Andrew Dick: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, I’m an attorney with Hall Render, the largest healthcare-focused law firm in the country. Please remember the views expressed on this podcast are those of the participants only, and do not constitute legal advice. Today, we will be talking with Chris Bodnar, the vice chairman and co-head of CBRE’s Healthcare Capital Markets Group. Chris is one of the top healthcare real estate investment advisors in the industry. We will talk about his journey from college, to his most recent promotion to vice chairman of CBRE. We will also talk about the healthcare real estate industry and where Chris sees the future. Chris, thanks for joining me today.

Chris Bodnar: Thanks for having me.

Andrew Dick: Chris, before we talk about your current role at CBRE, let’s talk about your background. Tell us where you’re from, where you went to college, and what you aspired to be.

Chris Bodnar: Of course, yeah. So, I grew up in San Jose, California. Went to a large high school and was one of the few people who wanted to venture outside of California and try to find a college in a different state. Looked at a lot of colleges on the East Coast and eventually ended up touring University of Colorado in Boulder. Just fell in love with the school, and fell in love with the mountains too and picked up skiing and snowboarding when I was in college as well. Beautiful town and as you could tell, I haven’t left the state yet.

Andrew Dick: Well, tell us a little bit about your education at UC. What did you study, and what were your interests at that time?

Chris Bodnar: I went into business. I wasn’t exactly sure what I wanted to do. I ended up getting an emphasis in marketing and commercial real estate. Really, the reason I tried to get that emphasis in commercial real estate is that University of Colorado provided a program such that if you took a certain amount of classes while you were in school, you would automatically qualify to take your broker’s license exam right out of college. For me at the time, I was really only thinking about saving 3% on a commission when I bought my first house. I had no idea I would really dive into this commercial real estate sector and still be in it today.

Andrew Dick: Tell us about how you transitioned from college to working at CBRE.

Chris Bodnar: So, the University of Colorado did a really good job of bringing in industry experts to talk to the students. They would set up panel discussions after class and bring in experts from a variety of different fields. One of the panels that I attended had, I think, an appraiser, a banker, property inspector, and an investment sales professional. After listening to the panel, I really gravitated toward the investment sales broker and felt like it would fit my personality really well. For that position, you needed to have a solid base of sales skills, and I come from a family where my dad was in sales, working in Manhattan most of his career. I felt like I had a solid base of sales skills but what the investment sales broker also had was a strong base of analytical skills, which I’d also thought I brought to the table as well. So, I ended up getting an internship with, coincidentally, the gentleman that was speaking on that panel. It just so happened he was interviewing a bunch of different students at school, and I was fortunate to land that internship while I was still in college.

Andrew Dick: So, what were you doing in terms of investment sales? Were you focused on a certain product type, or was it whatever they ask you to do?

Chris Bodnar: Yeah, the first team I joined, that’s the gentleman who was on that panel who has now gone off and had a very successful career as a principal on the commercial real estate side, but when you start off you’ve got to do a little bit of everything, but the team I was on was purely investment sales, focused on the Denver market. As far as our product type goes, we had the most experience with office and industrial properties. Obviously over time I started moving into the direction of healthcare, which we could talk about later.

Andrew Dick: So, you finished the internship and you were given an offer to join CBRE full time, and at that point were you just continuing your work in the investment sales market, covering office and industrial product?

Chris Bodnar: Yeah. For the first couple years when I was on the team, it was doing office and industrial and doing a little bit of everything that they needed. Honestly, that included doing everything from graphic design work to building ARGUS models for the properties that we were selling. About two years into the job, I went to my mentor at the time, and also the team leader, and told them I’d like to go after a segment on my own. Brainstormed with him and thought about some different segments I could go after. I asked him about, potentially, trying to focus on more product in the Boulder market. He came back to me and said, “Hey, we’ve kind of got that all canvassed already. I think we’ve got that section of the market covered.” At that time we were focused on industrial, but just really didn’t have the same amount of industrial listings as we did office listings.

Chris Bodnar: So, I went to him and said, “Well, how would I focus more on that?” They steered me away from that as well since we felt like we had that covered, and my last suggestion was Colorado Springs. He said, “We don’t really have that covered, so if you want to start canvassing that market, go ahead and do that.” So, I basically started commuting to Colorado Springs every weekend to canvas that market and try to get some deals. Really, one of the first deals I came across, I stumbled across a medical office building. I think the group that owned it was a group of physicians, but I think they liked the platform that I worked within. CBRE is a big company, but they really took me underneath their wing and explained to me the difference between medical office and traditional office.

