Archives for October 2019

State of the Property Management Industry Report is now ready for download.
Produced in partnership with NARPM, this year’s report reveals:
• How to adapt your strategies for success in response to changing conditions in your local market
• The role you can play for your clients as the nation’s largest rental markets face a less profitable, more regulated future
• How to balance the explosion of proptech options with the vital ‘human element’ that remains at the heart of the industry
• And a whole lot more.
Ready to learn the stats and trends most likely to affect your property management business? Download the Report today.
By: Buildium
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On the rise for the last four years, medical office sales totaled $10.4 billion in 2018.

One of the US’ fastest growing industries, healthcare spending reached almost $3.5 trillion annually in 2017. The US Centers for Medicare & Medicaid Services anticipates national healthcare expenditures to grow to $5.7 trillion by 2026. With this growth, healthcare real estate, specifically medical office buildings, are poised for further success.

Medical Office Buildings

Medical office buildings comprise approximately 10% percent of the US office sector. These buildings are typically about 40,000 square feet and range from small physician offices to large healthcare systems. Investors are attracted to this asset class due to its stability and positive forecasts for a strong performance. On the rise for the last four years, medical office sales totaled $10.4 billion in 2018.
“Medical office buildings are so popular and are in demand as a renovation or as new construction,” says Jason Signor, CEO and partner of  Caddis Healthcare Real Estate. “The market is phenomenal and occupancy levels and rental rates are healthy.”
It is well-known that the the aging US population is directly correlated with the rising demand for healthcare as doctor visits dramatically increase with age. Individuals 65 years and older spend five times more on healthcare than those who are younger. Yet, even with the favorable demographic and economic backdrop, new healthcare construction has not kept up with demand.
“With the continued shift from inpatient to outpatient care, new real estate strategies are being implemented which includes moving to urgent care centers, MOBs, micro-hospitals and health-system sponsored wellness centers,” says Signor. “ Outpatient care is booming and will continue to flourish in the future. The challenge, of course, is for our sector to keep up with the growing demand.”

