Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney with the largest healthcare focus law firm in the country. Today we’ll be speaking with Kim Kretowicz, a national healthcare investment services broker with the Colliers Healthcare Real Estate team. Colliers is a diversified professional services and investment management company with 15,000 employees in more than 400 offices in 68 countries. Today we’re going to be talking about Kim’s practice and her new position leading the South Florida Healthcare Investment Services team, her background and some of the trends in the healthcare real estate industry.

Kim, thanks for joining me.

Kim Kretowicz: Thank you, Andrew. Appreciated.

Andrew Dick: Well, Kim, tell us where you’re from and how you ended up getting into the real estate business.

Kim Kretowicz: So I’m from a small, somewhat, we call it town in New Jersey called Rumson, and I was raised in the real estate business with my father who was a land developer, residential land developer and residential brokerage firm. And with him I enjoyed seeing value being created from dirt. He’d drive around farms, meet with the farmers, and next thing there was a development of many, many homes. And to me it was amazingly interesting to see that. With that I went to college, I went to Marymount in Arlington, Virginia. And I was fortunate enough to have a visiting Georgetown professor teach our business classes and he was very encouraging with the women to encourage a career in business.

From that point I’m in DC and again, my love for real estate was transferred to taking a position, my first job was with Cushman & Wakefield and Leasing starting in DC and then ending up going back to New Jersey and starting my career in New Jersey, the Tri-state with Cushman & Wakefield.

Andrew Dick: So talk a little bit about handling leasing work for Cushman in New Jersey. I know you worked on a large project and that really started what would be kind of the growth of your practice.

Kim Kretowicz: Yeah. Yes. Back in the early ’90s Jersey City was significantly less than what it is, Harborside was the only true commercial development there. And I was tasked with leasing 101 Hudson, which at the time was a piece of dirt sitting amongst six flight walk-ups around it, small practices, small law law firms, and this piece of dirt. And I was tasked with bringing over significant back office, albeit with economic stimulants being offered by New Jersey and we were successful. Merrill Lynch, Lehman Brothers, we brought them all over and leased a million and a half square feet, 90% being leased before we broke ground. And if you go to Jersey City today, Goldman Sachs has their headquarters there, there’s over 50 million square feet of class A office space. It’s one of the more vibrant office sectors in the country, frankly.

So that was really exciting. From there though I did pivot, started to get more involved in investment sales. Again in the tri-state selling properties mainly in New Jersey office properties since I was versed with the office sector. From there, one of my clients represented and had developed at least 40 medical office buildings throughout New Jersey working and partnering with doctors. And they had asked me to start handling some leasing. With that I started to scratch the surface of my healthcare investment sales career and it exploded from there, frankly. Started to sell their buildings, started to represent other sellers of buildings, started to represent medical office developers as well as the actual healthcare sector representing the physicians who were doing sale leaseback. And it somewhat spiraled into a new career, a little ahead of the curve when healthcare wasn’t even a separate sector yet. There was no place to go to find comps on healthcare to where today I specialized specifically in the medical office healthcare sector in commercial real estate.

Andrew Dick: Got it. And so at what point did you make the transition to Colliers and talk about that transition?

Kim Kretowicz: So very recently and just a few months ago in October. So on a macro level, I belong to Colliers USA Capital Markets as well as Colliers National Healthcare Services Group. And in October I was promoted and joined the South Florida Investment Services team and I’m partnering with Mark Rubin and Bastian Laggerbauer to lead a healthcare investment sales division. What we are doing, again, working with Colliers National Healthcare is we’re bringing the national exposure and connections to Florida with the Colliers National Healthcare Service Group. And it’s been very exciting. There’s just so much going on. The activity has been immense.

Andrew Dick: So it’s pretty exciting. Spending more time in South Florida, great place to be right now. Talk about South Florida in particular, what’s the medical office environment like down there? Is there a lot of activity? I know investors love assets that are in Florida. So talk a little bit about the market.

Kim Kretowicz: So the markets really interesting right now. So we have investors on a national level looking at markets that weren’t faring well during the office market plunge, during COVID and so forth. So markets like San Francisco, Austin, Charlotte, Raleigh, New Orleans, it’s unprecedented what is happening right now. In Florida, we all pick up the paper and we hear about the population growth in Florida, which is really been focus on Miami Dade, Palm Beach Counties with the office, economic sectors all moving to those counties.

