Cover Story: Waiting for takeoff

HRE professionals remain on standby as stubborn development and sales slumps continue

By John B. Mugford

At one time or another, nearly every business traveler experiences uncontrollable flight delays and the frustrating uncertainty of not knowing when they’ll finally be able to resume their journey.

That all-too-familiar scenario is much like what we’ve been experiencing in the healthcare real estate (HRE) industry for the past three or four years. Although the sector hasn’t been totally grounded, factors beyond our control have left us wondering when business will finally take off.

For decades, HRE professionals have touted their property type as one that performs well during economic downturns and times of uncertainty. It is a recession-resistant facility type and sector, if you will.

During the recent annual meeting of the editorial advisory board (EAB) of Healthcare Real Estate Insights™ (HREI™), the members who gathered in Nashville, Tenn., reiterated their bullishness about the HRE sector and its positive attributes, although they acknowledged that uncertainty, along with some potential chaos thrown in, could put a damper on the economy for some time, perhaps the next few months.

As several noted, even the HRE sector could see some setbacks and hiccups, especially on the development front, where higher interest rates and the ever-increasing cost of building projects led to a decline in construction starts for the past three to four years.

Most of the board members agreed that although the sector could be in for a short-term pause in project groundbreakings, the acquisitions market is picking up steam and the volume of deals in 2025 will exceed that of 2024, which was a down year.

They also noted that owning HRE facilities, including medical outpatient buildings (MOBs), will continue to be profitable as construction starts remain slow and demand for space from providers remains high – a combination of factors that drives up occupancies.

Each year at the HREI board meeting, members spend a portion of the day expressing their thoughts freely in an off-the-record and non-published discussion about not only the HRE sector but a wide range of topics, such as the state of the economy and politics.

As one would imagine, this year’s discussion included plenty of talk about the policies of President Donald Trump, including his ongoing plan to enact tariffs on goods imported from many countries.

A few board members said they believe the country is headed for a recession. Others said that although there could be some short-term pain, the U.S. economy, when the dust clears, is likely to take off.

Following the off-the-record discussion, the board members were asked to go “on the record,” sharing their thoughts on where they believe the HRE sector and the economy are headed for the rest of 2025 and into 2026.

Overall outlook for HRE, the economy

Jonathan L. “John” Winer, president and chief investment officer with White Plains, N.Y.-based Rethink Healthcare Real Estate, said that although he believes the economy and the capital markets are likely to experience a period of uncertainty, “we all know the fundamentals in our industry are strong, and they will continue to strengthen during the course of the year.”

He added that the current slowdown in HRE development will lead to “higher occupancy rates and higher rental rates, and we’ll all benefit from that.”

Going back to the potential for economic uncertainty, Mr. Winer noted that it “will drive investors, including ourselves, to invest in what people traditionally would think ought of as core investments, or core-plus, (meaning the) more conservative investments.”

Malcolm Sina, executive chairman of Palm Beach Gardens, Fla.-based Sina Companies, thinks the current market uncertainty is “just another bump in the road, especially when I compare this time to some of the other things that have transpired over the last 30 years.”

Despite what he called some “geopolitical tension in the world and concerns about tariffs, I think both of those – some of which are intertwined – will be resolved in the short term … anywhere from two to six months. And I think they are solvable.”

Mr. Sina added that the fundamentals of the HRE sector remain “extremely strong. I think the uncertainty that’s happening in the marketplace right now actually creates opportunities.”

Greg Venn, CEO of longtime development firm NexCore Group LLC, which is based in Denver and has a national platform, said he thinks the turmoil and uncertainty in the U.S. economy could “lead to an eventual recession,” which could result in a positive trend: the slowing of rising costs.

“If we have a recession, I think debt could potentially adjust downward, which could help everybody involved by offsetting some of the short-term costs. Long-term, a recession could also start to help pull down costs.”

Mr. Venn added that, when it comes to garnering equity for developments, he believes an increasing amount will come from “private, high-net-worth capital” instead of “the institutions. If all of the things concerning the economy come true, the institutions might be on the sidelines for a while because they don’t like uncertainty. We’re going to have to see where it all settles in.

“I like the famous quote from my longtime colleague, Peter Kloepfer,” the retired, former chief investment officer with NexCore, “who always said, ‘I’ll know more next week.’”

Pointing out a number of positive trends, as well as some negative ones, was Philip J. “PJ” Camp, a 25-year veteran of the HRE sector and the former head of real estate investing with New York-based Fifth Third Securities Inc.

“Interest rates are coming down this year, but construction costs are not coming down,” Mr. Camp observed. “Borrowing rates are coming down this year, further. The benefits of healthcare real estate again will be recognized during this time frame as there will be some shakiness in the rest of the economy. In general, real estate is coming back … and in the second half of the year we’ll have good growth heading into 2026, which will also be a good growth year.”

