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Two Questions Investors Should Ask

September 27, 2020 | Posted by Ryan Wewerka

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Two questions investors should ask when evaluating an investment are How is the asset performing now? and How will it perform in the future?

The world we live in today is one in which the Baby Boomers are turning 65 at a rate of 10,000 people per day (current) and by 2030 all Baby Boomers will be 65 (future). The larger Millennials and Generation Z (current) generations are, or are about to, enter an age of family development (future).  The two demographics which need & utilize healthcare the most, children and seniors, will soon intersect, providing a tremendous supply of demand for Healthcare services.

Concurrently, as demand and need for Healthcare rises, the United States also finds itself in an era of an unprecedented amount of access to healthcare. In 2018, 91.5% of Americans had access to health insurance for all or part of the year. The Affordable Care Act helped insure an additional 20 million more.

In this era of disruption where large swaths of the real estate market are being disrupted by the likes of Amazon, economic swings, or an unexpected pandemic, where can the real estate investor confidently turn to? Medical buildings. Increased need for related services, needs which are essential, make a compelling case for why they savvy investor should strongly consider Medical Office Buildings (MOBs). Here is what you should know if you’re considering investing in one:

Lease Structure – Healthcare providers often will sign long-term leases (15-20 years). Why? Relocation is particularly difficult in this space, so tenants choose to stick around. As such, MOBs typically have lower vacancy rates, creating greater stability and furthering cap rate compression

Location – As with all real estate, location is critical. In order to succeed, a medical business needs to be close to a population large enough to support it. The building should be accessible and convenient to get to, and ideally near a hospital.

Demographics – In accordance with location, pay attention to demographic trends and the populations most likely to require healthcare services. Due to a combination of the weather, favorable tax laws, job growth, and affordable housing options, among others, the sunbelt states are seeing a large net-growth in population, i.e., more demand for medical services.

Building Structure – Rapid advancements in technology is creating a need for newer & more advanced buildings. Furthermore, there is a greater need for practicality & flexibility of space, of which buildings with standard room sizes and traditional layouts can accommodate. Be mindful of how many providers the building can hold, if there is space for imaging technologies and lab facilities, how many patients the waiting areas can accommodate, and if there is a possibility for expansion