What’s really interesting and most current is the most significant growth in Florida at this moment is actually Polk County. It’s a county that sits between or part of Tampa and Orlando. And actually Orlando has the most significant growth in any city right now in Florida. So yes, it’s South Florida with Central Florida. And to be clear, we’re representing all of Florida. So we’re working with the other brokers in Florida, collaborating with our capabilities from the healthcare sector, working with the locally based specialists to leverage those relationships. It’s a great formula. So, the Orlando, Tampa, Polk County market is so affordable comparatively to say Miami. So there is a lot of development for homes, a lot of development of medical office buildings, a lot of doctors wanting to locate there, a lot of health systems wanting to locate there. So, the activity is immense.

Andrew Dick: Got it. And talk about the national investment market from what you’re seeing right now. I know the capital markets right now are going through a bit of a evolution, but talk about the investment market and the capital markets in general for healthcare assets.

Kim Kretowicz: So it’s one of the reasons why I was happy to say goodbye to January. It definitely was a sit on the sideline, wait on the rim month as we left 2022 and entered 2023. A lot of investors in any sector including healthcare, a lot of them paused to see where the direction and to see how the healthcare sector would fair, to see how the tenants would fare, to see how lease up would continue. And on the positive it’s all doing well. Leasing is a little bit slower than it was in 2022, however, the absorption rate is still positive and the vacancy rate is still extremely low. You’d be hard fetched in most markets define anything under a low 90 occupancy rate. So with that, the investors are back, the investors continue to pour capital into healthcare, medical office buildings, and as reference there is certain cities with a huge focus on Florida to continue to invest in trade in the medical office, healthcare sector.

With that said, with that pause there was a reevaluation of the value of properties with the interest rates. Interest rates increased almost 5% from where we started 8 months ago. So with that we needed to reevaluate, the sellers of properties needed to readjust expectation of value and the buyers needed to feel more comfortable with perhaps the loan to value that the capital markets were looking for was different, depending on the property. There’s still a lot of capital that’s very comfortable with healthcare. So activity is great. Cap rates have definitely increased. I’m going to say across the board it’s one point. So with a property at one point was selling for a five cap today it’s probably closer value to a six cap. And if a property was valued at a five and a half, five and three quarters cap, it’s probably closer to a six and three quarter, seven cap. That would be more in a less core property, in a less core market. So we definitely see a change in the market, however, we continue to see significant interest in healthcare on a national level.

Andrew Dick: Well, Kim, talk about loan to value ratios for a minute just at a high level. Have you seen a significant change in what the lenders are requiring in terms of amount of equity that needs to be put into these projects? Give me a sense of what you’re seeing.

Kim Kretowicz: So it’s very building specific, market specific and buyer specific. So if you have a buyer that’s being backed by a hedge fund or a buyer that’s being [inaudible 00:12:15] that LTV, they have confidence in that buyer, they tend to have confidence in the market they’re buying into and they have confidence in the property and the tenancy. So with that, your LTV they’re still able to achieve a higher pausing with whether we can stretch it to a 70%, but was depending on, again, all of the above, you possibly can still achieve at LTV.

Go to a different world where we’re talking multi-tenanted, no credit, a not tertiary market but not necessarily core market, you’re looking at 60% LTV. Again, the capital is still confident with healthcare, they still feel they’re going to stay, the tenants are going to stay, it’s a necessity. So it’s nowhere near what the office market is, the pure office. In a medical office they still have that confidence where they’re willing and wanting to lend money on this sector.

Andrew Dick: And that that’s very helpful. I just read one report from the Mortgage Banker’s Association that said that the traditional office market has really impacted the overall commercial real estate market. Do you think that investors sometimes still misunderstand healthcare real estate or has the healthcare real estate asset class really proven itself and the investors in the industry understand that it’s a more resilient asset? Talk about that for just a minute.

Kim Kretowicz: So yes. If you and I, five years ago even were talking about the healthcare sector again, people were still merging it with office. Those that specialized in it and those REITs and private equity groups that were just starting to invest, they understood the difference. And again, our greatest underscore was COVID and with COVID it proved the resilience of medical office. So the people, the companies, the health systems, the healthcare investors, they’re there for a reason and they understand that the pure difference. Again, we have office space throughout the country 50% vacancy, where we have healthcare, medical office buildings with 95% occupancy. So right there is just impacts the significant difference between the two sectors.

