Article by Patrick Brinker and Florian Schmitz-Muckenhaupt
Hauck Aufhäuser Lamp
Especially since the Corona pandemic, outpatient healthcare real estate has increasingly attracted the interest of investors because awareness of the importance of healthcare facilities has increased. Investors appreciate the resilience of this asset class due to the cyclical business model and high value stability through indexed leases with high, inflation-adjusting adjustments. The investors who engage with this asset class vary and can include a wide range of stakeholders. These include, for example, institutional investors such as funds and real estate investment trusts (REITs). Private equity firms and asset managers specializing in the healthcare sector can also invest in outpatient healthcare real estate. But individual investors or family offices are also interested in it, especially if they are aiming for a diversified real estate portfolio.
Purchase of medical centres and health centres
As managers of larger funds that invest in outpatient healthcare properties, we very often find ourselves on the buyer side and represent institutional investors such as pension funds, insurance companies, pension funds or banks. This can also be done on the basis of larger individual mandates. We are primarily concentrating on the acquisition of medical centres and health centres with a diversified tenant mix. We do not consider small-scale properties, e.g. with an office use on the ground floor and one or two small medical practices on the first floor, to be an investment-ready outpatient health centre for institutional investors. Instead, we count properties with a usable area of between 1,000 and
10,000 square meters and a predominant proportion of health-related users. Operator properties are only an option for us in the form of practice clinics or outpatient surgery centers, because in the course of outpatient care, such properties will be increasingly needed in the future and, depending on the operator, we see rather low risks in operation.
In contrast to many other asset classes, medical centers and health centers do not always have to be a top 7 city in terms of location. On the contrary – in our view, the higher returns are more likely to be generated in the long term in C and D cities or even in the larger medium-sized cities with 50,000 inhabitants or more. After all, basic medical care is permanently necessary everywhere in Germany. And last but not least, other factors such as local conditions, type of use, tenant mix, terms of leases and the (energetic) condition of the building, etc. are also important in the overall assessment.
On the seller side, we often deal with owners who are still tenants in the healthcare property themselves – i.e. doctors, pharmacists or other health professions. Recently, we have noticed an increasing professionalization of the market, not least due to the fact that large and small brokerage houses are also dealing more intensively with the needs of professional investors with regard to this asset class. As a result, the understanding of the concerns of institutional investors has increased among many owners in recent years, and so the quality of the prepared documents is also increasing, although due diligence processes are sometimes unnecessarily prolonged due to missing or incomplete documents. Here, thorough preparation and documentation make the purchase process much easier. In addition, institutional investors are able to carry out a faster preliminary check in advance by sending them an up-to-date list of tenants with information on the tenants and their rental space, contract terms and extension options.
