in Medicare reimbursement.”

She says investment sales have risen due to the ripening of the properties developed during the 2005-07 cycle, presenting favorable pricing. “These sellers are reinvesting in new development activity that has been spawned by hospitals and health care providers that firmed up financials in the past couple years, after getting clobbered in 2008-09,” Berman says. “With their financial condition improved, the projects that were shelved are coming back to life.”