Investors are shying away from general medical practice.
As real estate investors have sought safe havens in a tumultuous 2020, the medical sector has been a ripe target. Life sciences were on the upswing even before this year. But the search for vaccines and therapeutics to battle COVID-19 have boosted lab space.
For traditional doctor’s offices, the story is a little more mixed. COVID-19 has done a number on private practices. During the Spring shutdowns, many doctors’ offices had to close their doors or reduce hours as patients stayed at home. Many tapped into the Paycheck Protection Program (PPP) to find much-needed funding to keep practices afloat.
The uncertainty surrounding doctor’s offices filtered down to net lease investors. According to The Boulder Group, in Q3, cap rates for general doctor offices rose 16 basis from Q3 2019 to 6.91%.
“You don’t want to take a smaller local doctor practice versus a national credit company in this space,” says Randy Blankstein, president of The Boulder Group. “People went for the larger, higher credit deals as this whole flight to safety happened.”
Those large hospital-backed systems represented safety to net lease buyers. “Between COVID impacting them and people seeking safety, owning a property with a major medical group or a Fresenius is what you want to do when you’re unsure about everyone’s financials,” Blankstein says.
Urgent cares are a relatively new entrant to this space. Many practices are in retail spaces, which are called medtail. “A lot of these urgent cares can rent a vacant Rite Aid or Walgreens,” Blankstein says. “They’re not like the old medical parks or office buildings. It’s a medical use in what we consider traditional retail space.”
These urgent cares could represent an opportunity for retail landlords who may have seen tenants depart or close their doors in 2020. Cap rates for urgent cares fell 12 basis points to 7.13% year-over-year in the third quarter.
“These health clinics and urgent care things are positioned to backfill space for a variety of tenants who are downsizing or shifting format,” Blankstein says.
Highly visible and easily accessible retail spaces are attractive to these urgent cares, according to Blankstein.
“Their opportunities to get into kind of prime real estate with discounted prices certainly exists,” Blankstein says. “That’s part of their business model. They want to be more convenient and easier to find than a hospital and as a replacement to a doctor’s visit, occasionally.”
While urgent cares and hospital-backed systems provide plenty of opportunities, there will always be policy questions around the medical sector. Though with a divided Congress and a Democratic president likely for 2020, the status quo may be a good bet for the immediate future.
“It’s impossible to predict now [what happens with the Affordable Care Act],” Blankstein says. “I think most people are playing wait and see. I think it’s business as usual for the moment.”
Source: “Urgent Care Draws in Net Lease Investors“