Stefan Oh, the chief investment officer with Irvine, Calif.-based American Healthcare REIT (NYSE: AHR), said that 2024 was a “really good year” for the real estate investment trust (REIT) on a “number of fronts. During the year, we were basically net sellers of medical outpatient buildings, mostly for opportunistic reasons, or because the non-core assets weren’t a good fit for our portfolio.

“I think for 2025 we’re going to continue to be net sellers of (MOBs), with most of our focus on acquisitions in the senior housing space…

“Overall, we feel like the healthcare real estate space is extremely well-positioned, especially in these times when we’re coming again into a period of uncertainty… And this is helped by the fact that there wasn’t a whole lot of construction over the past few years. Demand is only increasing, and this space will continue to be viewed as a safe asset class that will draw investors in.”

Thomas W. “Tommy” Tift III, executive VP with Dallas-based Lincoln Property Co., said he doesn’t think there will be a recession in 2025, adding, “I do think we will have a slowdown for about the next six months. Construction costs are going to remain high, and I believe interest rates will come down this year.”

As for the HRE sector as a whole, Mr. Tift said, “MOBs are still the best asset class out there, and demand for space will remain strong as the baby boomers continue to age.”

Lincoln Property Co., he noted, “recently inked a deal for $250 million in equity for acquisitions. It will be focused just on MOB acquisitions. So, if anybody in here (is looking to sell), let’s talk.”

Devereaux “Dev” Gregg, senior VP of development with Charlotte, N.C.-based Flagship Healthcare Properties, said that when it comes to President Trump and his tariff strategy, “That’s going to get solved, whether it’s in the next 30 days or 90 days. But I think what we all need to realize is that when it comes to Trump, it just means organized chaos. That’s the way he rolls.”

“If it’s not tariffs, it’s going to be political,” Mr. Gregg added. “Everybody just kind of gets used to that. Sometimes it works, sometimes it doesn’t, and I say that as a Trump supporter.”

He expressed concern about the markets, adding that it “worries me when markets drop, as it reduces consumer confidence.”

John Buehner, senior director with Capital One Healthcare, part of McLean, Va.-based Capital One Financial Corp. (NYSE: COF), said he believes the HRE sector is “very well positioned, given its strong sector fundamentals. I think it’s going to perform very well, given multiple potential outcomes for this year. We’re very bullish on the market and expect a very good year in 2025.”

Andy Dow, an attorney and co-chair of the Real Estate Industry Group in the Dallas office of Winstead PC, noted that during the 2024 HREI board meeting, most of the board members attending said that for the deal market to pick up “we would need to see a stable interest-rate environment and we’d need to see the lenders be more active again.

“I think that those two pieces of the puzzle have kind of fallen into place,” he noted, “and, in the first quarter, it seemed like we were gaining some momentum on that. (Winstead) had our busiest quarter since 2022 in the first quarter. And typically, we’re a bit of a lagging indicator, because all of you in this room are usually working on deals before you ever want to pay us to start working on them.

Mr. Dow added, “I really hope that the current market turmoil doesn’t derail that, because … there’s a strong appetite among our client base for acquisitions and recapitalizations.”

Will acquisitions pick up?

As everyone involved in the HRE sector knows, the MOB sales volume has slowed during the past couple of years.

According to Arnold, Md.-based RevistaMed, which compiles a wide range of HRE data, the MOB sales volume totaled $14 billion in 2024, including about $4 billion worth of transactions involved in the merging of Denver-based Healthpeak Properties Inc. (NYSE: DOC) and Milwaukee-based Physicians Realty Trust. As a result, the volume of arm’s length MOB deals was about $10 billion in 2024. That came after MOB sales fell to $8.2 billion in 2023, the lowest volume since RevistaMed began compiling MOB sales data in 2015.

John Chun, senior managing director and Medical Properties Group leader with Jones Lang LaSalle Inc. (NYSE: JLL) and a new board member, said one of the biggest positives in the acquisitions market in 2025 is that there is a “tremendous amount of liquidity, both from an institutional investor side, in addition to the debt capital markets.

“We’re seeing liquidity we haven’t seen since 2021, and that will result in larger scale transactions that will take be enacted or that will take place this year,” Mr. Chun added, “and that’s because of end-of-life cycle (sales) by some groups, and/or debt maturities that are driving decisions that they’ve held off on. There’s a tremendous amount of core to core-plus capital in the market from those who have not transacted previously.”

Ryan Crowley, executive VP and chief investment officer with Nashville-based Healthcare Realty Trust (NYSE: HR), which is perhaps the largest owner of MOB space in the country, said the publicly traded REIT plans to continue to “refine” its portfolio in the year ahead for “maximum operational performance.”