Chris Bodnar: They started to explain to me the contract that they had with the hospital. They started talking to me about the payer mix surrounding the building and why they’re located where they’re located. They started talking to me about some of the referral patterns that have been established in the building. They would get referrals from the primary care group in the building. They would refer patients into the surgery center, which they were also partners in the surgery center. They refer patients to an imaging clinic, pain management, to physical therapy, and so there was this ecosystem that was created in this building that, for lack of a better word, created this stickiness of the tenancy and a higher probability that these tenants weren’t gonna leave.

Chris Bodnar: Then as I was really understanding the product type, I discovered that there’s a buyer pool out there that really focuses on the sector as well. These groups were national in scope and really gave me the idea that perhaps there could be a case study or business plan put together to take more of a national approach to this sector, and really turn the brokerage model on its head because for the last hundreds of years, the first rule in real estate and investment is location, location, location. We took that away and said, well, how about we focus our practice on really understanding an industry, and really understanding the buyer pool and what’s the facilities? Then we can partner people with people in different markets that have that intelligence at the local level.

Andrew Dick: Chris, talk a little bit about when that was within your career. I think when we had talked before, you said you really started creating the vision for this group around 2006 or 2007. Is that right?

Chris Bodnar: Yeah, a lot of the vision happened in 2007. 2006, 2007 and it ended up, looking back, being a really good time to start building a business and start putting together a business plan. Obviously, we were at the beginning of the recession, and things started slowing down a lot which gave me time to focus on a new business plan. I ended up leaving my team in 2010 and joined a partnership with one of my current partners, Lee Asher, who’s based in our Atlanta office. It was somewhat of an arranged marriage by the company. I had a lot of experience working more on the private capital side, working with high net worth investors 1031 exchange investors, and Lee worked on an institutional team. So, he was selling hundred million dollar plus type buildings, and had really good relationships with some of that institutional capital. Our personalities melded very well together. Our strengths and weaknesses complimented each other really well, and like I said, we started that partnership in 2010.

Andrew Dick: So Chris, at what point were you committed to this concept? You told me you and your wife decided that in order to really build this business within CBRE, that you needed to move around the country, make connections in some of the major markets. Talk a little bit about that journey, because I thought it was really interesting.

Chris Bodnar: Yeah, it was a fun time. Like I said, Lee and I started our formal partnership in 2010. We had been working together before that, and in 2011, I threw out a crazy idea to my partner and said, “There’s only so many investors and capital groups that I can meet with in Colorado. I can’t take the same guy to lunch every other week.” My wife and I, we didn’t have kids at that time. Today we have two young daughter, but at that time we didn’t have kids and so I talked to Lee and I said, “Well, what do you think about me traveling the country for a year and focusing on a specific market, one market at a time, where I can dive deep and try to build some relationship with the capital groups out there, build relationships with the owners of healthcare real estate in those markets? Build relationships with the providers and the health systems in those markets, and also get to know my CBRE colleagues on those markets better, and try to form partnerships in those cities.”

Chris Bodnar: So, over the course of a year we ended up moving, and we drove this whole way. My wife and I got in the car, drove to San Francisco, stayed there for three months, drove down to Las Angeles, stayed there for three months. We moved across country to D.C., to Washington, D.C., stayed there for three months and then finished the journey in New York. It was just a phenomenal trip just to get exposure to those different cities and nuances of those markets, but more than anything, creating relationships in those cities that still exist today.

Andrew Dick: How were the local CBRE professionals? Were they receptive to this idea, or were they a little standoffish that you’re coming in, trying to make connections in their market?

Chris Bodnar: I expected a lot of pushback. Brokerage is a very territorial business, and we were taking a different approach to the space. I would say that we were welcomed in every city that we went, and I have to credit leadership at CBRE for making that happen. I’ll give you an example. When I was in New York, probably one of the most territorial places in the country to do business, the managers of the tri-state region had me come in and sit in on their managers meeting, and talk about what I was doing and what I was going after. These are 20 different managers throughout the tri-state region, and some of the top brokers in Manhattan that were at that meeting. To just have that collaboration, yeah, I’m not sure if that would happen at every other firm out there but CBRE has done a really good job of keeping the mindset that we need to put, “the best players on the field,” so to speak.

