The health care industry is hardly recession-proof, but it's among only a few employment sectors to escape serious financial injury at a time when demand for everything from cars to clothes has plummeted. Health care spending accounted for 17% of U.S. gross domestic product in 2008, according to the National Coalition on Health Care, which projects the sector will represent 20% of GDP by 2017.
The health care profession added 371,600 jobs in 2008, a stark contrast from the hundreds of thousands of jobs shed in the manufacturing and retail industries. The nation's largest real estate services provider, CB Richard Ellis is capitalizing on this dynamic niche that includes hospitals, specialty centers for cancer or heart treatment, and medical office facilities. Seniors housing is an emerging part of the package.
“As the population continues to age and health systems look for new sources of revenue to better serve their communities, we're going to begin to see hospitals get involved with seniors housing either directly or indirectly,” says Dan Dolsen, managing director of national health care services for CBRE, who leads the group from the company's suburban Detroit office.
A health system might carve out an excess piece of land for a seniors housing project on a medical campus, for example, and partner with an experienced operator with which it has a clinical relationship, according to Dolsen.
CBRE's acquisition of the Trammell Crow Co. two years ago paved the way for it to become a heavyweight in the health care arena. Prior to the merger, CBRE's experience in health care was limited largely to sales transactions and valuation advisory work. Trammell Crow possessed a strong project management and development background within this specialized sector.
“We're connecting a lot of those pieces and going out into the market as a more integrated approach to delivering real estate services to the health care industry,” says Dolsen. The group has more than 400 professionals, including brokers, facility managers, and construction project managers.
CBRE manages facilities for 10 major U.S. health systems and 30 million sq. ft. of inpatient, outpatient, medical office and support space. It also originates about $450 million in loans on health care assets. Since 2001, CBRE has gained extensive experience as a construction and development project manager for health care facilities valued at more than $2 billion.
Dolsen focuses on business development, and he comes uniquely qualified for the job. From 1989 to 1996, he served as corporate vice president of real estate for the Henry Ford Health System in Detroit. Now he's on the other side of the table. “Typically we're looking to structure long-term relationships with larger health systems and work with them on cost reduction and capital strategies.” In some cases, the remedy is to develop an energy plan or pursue savings in service contracts.
Challenges still abound
Health care systems are not immune to the credit crunch, which has forced them to delay or downsize construction projects due to the higher price of debt. In June 2008, new health care construction contracts tallied a record $2.7 billion, reports trade publication Modern Healthcare. But in 2009, health care construction is expected to fall by 5% to 8%. (Total returns for health care REITs were down 15% year-to-date as of Jan. 22.)
The investment income that health systems had relied on to support their mission has been significantly reduced or evaporated, says Dolsen. And as job losses mount in this recession, more Americans are losing their health insurance.
Still, the long-term growth prospects are favorable. Brokerage Sperry Van Ness is rolling out its own health care real estate group that will focus on investment sales. “I view seniors housing and long-term care as land of golden opportunity,” says Grant Edwards, national director of Sperry's health care group.
Beyond favorable demographics, there is another reason for investors to get excited about seniors housing, explains Edwards, who is based in St. Louis. “There is significant fragmentation amongst the ownership nationally, that's true. But there also is fragmentation in terms of a lack of strong branding, a lack of strong corporate cultures that really drive quality of care.”
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