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Feature Story: Even a ‘black swan’ hasn’t stopped HRE

InterFace panelists say the pandemic simply reaffirmed the sector’s strength

By John B. Mugford

The May 12 InterFace “State of the Industry” discussion included (clockwise from the upper left): moderator Murray W. Wolf of HREI, PJ Camp of H2C, Darryl Freling of MedProperties Realty Advisors, Lance Hardenburg of Caddis HRE, Ben Ochs of Anchor Healthcare Properties and Michael Arvin of New Era Partners. (HREI™ photo)

For many years, a tried and true question for expert panelists at healthcare real estate (HRE) conferences has been this: “What potential concerns about this business keep you up at night?” And a common answer has been the potential for the HRE sector to be rocked by a “black swan” event — some sort of devastating external economic shock that it didn’t see coming

Future HRE conferences will need to find a new talking point.

During InterFace Conference Group’s opening “State of Industry” session last Wednesday, May 12, the panelists agreed that if there has ever been a black swan event, COVID-19 was it. Yet, they noted, the HRE space has fared extraordinarily well during the past 15 months despite the virus and the global economic recession it spawned.

In fact, the pandemic has potentially expanded opportunities for HRE development, financing and investment, the panelists said. For starters, they said that health systems might now be more likely to tap into third-party sources to own and/or develop facilities they occupy.

That’s long been the long-held dream of HRE professionals, particularly the hope that more healthcare providers would sell, or “monetize,” their medical office buildings (MOBs) or other “non-core” real estate assets. And while the needle has not moved significantly in that direction in recent years, the HRE veterans on the panel said they are now hearing more and more health executives say they are seriously looking at tapping into third-party capital as a way to preserve cash and/or build up pandemic-depleted cash reserves.

“I think (the pandemic) has put a focus on the desire to have a flexible balance sheet and have cash at the ready,” said Philip J. “PJ” Camp, principal and co-founder of New York-based Hammond Hanlon Camp (H2C), which provides a wide variety of investment banking services to health systems and real estate firms involved in the space.

“So, … this has some health systems thinking about monetizing real estate, thinking about bringing in third-party owners to develop new real estate asset types,” he added. “I do think that’s a trend we’re going to see as a result of the pandemic.”

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