A number of issues, from labor to inflation and rising interest rates, will make healthcare acquisitions and development more challenging in the coming year.
In 2021, healthcare investor and developer Meridian had a banner year, closing more than $100 million in transactions, all located in the State of California, and $40 million in new development activity, with projects located in five states. As the firm looks ahead into 2022, it plans to remain an active buyer, but CEO John Pollock says this will be a more challenging year for both purchases and new construction.
“All arrows point to a more challenging year in 2022 for acquisitions and development,” Pollock tells GlobeSt.com, citing expanding bid-ask spreads, supply chain issues, labor shortages, rising interest rates and inflation as contributing factors. “Those are all going to make it more challenging to purchase and build in 2022.”
When it comes to new development, labor and material shortages are, perhaps, the biggest challenges facing the delivery of healthcare product. “Our clients expect us to give them a number early in the process, usually with a back-of-the-napkin sketch, and due to the perfect storm of market disruptions, we are finding it increasingly difficult to predict the availability and/or prices of material,” says Pollock. “We pride ourselves on having never missed a budget or schedule and the current environment is really challenging the team.”
While there are several factors that make it challenging to transact, investment appetite for deals is not among them. “The continued appetite by capital allocators to acquire healthcare assets should make selling much easier. I expect the feeding frenzy that occurred in 2021 with portfolios will continue in 2022, it will just be a question of available product to sell,” adds Pollock.
Last year was one of the biggest on record for the firm. The biggest deals include the acquisition of Beverly Hills Medical Plaza, a 67,510-square-foot, three-story Class-A medical office building in Beverly Hills and a development site in Livermore, California. Meridian also launched new developments in California, Arizona, Nevada, Florida and Texas.