Chris Bodnar: What that really comes down to is doing the best thing for our clients and Lee, and myself, and Shane, and my other partners, we bring a level of expertise that brokers in other markets just don’t have. So, it’s a partnership that they can leverage, and I think when we take that collaborative approach, they realize that we can all do more business together if we take that mindset and try to go after some business.

Andrew Dick: Talk a little bit more about your team today, Chris. You’ve built a pretty deep bench. How many people are on your team? What are they doing? Talk a little bit about that.

Chris Bodnar: We have a great team now. Like I said before, it started out with me and Lee. Our next addition was a gentleman by the name of Ryan Lindsley. Ryan was working at CBRE at the time, but he was working on more of the outsourcing of real estate functions for providers, and not on the capital market side. His wife actually got into medical school at Georgetown, and had to leave where he was working which was Pittsburgh, and it created an opportunity for us to pick him up. Shortly after that we brought on Sabrina Solomiany. Sabrina had previously worked at another investment stales firm, HFF, and was a great fit for our team. We recently just brought on last year Shane Seitz, who is a really well respected healthcare real estate professional who’s been in the business for 20 years. The last 10 years was one of the largest publicly traded healthcare REITs. So, that was a great addition too, but we had such a great team of graphic designers and financial analysts.

Andrew Dick: Chris, one of the reasons we wanted to talk with you was because you have built one of the leading healthcare real estate capital markets groups. Talk a little bit about the type of services that you’re offering to your clients.

Chris Bodnar: We offer a range of services from acquisition, to disposition, to recapitalization strategies. We’re working with investors and healthcare providers with the strategic capital planning for really all types of healthcare product. Really everything outside of senior living, so right now we’re working on deals ranging from medical office buildings, to surgery centers, to rehabilitation facilities, to behavioral health centers. So, it really runs the gamut. We also do some advisory type work with health systems, and a lot of that has revolved around assisting these providers in selecting a developer for new projects.

Andrew Dick: Chris, when we’ve talked before, you told me that you have a broad range of clients. It’s not just hospitals and healthcare systems, but you’re also working on the investor side with publicly traded REITs and institutional investors. Tell us a little bit about the client base that you’re working with.

Chris Bodnar: We break it down into five buckets, the first being the publicly traded healthcare REITs, the second being the nontraded healthcare REITs, the third being more institutional type of investors and that can range from pension fund money, to sovereign wealth funds. The fourth bucket would be high net worth private investors or 1031 exchange investors, and the last is obviously the providers, the health systems and the physician groups that at different points in time could either be looking to acquire healthcare real estate, or looking to potentially sell it.

Andrew Dick: Chris, one of the informational pieces that your group publishes is what’s called an Investor Developer Survey, where you go out to the market and capture data from investors, and hospitals, and healthcare systems. You compile that data and it’s one of the leading reports, in my mind. Talk a little bit about the 2018 Investor Developer Survey, and then the type of information that you’ve gathered for 2019.

Chris Bodnar: Yeah, so we’ve been doing this survey for over 10 years now. We did it with the mindset that there’s so much research that’s done in our sector, but all of it is looking backwards. We felt like this survey could give us an indication of what can happen for the upcoming year. The survey asks a series of 25 questions ranging from, “What does development look like for the coming year?” To, “What do cap rates look like for the Avera Health Facility or a class A on campus building?” It’s been a great way to understand where the market might be going, but I would say two trends that we’ve seen that have been prevalent over the years, one, is the amount of capital that’s coming into the sector. We do ask a question about how much each group has allocated to the healthcare real estate sector for investment. That has continued to increase year over year substantially, and the other one is just the on campus versus off campus evaluation of real estates.

Chris Bodnar: If you were to look at our survey 10 years ago, there would have been a pretty large spread between the way investors look at pricing for an on campus facility versus off campus. That spread has continued to narrow year after year as off campus has become a product type that’s been much more accepted. I think a lot of that has to do with where health systems are looking where to place their real estate and where to plant the flag. Those are probably two of the bigger trends that we’ve seen happen, that have come back to us in the responses to the survey. We’re just sorting out the 2019 responses now and expect to get that publication out here in the next few weeks.

Andrew Dick: Chris, do investors follow some of the reimbursement trends? For example, when you and I have talked before, the on campus versus off campus distinction can be important from a reimbursement perspective. When we talk about provider based space, do the investors look at that in their analysis, for example, with medical office space if a hospital is the tenant and the hospital is treated that space as provider based space?