So I think that line is no longer blurred. I think you pick up Globe Street and you have your company and the specialty in healthcare has clearly been defined, it’s very different than it was even a few years ago.

Andrew Dick:

Got it. Couple more questions, Kim. It seems like a lot of the healthcare real estate investors over the past 24 months have also started to look at life sciences assets. Are you seeing that with the investors you’re working with? Because historically life sciences has been very separate and distinct from healthcare real estate, but I’m starting to see investors crossing the lines back and forth. What’s your take on this kind of shift in how investors look at life sciences assets and healthcare real estate assets, which I always thought were very different?

Kim Kretowicz: So I agree with you. I think they are very different. However, with somewhat of the medical connection, there are quite a few of investors and specialists who focus on both. I still think they’re very different, but there are investors who like both sectors. Last year the life science was doing very, very well. The cap rates had crept down very, very low. And today there’s actually more of a pause in life science than there is in healthcare. So yes, they tend to overlap in that investor who’s investing in both. But I do agree with you that they’re very different. Again, they’re certainly not valued the same. They’re a different product. They tend to be traditionally single tenant, significantly larger footprints in more core cities with cap rates that tend to be significantly lower than the medical office.

With that said, there was a overpopulation, everyone kind of elbowing each other to get into that market and it drove the cap rate so low that they too took a pause and the market is not as vibrant as it was even a year ago. It’s still doing very well. It’s still going to be a very driven market and it’s still will go hand in hand with healthcare. But they are a very different beasts in how they’re being valued and capitalized. And most of the investors do have both pockets, but they’re very different people looking at them.

Andrew Dick: Yeah, I think that’s spot on Kim. I’ve also heard one investor that’s focused on life sciences assets say that underwriting those assets is very different than underwriting like an MOB or a senior housing asset or something like that.

Kim Kretowicz: Yes.

Andrew Dick: So I tend to agree with you.

Well, Kim, you gave us a little bit of information on what you’re seeing in early 2023 in terms of the healthcare real estate market. Any predictions for the rest of this year as we finish up January?

Kim Kretowicz: So Fed’s are highering rates this week, we think. They’re anticipating it would probably be a quarter of a point. So not as shocking as the other rapid fire interest rates that we had last summer. Inflation is curbing, it’s a little bit better and we’ve all readjusted to, hate using the word the new norm, but the new norm of where cap rates are and interest rates are. So I think you will see, and I’m starting to see an explosion of activity with, as opposed to the fourth quarter, which was considerably slower than the year before, I think 2023 moving forward, Q2, Q3, and Q4, I think it’ll all be very, very active, more so than we saw last quarter.

Andrew Dick: Good to hear. And I tend to agree with you there as well. I think that a lot of the industry was, is feeling better about where the Feds at and hopefully things seem to level out in terms of inflation. So I hope we’re both right.

Well, Kim, as I wrap up, any advice you have to a young professional who’s getting into the healthcare real estate industry? You’ve been doing this for some time. What would you tell someone who’s trying to break into the industry, any advice?

Kim Kretowicz: My advice is just to work really hard. None of this just happens. You need to learn, educate, speak to people, read. And also most important, as you know, you have to learn to pivot. When the world changes and the world changes drastically with many events that we never would’ve predicted, you need to learn to pivot and exactly what that means depends on the situation. But just remember that most important is to just show up. No matter how bad it seems, no matter how bad the market is, it will turn. So most important, whether it be in your career or life, is just show up and it’ll all work out.

Andrew Dick: Good advice. Kim, where can our audience learn more about you and the Colliers Healthcare team?

Kim Kretowicz: So you can see my profile on LinkedIn as Kim Kretowicz, or you can go to our Colliers’ main website, Colliers national website, or you can email me at Kim.Kretowicz@Colliers.com.

Andrew Dick: Terrific. Well, Kim, I enjoyed our discussion. I want to thank our audience for listening to the podcast on your Apple or Android device. Please subscribe to the podcast. We also publish a weekly healthcare real estate update that is available on my LinkedIn profile. Thanks everyone for listening.