President Tim Lavender and Executive Vice President Daryn Eudaly of Rainier Medical Investments discuss four trends in real estate investment trusts.
1. There is an uptick in the REIT market. After the recession hit, prices and purchasing activity in the medical real estate market began to decline after it reached its peak in 2005. However, Mr. Lavender says things have changed dramatically since this January. "The REITs are now back in the market aggressively acquiring," he says. "There was a lot of capital sitting around on the sidelines. There was big money supply and people are ready to spend."
2. Capitalization rates are on the decline. Capitalization rates are used to estimate the value of income produced by properties. Professionals in the real estate industry use capitalization rates to estimate the purchase price for different types of properties. If a capitalization rate for a property is low, the property is worth more. In the recent past, Mr. Eudaly says the cap rates used to be around 8.5 to 9.0 percent but is decreasing and now hovering around 7.5 to 8.25 percent. He expects this downward trend to continue over the next year as certain buyers continue to aggressively acquire properties.
3. Healthcare reform may necessitate more space. President Obama's healthcare overhaul expanded coverage to many uninsured Americans, necessitating the need for additional healthcare services. This creates an increased demand for medical space. "The need for more doctors may mean the need for more space because more people can get care under Obamacare," Mr. Eudaly says.
4. At the same time, spaces are opening up for medical professionals. Although the economy has forced a lot of business to bow out of the market, the medical industry is climbing out of the recession relatively unscathed in comparison to other industries such as retail, entertainment and travel. As a result, offices and corporate buildings are emptying, which leaves the medical industry to move into those spaces.
Mr. Eudaly comments that investors have moved away from other estate classes and are moving toward the medical real estate market because they are recognizing the medical industry has one fundamental that other industries lack. "People are always going to need medical treatment, and there will always be a line at the doctor's door," he says.
1. There is an uptick in the REIT market. After the recession hit, prices and purchasing activity in the medical real estate market began to decline after it reached its peak in 2005. However, Mr. Lavender says things have changed dramatically since this January. "The REITs are now back in the market aggressively acquiring," he says. "There was a lot of capital sitting around on the sidelines. There was big money supply and people are ready to spend."
2. Capitalization rates are on the decline. Capitalization rates are used to estimate the value of income produced by properties. Professionals in the real estate industry use capitalization rates to estimate the purchase price for different types of properties. If a capitalization rate for a property is low, the property is worth more. In the recent past, Mr. Eudaly says the cap rates used to be around 8.5 to 9.0 percent but is decreasing and now hovering around 7.5 to 8.25 percent. He expects this downward trend to continue over the next year as certain buyers continue to aggressively acquire properties.
3. Healthcare reform may necessitate more space. President Obama's healthcare overhaul expanded coverage to many uninsured Americans, necessitating the need for additional healthcare services. This creates an increased demand for medical space. "The need for more doctors may mean the need for more space because more people can get care under Obamacare," Mr. Eudaly says.
4. At the same time, spaces are opening up for medical professionals. Although the economy has forced a lot of business to bow out of the market, the medical industry is climbing out of the recession relatively unscathed in comparison to other industries such as retail, entertainment and travel. As a result, offices and corporate buildings are emptying, which leaves the medical industry to move into those spaces.
Mr. Eudaly comments that investors have moved away from other estate classes and are moving toward the medical real estate market because they are recognizing the medical industry has one fundamental that other industries lack. "People are always going to need medical treatment, and there will always be a line at the doctor's door," he says.