Knowing all the facts about a property and executing due diligence are essential components of any real estate transaction. But, when casual interest evolves into getting down to brass tacks, achieving your goals means being prepared. In particular, investing in healthcare real estate typically involves substantial resources and long-term commitments, so it’s in your best interest to invest the time and resources to get it right.
First, Know Your Market
Any commercial real estate negotiation begins with knowing the market. Whether you’re an end-user investor or a third-party investor, it’s critical to understand the investment landscape to avoid mistakes. As reported by The Real Deal, Ben Ochs, CEO of Anchor Health Properties, said at a recent event organized by GlobeSt.com, “You have to understand the true demand for a facility and the location. In terms of real estate investors, if we are going to develop or contemplate purchasing one, you really need to peel back the layers and make sure it works.”
In this age of big data, information of all kinds is literally at our fingertips. A cruise through one of the online databases like CoStar, RevistaMed and Esri can quickly put you in touch with basic property facts and demographic profiles. While this information is valuable, it doesn’t provide a complete view of trade area dynamics and may even mask your selected site’s potential.
For healthcare real estate investors looking for new or additional office space, it’s critical to look more deeply at the characteristics of consumers in a trade area. Things like insurance coverage, the potential demand for healthcare services, and lifestyle characteristics all may play a role. ShareMD, a San Diego-based investment firm, was drawn to Miami and South Florida markets because of robust population growth around major hospitals, which serve as epicenters for healthcare service demands of all kinds.
Make Sure the Space Fits Your Needs
As the end user of a space, you want to ensure that it will fit your needs. Doing research upfront will help to ensure there are no surprises. In preparing for your investment in medical office space, here are some areas to explore that can help ensure you’re going in with eyes wide open.
Identify the Ideal Neighborhood
Ensuring that a neighborhood includes your target population is essential, but there are numerous other variables to consider. Knowing the key employers in an area will provide insight into the types of insurance that patients are likely to have as well as the payer mix. Fluctuations in enrollment trends have recently caused Medicaid rolls to grow, meaning fewer opportunities to bill private insurance.
Depending on the size of the practice, there may be a need for a substantial workforce. Can the local area supply that? If not, can it be easily sourced from surrounding areas?
Today’s healthcare environment is also highly competitive. It is essential to understand the locations of traditional and non-traditional competitors and how they relate to a potential market for a proposed site.
Account for Patient Accommodation
The consumer-driven nature of modern healthcare requires careful consideration. Patient-friendly practices are easily visible from and accessible via non-congested roadways and include plenty of parking. Community-based care should also be close to other medical and non-medical services frequented by the local population.
Understand the Actual Investment and Costs
It’s important to find the right balance between location and practice size. Opening a large practice in an established and dense urban environment can significantly inflate actual costs. Sometimes trade-offs have to be made. Retrofitting an existing space or selecting a Class A space on the edge of town may be less costly than building new or being in the heart of the business district.
As one additional investment consideration, keep in mind opportunity cost. Waiting on just the right parcel of land can take time, and as the saying goes, time is money. It may be best to forego particular property “wants” to get patients through the door, take advantage of favorable interest rates, or avoid pending zoning regulations.
There’s No Need to Go It Alone
Negotiating a commercial real estate deal can be complex. A trained and experienced professional can help identify new opportunities, point out trends, and provide much of the research and data required for a successful transaction. If you’re considering a commercial real estate transaction, give us a call today to ensure you’re ready for whatever negotiations may bring.
This article originally appeared in Healthcare Realty Group’s April 2022 newsletter. Its references to market conditions, insurance enrollment, interest rates, zoning, companies, and property listings reflect the original publication date and may no longer be current.