Ambulatory Surgery Centers

Ambulatory surgery centers—healthcare facilities which offer patients the option of having procedures and surgeries performed outside of the hospital setting—have drastically reduced healthcare costs. According to the American Hospital Association, the number of ASCs and hospitals are almost equal with 5,534 hospitals and 5,532 surgery centers. While hospitals have declined by 5%, surgery centers have grown as much as 82% since 2000.
“ASCs will continue to dominate the healthcare real estate landscape,” says Signor. “ We won’t see these large hospital campuses being built as much. As the campuses get older however, you will see more renovations as hospitals keep up with medical technological advances and stay abreast with ASCs.”
By: Tanya Sterling (GlobeSt)
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Traditional tenants in retail centers once scoffed at having gyms in their midst for all the parking spaces they took up. No more.
JLL’s research team examined 6,000-plus fitness center move-ins dating back to 2013 and learned that 111,055 fitness centers currently reside in retail centers, an increase of 23.5% since 2010. It predicted continued growth of this segment to more than 120,000 locations by 2024.
The types and sizes of gyms continue to proliferate, according to JLL’s report, “Fitness Invigorates Shopping Centers.”
Grocery-anchored neighborhood centers continue to be the favored location for gyms. Four out of 10 are located in the necessity-based retail environment. Fitness is rapidly moving out of strip centers. Just five years ago they housed more than 12% of gym, a percentage that has now fallen below 8%.
Malls remain the least popular destination for fitness, though they’re fitness clientele is on the upswing. Fitness move-ins at mall tripled over the past five year, during which time their share of the retail segment grew from 3% to 6.5%.
Traditional gyms made up 33.8% of these mall move-ins with higher-end concepts like Equinox and Life Time Athletic leading this growth. Spinning concepts SoulCycle and CycleBar accounted for 10.3% of mall move-ins, a significant number of those happening in super-regional malls.
Overall fitness center growth is being driven by the low (Planet Fitness, Anytime Fitness) and high priced (Orangetheory, Pure Barre) segments of the industry. Planet Fitness opened 600 locations since 2013 and plans to open 250 more in the coming year.
Though sophisticated in-home fitness concepts like Peloton also continue to gain popularity, JLL research director James Cook predicts that gyms will be a fixture at retail for years to come. Growth will be driven by the proliferation of mixed-use centers, where fitness is a standard amenity. And across retail sectors, JLL predicts growth for allied fitness businesses like juice bars, vitamin stores, athleisure apparel, and spas.
“Landlords will be able to leverage this larger trend of consumer wellness to create tenant synergies, boost sales, and increase traffic and dwell times at their centers,” Cook said.
By: Al Urbanski (CSA)
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There is a lot of information available surrounding the cannabis industry, but for insurers, understanding the risks involved with these businesses, the types of insurance required and new products that may be needed is critical.
Examining the real estate and risks 
Before accounting for any cannabis entity occupying a facility or real estate, the area density and company type must be considered.
Whether an operation is a growth facility or produces topical and value-add products, it is crucial to meet the specific build-out requirements for asset size and municipal operation, since failure to meet them could result in property seizure if the owner falls short, according to Jutkowitz.
Those same guidelines apply to capital allocators of a property who want to protect their investment and see a return from the cannabis occupier. These capital allocators are not your traditional banks who view marijuana as a risky investment because of heavy federal regulation. They include private equity funds and hard-money lenders, each with their own rulebooks, Jutkowitz said. “It’s just increasingly difficult to own cannabis commercial real estate unless you can purchase the real estate free and clear,” he said.
Many of the risks these marijuana-related businesses face are similar to those experienced by other commercial entities. “While certain exposures are unique to the plant-touching policyholder, perils like fire, slip and falls, and products are the same as any other commercial business that has operations, branded products, buildings and things criminals want to steal,” shares O’Rourke.
When it comes to underwriting specific aspects of a business, it is important to look at the growers, manufacturers and dispensaries as individual entities. For growers, Cannasure focuses primarily on the indoor/greenhouse cultivator. “To begin with, we require the greenhouse to be a real building and not a hoop house or some type of seasonal structure that will not stand up to the elements,” says O’Rourke. “Other factors include the use of automation and science to make sure water, fertilizers and other chemicals are applied in a precise manner. Growth medium choices are also noted.”
Other factors the company considers include the lights, which need to be installed to code and properly calibrated so the plants receive the correct amount of heat and light to promote growth. “Ventilation should be handled by sophisticated systems with air quality monitoring capabilities,” adds O’Rourke. “Personnel needs to have expertise in horticulture with a concentration on cannabis cultivation. And all regulatory mandates need to be met or exceeded with regard to product testing.”
When it comes to valuation, the maturity of the plants comes into play for any claims. “Valuation clauses use the wholesale price at the time of the loss,” explains O’Rourke. “Adjustments are made depending on the growth stage the plants are in at the time of loss, i.e., seedlings, vegetative or flowering stage.”
The cost of purchasing a single plant can range from $40 to several hundred dollars for seeds, depending on the type. Clones are cuttings from live plants and can range from $5-10 to several hundred dollars, again depending on where they are purchased and the type of plant involved. Some single plants can start at $250 to $300 each and buying multiple plants can cost around $400. Planters, nutrients, lighting and watering systems, fans and humidity monitors can add to the growing costs. Plants increase in value as they mature, which is why the “stage” a plant was in during a loss really affects the size of the claim.
The good news for insurers operating in this space is that most states have stringent regulations in place when it comes to physical security for growing and manufacturing operations. This also helps to maintain product quality.
“In most cases, cannabis facilities are well maintained and secured,” details Sherman. “States normally require seed-to-sale tracking systems, which track a plant from the time it is a seedling until it is sold at the dispensary, meaning that it is relatively easy to stop a product from getting to market. Further, most states have rigid testing requirements to eliminate any issues. Given the recent injuries and deaths primarily due to black-market purchases, insurers can expect testing requirements to be strengthened even further, thus reducing future liability.”
Also contributing to the strict security required for these operations is the fact a lot of cannabis business transactions are paid in cash because of a lack of access to banks since marijuana is illegal at the federal level. This leaves cannabis-touching companies with a bevy of cash on hand. Many of these companies need a bank-like build-out for their security, Jutkowitz said.
There are other risks that must be considered when providing coverage to manufacturers, especially those manufacturing products for human consumption. “Among many other risk details, we need to examine raw material sourcing, formulation and ingredient lists, baking/cooking/processing facilities, dosage consistency, adherence to good manufacturing practices, product labeling and sales distribution channels and vendor qualifications,” qualifies O’Rourke.
Finding coverage
While some existing policies can be applied to cannabis-touching businesses, coverage at adequate levels is still difficult to obtain for these businesses. Sherman finds that directors and officers coverage, crop coverage and affordable business automobile coverage can be challenging to find in some states. “It is also hard to find adequate coverage limits,” he adds.
Sherman has some recommendations for insurers considering offering coverage in this area. “Insurers should review each state’s regulations and identify the more favorable states,” he advises. “New underwriters should tour these facilities to better understand their inner workings. Insurers should also realize that this is a huge marketplace that will continue to grow.”
Much like any other sector, the cannabis industry will continue to evolve, especially as bills for federal legalization stack in Congress. With better insight into how the facilities function and distribute cannabis, more education on economic risk will become available. “As this unfolds, people will become more familiar, or comfortable, with the industry and will be being willing to invest,” Jutkowitz said.
By: Mariah Brown (GlobeSt)
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