Healthy investment
It”™s survival of the fittest for health care systems.
For one Westchester County company, financially troubled medical office buildings have presented a Darwinian investment opportunity.
Seavest Inc. recently bought for $11.2 million a two-building, 65,000-square-foot medical center in California that was owned by a trust servicer who foreclosed last year.
Including that Napa Valley Medical Center property, Seavest has made five acquisitions within the last five months. The company is about to close on seven more properties within the next 90 to 100 days with about 20 more in the underwriting process.
“Health care is very much an attractive area right now,” said Douglas Ray, president of real estate investment management firm Seavest Healthcare Properties in White Plains. “Even through the (economic) crisis, health care continued to expand. Everybody”™s getting older, so it will continue to expand.”
The company”™s rapidly expanding portfolio spans 2 million square feet in medical office buildings and outpatient facilities in 15 states. Regionally, Ray said the company has acquired a couple of properties in Middletown, Conn., and in upstate New York.
Seavest was founded in 1981 and first operated as a wealth management and family office service firm for the Segal family; Richard Segal serves as chairman of the company today.
“When we first started, we developed nine buildings for what was Triad Hospitals, which was absorbed into Community Health Care and a couple of other smaller health systems in the Southwest,” Ray said. “That consolidation is going to continue. The big, stronger systems are likely to continue to acquire other weaker hospital systems in their various markets.”
Within the last couple of years, bankruptcy has been filed by institutions like Greenwich Village”™s St. Vincent”™s Medical Center and Harlem”™s North General Hospital.
Many medical institutions continue to struggle to keep costs down.
Said Ray: “Hospitals and doctors can”™t pay the rent if the reimbursements they”™re getting from the government are being squeezed.”
Ray expects to see a growing crop of ambulatory and surgery centers opening across the county and nation.
He is joined in that opinion by Sean McDonnell.
“Once a comprehensive ambulatory facility is established, patients are comforted by knowing that the majority of their health care needs can be met at one location with the understanding of the travel time to get there, the ability to park and access their physicians in the timeliest manner,” said McDonnell, executive vice president at RHYS MD, a division of brokerage RHYS Commercial in Stamford, Conn. “This also benefits the health care providers as it promotes timely patient visits helping them to stay on schedule.”
Westmed Medical Group last summer opened a supermodern, 14,500-square-foot Rye Ambulatory Surgery Center and will soon open a medical office building at an 83,000-square-foot space it leased at Yonkers”™ Ridge Hill mixed-use development.
White Plains-based Burke Rehabilitation Hospital just opened a 4,600-square-foot outpatient rehabilitation clinic in Mamaroneck, which was fueled by Burke”™s seeing a 34 percent increase in its number of outpatient therapy visits since 2005, said Steve Tisser, Burke”™s senior administrator of outpatient services.
“Historically, there hasn”™t been a lot of strategic value placed on these outpatient facilities, but today with health care reform and Medicare reimbursements”¦ there”™s so much focus on driving efficiency,” Ray said. “Hospitals and health systems are trying to reach the communities in ways that will protect their market share without spending a lot of money.”
Investing in the health systems sphere made strategic sense for Seavest with banks loosening credit and demographic trends creating more demand for health services.
Ray foresees a stronger health system ahead.
“Westchester Medical Center is in sound footing now,” he said. “They”™ve really turned the corner. White Plains (Hospital) is doing great. Greenwich Hospital is doing great.”
Hospitals will be monetizing their assets in order to create liquidity and afford themselves financial flexibility, he noted.
Delivering the real estate component of a hospital”™s business requires creativity in both space and planning.
Ray referenced a deal in Dearborn, Mich., that Seavest closed recently.
“We bought an existing corporate headquarters and negotiated a lease that was financially attractive to Henry Ford Health System and they took about 70,000 square feet of a 100,000-square-foot building,” he said. “We filled the rest of it with their doctors.”
Seavest is underwriting other transactions that similarly include an existing building that can be purposed for growth.
Or, “assemblage,” as McDonnell noted.
“Fact is, the on-campus space is far too valuable to house those (non-essential) services and much less valuable space can be found in generic office buildings in close proximity to the hospital.”