Chris Bodnar: Yeah. We talked about this [inaudible 00:19:30] between on campus and off campus. Obviously reimbursements and specifically section 603 of the Bipartisan Budget Act being upheld and giving the final ruling on the year that went into effect, the beginning of this year. Obviously reimbursements are different for on campus versus off campus, and for some groups, that’s very important. There are some REITs out there that are very focused on the on campus product type because they feel like it’s a higher margin business for the providers. On the other hand, there’s a lot of institutional funds out there that are basically taking the approach that they want to follow the hospital. So, if the hospital is looking to place real estate in a better growing market with a good payer mix, while the reimbursements might not be the same, they may make up for it in volume based on planting a flag in a market where there’s not much competition.

Andrew Dick: Chris, over the years we’ve seen certain transactions, some of the larger transactions being considered off market, and when I’ve talked to you before I always asked the question. Is there a trend of a number of off market transactions occurring? Is that trend increasing, decreasing, and what are the pros and cons of off market transactions?

Chris Bodnar: Well, for my benefit I hope they decrease. It is something that happens when you’re in a niche market. If you go to these conferences focused on healthcare real estate around the country, you get a pretty quick view on who are some of the active investors in the space, and some of those groups do get approached directly. We’re obviously a little biased here, but do feel that a lot of times money has been left on the table in taking that approach. We do feel that running a competitive process and taking an institutional approach in underwriting, and allow an investor to look at things differently and potentially create some more proceeds from a deal than they otherwise would. If you look back for the last year, we have been able to increase a buyer’s final price by around 5% to 7% on average over the last year. That’s purely by creating that competitive bid process where you take an offer and you try to push them further through a best and final to get to their higher price.

Chris Bodnar: Obviously, there are other things outside of price that I think are important to look at. We’re not attorneys, but we do see a lot of the points that are negotiated in contracts around the country, and we know what’s market for deals and what’s been agreed to in the past. Hopefully we’re that conduit to help bring parties together and get our clients the best possible deal. So, I think those off market deals happen but when they do happen and they fall through, they don’t have somebody right behind them to step back in. That’s the benefit of running a process and having multiple buyers at the table.

Andrew Dick: Talk a little bit about some of the larger healthcare REITs investing more in the life sciences industry. Is this a trend that will continue in the future, or is this just a step forward to try to diversify their portfolios?

Chris Bodnar: Yeah, I think it’s probably multiple things. Obviously for the REITs that have exposure to the multiple different product types, this is a way to further diversify their healthcare REIT. Life sciences is definitely a growing business. It’s very different than seniors housing and medical office, which are located in every market around the country that has a population that needs to be cared for. Life sciences is more focused on the talent pool, the education of the workforce, and the funding that’s being provided by the government and where that’s located, what companies are there that they could build off of, and that’s why you see a lot of the life science’s product located in primary core markets. The Bostons, the San Franciscos, the Seattles. We’ve even seen more product type pop up in the Los Angeles, Southern California markets, Houston. Parts of Upstate New York have created tax incentives for companies to move there.

Chris Bodnar: So, it’s a very different product type. It’s a growing segment of the market, and I think a lot of the REITs are looking at the multiples that they can achieve for each product type that they own within their REIT, whether it’s medical office, or senior housing, or life sciences. Life sciences is trading in an aggressive multiple, and I think getting more exposure to that sector helps diversify the REIT.

Andrew Dick: Chris, you’ve been in the industry for at least 15 years. What are the biggest changes that you’ve experienced during that time period?

Chris Bodnar: Yeah, for healthcare real estate, I mentioned this previously regarding just the evolution of capital, 10 years ago if you were to look at this sector, healthcare real estate was considered an alternative asset class. Whenever you hear the words alternative, a lot of investors think that they’re gonna get a higher yield. There’s more risk involved with it, and the opportunity is really proven to be true. Healthcare tenants don’t typically move that much. They’re highly invested in their space. Their patients are location sensitive, and if you look back over the last 10 years, you’ve seen the product type perform really, really well in periods of economic uncertainty. The last recession, healthcare real estate performed very, very well, and so the way investors are looking at healthcare real estate has really evolved from a, “alternative asset class,” into really more of a core asset class.

