Healthcare Investments Muscle By COVID-Pushed Downturn

Healthcare Investments Muscle Through COVID-Driven Downturn

Investors are drawn to the "basics" of healthcare, Johnson says. "The sector is economically resilient while retail and office are a question mark."

The good news is that the Healthcare The market remains healthy despite the ravages of COVID-19. But JL Johnson declares that's healthy with an asterisk.

The senior director of Lee & AssociatesCorporate Solutions Healthcare Group reports that the American Hospitals Association estimates lost revenue of over $ 320 billion for the year, in large part due to COVID-related cancellation or postponement of elective and required surgeries.

Still, the fundamentals of the property market that supports the sector remain solid. "I mainly represent institutional investors," he told “REITs and large private equity groups. You have not been influenced in any meaningful way. "He adds that activity has slowed and" some landlords are suffering from concessions that are likely to last until revenue returns to pre-COVID status. "Given the yin and yang of investor interest in the face of lost sales," is. " the market has remained stable but not overly aggressive in terms of acquisitions. "

Cap rates have also remained stable, which is a bit surprising, he admits, given that rates were expected to follow the 10-year Treasury and fall. "But we didn't see it, even though it sometimes acts as a delayed dynamic." While the economy is slowly recovering, he believes that cap rates for the sector will fall as credit grows stronger and smaller practices continue to be devoured by larger health systems.

It should also be noted that the development was not slowed down too much either. As an example, he cites the planned expansion of the Ohio State University Wexner Medical Center's inpatient hospital by $ 2 billion.

In many sectors, the momentum of institutional withdrawal opens the door to more private actors. Not so much in healthcare, says Johnson. Instead of a shift, he sees it more as a complement.

"The big healthcare REITs and big private equity groups are still active," he says, claiming the majority of the larger portfolio deals. For example, private equity firm Kayne Anderson acquired 34 properties from Welltower Inc. this summer.

But private activity is on the rise, and many players are migrating from wobbly industries like retail and coming into play for the first time. While the big deals tend to go to the institutes, “the smaller triple net practices with a single tenant continue to attract all kinds of investments. Again, they're drawn to the basics. The sector is somewhat economically resilient while retail and office are a question mark. "

What are the prospects for 2021? It all comes down to a vaccine, he says. Without a vaccine, we will continue on the current path and “wait a lot”.

"But assuming there will be a vaccine and the elective surgeries can continue," he says, "we should see a market correction in terms of lost revenue." This also assumes a decrease in cap rates, which can lead to more inventory being drawn to owners looking to bring their assets to market. "

But even if the Pharmas get away with a COVID fix, Johnson sees a big problem when, "The thing about vaccines is everyone has to take them."


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