Since the REIT merged with Healthcare Trust of America in mid-2022, creating a portfolio of about 44 million square feet of mostly MOB space, Healthcare Realty has engaged in sales and joint venture (JV) partnerships to cull its portfolio to about 38 million square feet.

“We’ve had a lot of success on the operational side over the last couple of years,” Mr. Crowley said, “and we’re going to continue to refine the portfolio, and we think that with strong leasing, occupancy and absorption, we’ll have another successful year.

As for the overall HRE sector, he said, “The investment sales market will be more robust this year than in recent years.”

Jon Foulger, director of acquisitions for Dallas-based MedProperties Realty Advisors LLC, said the firm will continue to be “active in looking for new acquisitions and waiting for the market to be in a position where we can execute on recapitalizations or dispositions.

“Something I’ve noticed recently is that with a little bit of a lull in the interest rates, it seems like the core-plus pricing has kind of come back into play, whereas for the last couple of years we’ve seen 6.5-plus percent cap (capitalization) rates, and core trading has been in the high 5s or 6 percent,” noted Mr. Foulger, who attended in the meeting in place of Darryl E. Freling, managing principal with MedProperties. “The fundamentals are sound … we are very bullish on the market.”

Brannan Knott, executive VP with the U.S. Healthcare Capital Markets team of CBRE Group Inc. (NYSE: CBRE), noted that although there might be economic volatility in the short-term, the HRE sector will likely weather the storm because “when there is volatility, you usually see a flight to quality, and I can’t think of a better industry that’s had continual employment growth, especially in outpatient medical, through the GFC (Great Financial Crisis of 2007-09) and through all of the downturns.”

Mr. Knott, who attended the meeting in lieu of Chris Bodner, vice chairmen of CBRE’s healthcare team, added, “When you break down the capital stack, we are seeing more equity and more new entrants coming in, both internationally and domestically, from some of the more renowned institutional investment managers. So, as long as the debt markets remain open … we should start to see portfolio activity come back into the market. Because of that, the overall volume within their sector is also going to increase. I’m excited for what 2025 has to come, and also 2026 and beyond.”

Jim Kornick, principal and co-leader of the Healthcare Capital Markets team in the Washington, D.C., office of Toronto-based Avison Young, said he believes there will be about a 60- to 120-day period of indecision in the HRE sector while the overall economy faces uncertainty.

“That said, because of the performance of our asset class, because of the stability and reputation through good times and bad times, I think we’ll have more transactions this year than last year … and that’s because there are (property owners) who are at the end of their investment life cycle that will need to recycle. That will increase the number of transactions and the dollar volume.”

Erik Schmidt, senior VP of investments with Chicago-based Remedy Medical Properties, which has been one of the sector’s most prolific buyers of HRE facilities in recent years, said he believes the MOB sales market is on the upswing for a few reasons.

“Debt seems to be the biggest trigger for a number of decisions,” said Mr. Schmidt, who was at the meeting in the place of Remedy’s CEO, Peter Westmeyer. “The expiration of deals completed in 2020 to 2022 are finally coming to market again, and people are repricing those appropriately, and that’s adding much-needed volume that has been down for the last couple of years.”

Ben Appel, U.S. co-head of the Healthcare Capital Markets Group at Newmark Group Inc. (Nasdaq: NMRK), noted that deals have been difficult to close over the “past year,” in large part because “on the equity side and on the debt side, options were a lot more limited. It took a lot of creativity to get anything done.”

However, Mr. Appel said the sector is currently “better situated” and “we’re getting a lot of calls from portfolio managers, CEOs, CIOs (chief investment officers), and they’re saying they’re looking for larger (MOB) transactions. Portfolios are coming back into demand, as are larger, single assets … and the allocation is increasing and rebalancing that under-deployment of capital in our space.

“I think we’ll see a much more exciting transaction landscape in 2025; a much greater uptick in total volume.”

In addressing whether there will be enough product on the market to meet the growing investor demand, Mr. Appel said: “I think that’s been sort of busting at the seams, waiting. I don’t think it’s any one specific pipeline, but just that we’re late in the cycle and there’s a lot of need to go sell assets that are on elongated holds.”

John Smelter, a longtime MOB sales broker who last fall joined Chicago-based Blueprint Healthcare Real Estate Advisors to head up its new Medical Outpatient Team as senior managing director, said he believes the “current economic volatility that we have with the tariffs and the cutbacks will be resolved in the next 90 days.

“At that time, we’ll have a clearer picture of where we’re going. Interest rates have certainly peaked, and I think we’re going to see them stabilize and potentially decrease this year which, of course, also means cap rates are going to also compress.

