Industry Pulse: July 2009

CHICAGO – Despite signs that healthcare real estate is showing signs of fatigue in the current economy, there are still plenty of folks in the industry who say that now and in the somewhat near future is not that bad of a time to be a service provider or investor in the medical office space market. One of the most frequent reasons cited for this is the fact that more and more hospitals and health systems will be looking to align with or hire real estate firms to provide them with a variety of services, including off-balance sheet development, property management and leasing of MOBs, consultation, and monetizations of their MOBs as a way to garner cash and escape the headaches of operating such properties. One such firm predicting that health systems, including an increasing number of not-for-profit providers, will be seeking to leverage the value of owned real estate is Chicago-based Jones Lang LaSalle (NYSE: JLL), which in May released its “2009 Healthcare Real Estate Financing Outlook.” JLL says in the report that more and more not-for-profit providers will be looking to sell ancillary real estate to increase their liquidity. “Long considered to be stable investments immune to recession, hospitals and other healthcare facilities are now feeling the effects of a cash-strapped economy as decreased charitable contributions are forcing (them) to pare back and seek new financing sources,” according to the report. The firm’s healthcare and real estate finance professionals cite a combination of falling revenue margins nearing break-even and restricted access to capital as having significant effects on the operating performance of healthcare facilities. For the first time, not-for-profit health providers are following the footsteps of for-profit health systems and focusing inward — controlling expenses and enhancing revenue through creative real estate avenues,” said Poe Corn, an executive VP in JLL’s capital markets healthcare practice. “There is little doubt that 2009 will be a year of very limited investment transactions in the healthcare sector, though those that do