Chris Bodnar: So, we’ve seen the pricing for this product type evolve as well where it was pricing as an alternative type of deal, and now pricing more like a core product type. So, the demand for these assets has continued to increase, and the other thing we’ve noticed over the years too is that it gets talked about a lot, but there’s been significant merger and acquisition activity within the industry over the years, and if we were to look at a rent roll for a medical building 10 years ago, it was a bunch of smaller independent physician groups occupying those buildings. As time has moved on, you look at that rent roll today and you’re seeing a lot of consolidation that’s taken place. The average square footage of each tenant has gotten larger, as there’s been that consolidation, and a lot of the independent practices have been taken over by the hospital. So, for those hospitals that have good, strong balance sheets and income statements, it has acted frankly as a credit upgrade to a lot of investors in the space as well.

Andrew Dick: Chris, I always like to end these calls on a high note. Talk a little bit about some of the transactions that you’re most proud of.

Chris Bodnar: One that always sticks out in my mind is the monetization that we did for Catholic Health Initiatives, CHI, in 2016 and 2017. A couple reasons. One, it’s the largest health system monetization that has occurred on record. It was a monumental effort to get that one across the finish line. A lot of planning that took place, and it’s very rewarding to go back and look at some of the presentations that we put forth to the CHI board, showing them what type of pricing we thought we could achieve on a very large grouping of assets, and under the time period that we thought we could achieve it. Being able to execute on that was highly rewarding, but I think what was even more rewarding was the people and the relationships that were created. I was spending a lot of time in CHI’s offices and got to know them very well, and now consider a lot of those people close friends.

Chris Bodnar: The buyer for that deal was Physicians Realty Trust, and we had done a couple transactions with them previous to this, but this is the first big deal that we did with them. Again, when you’re working on a transaction of that size, you’re on the phone with these folks day in and day out and meeting with them in person. You really get to know the people that work there, and they’ve created a great group over at Physicians Realty Trust, and they were a fun group to work with. I hate to say this, but I tell some of my clients that it’s probably a good deal at the end of the day when both parties walk away equally unhappy, but this is one of the deals where both parties walked away equally happy. Truly a joint effort to get that one across the finish line, and great relationships were built. So, that’s probably the one that sticks out in my mind the most.

Andrew Dick: Chris, you were recently promoted to vice chairman to CBRE. That’s a huge accomplishment. Talk about what that means for you and your group.

Chris Bodnar: It’s a great honor. Obviously, it’s a big title, and titles really don’t mean much, but it does showcase the work and effort that I’ve put in from the beginning, and the risk that Lee and the rest of our team took. I know I couldn’t have got where I am today without the help of a phenomenal team that I work with, and some great mentors in the space that have guided me throughout my career. So, getting a title like that, it’s humbling and it’s a great honor, but I try not to think about it too much.

Andrew Dick: Chris, looking forward, where do you see yourself and your group in five years?

Chris Bodnar: That’s a great question. Obviously, the healthcare industry is always moving and evolving. We do a see a lot of growth in this sector. Obviously there’s way more demand to invest in this product type than there is supply, but when we first started looking at our business plan and getting into this space, one of the things that stuck out to me and Lee as we were putting together business plans and whatnot, was that if you look at other industries like the financial industry, look at the percentage of assets that they own versus lease, and you look at a Wells Fargo, or a Chase, or a Bank of America, they’re substantially more heavy on leasing real estate than they are owning it. The opportunity is really true for a lot of the not for profit providers in the market. They have maintained over the years that they want to control the real estate, and they’ve had the luxury of being able to do that over the years.

Chris Bodnar: Things are changing in the industry. Obviously reimbursements are changing and the margins that they were achieving years prior might not be the same margins of the future, so there could be better uses of that capital. Whether it’s an outright sale or more of a partnership or joint venture that some of these providers might explore, we do believe that there will be more activity in the market over the years. If you just look back over the last 10 years, the transaction market has doubled. We do project over the next five or maybe 10 years, the market will double again. So, there’s huge opportunity in this sector, and hopefully we’re poised to take advantage of it.

Andrew Dick: Chris, I’ve really enjoyed talking with you today and getting to know you. How can folks learn more about you and your group, and how can they contact you?

Chris Bodnar: Probably the best way is just email. Chris.Bodnar@CBRE.com. Really appreciate the opportunity to talk with you and if anybody has any questions, I’m more than happy to answer them.

Andrew Dick: Well, thanks to our audience for listening to the podcast. On your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the Health Care Real Estate Advisor. To be added to the list, please email me at ADick@HallRender.com.