“As I look at the market, I’m seeing activity on the rise substantially,” Mr. Smelter continued. “I took a property to market in Texas about a week ago … taking it out to our top-tier 100 buyers and within 48 hours we had 38 CAs (confidentiality agreements). A year ago, I’d say we would have had a dozen CAs within 48 hours. So that’s indicative of how much dry powder there is in the market. And, I think with equity and with the debt markets being back, it’s really great for our industry.”

Mr. Smelter added, “While 2025 is going to be good, I think ‘26 is going to be amazingly better.”

James A. Schmid III, chief investment officer and managing partner with Charlottesville, Va.-based Anchor Health Properties, said there is “a lot of debt capacity in the market right now, and the spreads are where we haven’t seen them during the past two years, so it’s nice to see the debt markets back in a healthy state… I also like that we’ve seen new entrants on the debt front that are being aggressive on spreads and deal sizes, which has always been something we can use more of in the sector.”

Shawn Janus, the national director of healthcare with Chicago-based Colliers International Group Inc. (Nasdaq: CIGI), said that although the HRE sector could face some challenges in the near future, including rising construction costs and a workforce shortage, among others, he believes the amount of available capital and debt terms will improve and keep the market strong.

A look at development moving forward

With the development of new outpatient facilities on a two-year slide, with the square footage of groundbreakings in 2024 falling to a 10-year low of 16 million square feet, according to RevistaMed data, several board members said development might remain stagnant as construction costs continue to rise, among other factors.

Mr. Schmid of Anchor Health Properties said he believes there could be some mergers among HRE development firms, as there is currently not “enough work to go around for everyone in the space.”

He also thinks the new trend of using structured financing to “preserve development opportunities will continue to grow. A number of the developers in the room have their own proprietary products and I think we’ll continue to see that expand as a means of landing development opportunities.”

Several development professionals, however, said they believe groundbreakings will rebound because, as noted, health systems will continue to see a need to expand their footprints to meet growing demand for services from an aging demographic and growing populations in booming markets.

Mr. Schmidt of Remedy Medical Properties, which has a strong pipeline of projects, said he believes third-party developers could see an upswing in opportunities in the months ahead, in large part because a growing number of health systems are starting to look to third-party developers and capital to build projects for them.

Deeni Taylor, CEO and chairman of Milwaukee-based Landmark Healthcare Properties, a nearly 30-year-old HRE development firm, said he believes the development of off-campus MOBs “will increase over the next 12 to 24 months. And that’s in order to meet the need of having a low-cost environment for healthcare delivery. Hospitals and their employed physicians will be the primary tenants, and I think hospitals are going to expect a different structure for financing the rent structure of the buildings.”

Ben Ryan, managing partner and chief financial officer with San Diego-based PMB LLC, a longtime HRE development firm, said the company’s biggest challenges during the past three years has been “access to debt, as well as the increasing cost to build projects.

“There hasn’t been a lack of development opportunities to work with systems that want to grow,” said Mr. Ryan, a new board member who has taken the seat previously occupied by Mark Toothacre, who transitioned on March 31 from his role as PMB’s CEO and managing partner to become a senior strategic advisor for the firm.

“The problem,” Mr. Ryan said, “has been, ‘How do you make the deals pencil?’ As for this year, I don’t have a super rosy outlook that that is going to get way better. Hopefully, things will change in 2026 or ‘27.”

In the meantime, he said PMB will continue to do what “we’ve done in the last couple years, continuing to look at more alternative financing structures. We’ll keep working on creatively figuring out ways to create spread.”

Like others on the board, Erik Fischer, chief development officer with Pensacola, Fla.-based Catalyst Healthcare Real Estate, said that although there could be a period of uncertainty during the next several months, he believes the fundamentals of the HRE sector will remain strong.

“I’ve lived through the pandemic and recessions … and we’ve all survived and have all done OK.”

Mr. Fisher, who spent 20 years with Trammell Crow Company before joining Catalyst in September 2024, added that there are a few things that keep him up at night.

“We could see a disjointed market related to China … and that could lead to some ‘wonkiness’ in the debt markets. Likewise, I think we’re potentially vulnerable for some form of national security threat that could be very disruptive.”

However, he added, “I’m of the belief that the market will force lower costs and better outcomes, which bodes well for development in our sector.”

Mark A. Davis, principal of longtime Minneapolis-based HRE development firm Davis, said he believes the current volatility in the marketplace is the “best thing that we’ve had going for us for a while.

“I think we’ve had a stagnating market and we needed something to give us a kick start, and all of the concern about the political process will prove to be the same as it’s been for years and years and years. Whether you’re on the right or left, we move very slowly in the United States when it comes to change, and we needed something to change things up.”

And a change would surely be welcomed by those who are eager for the once high-flying HRE sector to once again take to the air. ❏