Andrew Dick

Real Estate Year in Review – 2021

2021 Real Estate Year in Review

Join Hall Render attorneys and advisors to hear about the top trends in real estate from the past twelve months.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Danielle Bergner

Attorney, Hall Render

John Marshall

Advisor, Hall Render Advisory Services

Jerimi Ullom

Attorney, Hall Render

Andrew Dick: I am Andrew Dick. I’m an attorney at Hall Render. I lead our firm’s real estate service line, and I’m joined by my colleagues, Danielle Bergner who’s a real estate attorney in our Milwaukee office, John Marshall, who is a consultant through Hall Render advisory services, and Jerimi Ullom who should be on shortly, who is an attorney in our finance service line. And what we thought we would do is provide an overview of some of the macro trends that we’re seeing in healthcare, real estate and cover some of the headlines, cover some regulatory trends, cover financing trends and then cover some housing intervention strategies and trends. And so I’ll kick the presentation off. This is supposed to be an informal style of presentation, so your participants are more than welcome to chime in, ask questions and stop us along the way. We have slides, but most of the slides are high level concepts.

Andrew Dick: So, I’m going to start the presentation then I will hand it off to John and Jerimi to cover some financing trends, and then Danielle will wrap up with some housing trends. So, thanks everyone one for joining us. We know this is a very busy time of year. We appreciate your time and look forward to a lively discussion. So, the past 12 months has been really interesting from a healthcare real estate perspective. There have been an awful lot of activity in a number of different areas, and we’re going to focus on really hospital, hospital type projects, MOBs, ASCs. We’re not going to hit a lot on senior housing. Danielle will talk just a little bit about it, but we’re going to try to cover just level trends. So, a couple of the trends I’ve noticed over the years, over the past 12 months, I should say, are in the area of academic medical center growth, growth in the ambulatory surgery center market, and a number of changes in certificate of need laws that are really driving growth in a couple of states.

Andrew Dick: I’m also going to talk a little bit about telehealth and the impact on healthcare real estate, property tax exemptions, and then government intervention. So, if you look at some of the trends over the past year or so, you will see that most of the major hospital projects around the country are really sponsored by academic medical centers. And if you look at some of the data, just over the past 12 months, it’s really impressive to see the size of the projects and the growth in the academic medical center sector. It’s really, really impressive. And it’s not just in one part of the country, it’s all over the country. In terms of academic medical centers, what do I mean by that? Usually that means a healthcare institution that’s sponsored by a university or a university medical center. And there’s been tremendous growth in that sector primarily because academic medical centers employ most of the specialists in various parts of the country.

Andrew Dick: So, they’re usually based in urban areas, major metropolitan areas, and they have all the specialists that most regional medical centers or rural or critical access hospitals that don’t have the resources, or enough patient volume to employ the specialists. So, I’ve got a picture here of UC San Diego talking about one of their major multi-billion dollar projects. And by the way, the University of California health system, this is just one of their major capital projects going on right now. There’s a number of projects in Irvine that UC has sponsored along with a number of other markets. Here are some trends about the size of these projects. And the reason why they’re noteworthy is just because how big they are. Most of them, when we talk about them, they’re very expensive on a price per square foot basis.

Andrew Dick: And most of these projects are in the billion of dollars to complete, and that have anywhere from a five to 10 year construction timeline. Major projects, phase projects, many of them are mixed use projects. Many of them have a million square feet or pushing a million square feet, and include pretty significant bed tower projects along with outpatient facilities, really all built into one. And so these are the major projects we’ve been tracking over the past really two years, I would say. Other trends, the big news if you’re watching, is the growth in the ambulatory surgery center market. And for many years, some of our hospital clients would dabble in surgery centers either through joint ventures or they would pick up or build a surgery center, but they didn’t really put a lot of emphasis on the surgery services that were offered there primarily because the reimbursement wasn’t there years ago. Fast forward today, more procedures can be performed in a surgery center.

Andrew Dick: There has been tremendous growth in the surgery center industry. What’s really interesting is if you look at the top 10 surgery center owners on this slide, what you see is that number three, we have Optum UnitedHealthcare’s physician practice and surgery center arm, which is very interesting that they have such a big presence in surgery centers, which tells you that that’s the future of healthcare. But what I find to be the most interesting story is, Tenet Healthcare’s push into surgery centers. And Tenet owns USPI, which is the biggest owner operator of surgery centers. And if you’ve watched over the past few years, Tenet has exited the hospital market in a number of parts of the country, for example, South Florida, other areas as well. And what they’ve done is they’ve taken that capital and invested it into surgery centers. And if you look at their financial reports, a significant portion of their revenue is no longer coming from their hospitals, it’s coming from surgery centers. And when you see Tenet Healthcare make such a major shift, that’s something you should pay attention to.

Andrew Dick: This is the most recent story about Tenet USPI acquiring more surgery centers, investing $1.2 billion into this transaction to pick up 92 ASCs. And the pace and the size of some of these transactions has really been phenomenal. So, it’s something that’s worth talking about and worth watching. Other macro trends are changes in the certificate of need laws, which is really driving growth in the hospital industry that we haven’t seen in years past. And if you look at states like Tennessee and Florida, you’ll see pretty significant growth. Tennessee has made some changes to its CON law over the past 12 months, which allow for a little bit more flexibility when you’re trying to make your case for a new hospital project, that’s driving growth. The other significant change in Tennessee CON law is that there’s an exclusion for behavioral healthcare facilities, which means if you’re going to build an inpatient psych hospital in the state of Tennessee, the way that the rules are written now, you would not have to get a certificate of need.

Andrew Dick: So, those are pretty significant changes. But the headline story has been Florida. Florida rolled back at CON with respect to certain hospital projects. And I’ve got an article here that’s dated May 18th, 2021. Believe it or not, that’s a bit dated. That article covers a list of projects that we’re pending as of the date of that article, most of which are hospital expansion projects. And if you look at, as of may, there were something like 20 inpatient rehab hospitals being constructed, 12 new general acute care hospital projects, couple of freestanding EDs, new medical campuses, a behavioral hospital and ortho project. That was as of May. If you fast forward to today, I would bet that that number maybe close to double what it was in May. Almost every major health system in Florida has announced a major new hospital project or a major expansion that’s in the hundreds of millions of dollars.

Andrew Dick: And on this slide, we’ve got a couple of headline stories. Orlando Health announcing a number of big projects, HCA Healthcare just recently announced several new hospital projects. And then Advent Health has been very aggressively growing in the Florida market. It’s remarkable. And I think some of it is because not only the shift in population to the Sunbelt states like Florida, but also there’s been pent up demand in my opinion. If you go down Florida and you visit some of their hospitals, many of them in South Florida in particular are pretty dated. And so with the rollback of the CON law, I think we’re going to see substantial growth over the next five years. So, big headline news, we’re all watching it. But the other takeaway here is that a majority of the projects that were listed as of May, are inpatient rehab hospitals, which is a trend nationally with a couple of the big players building, we call them earths for short, building earths all over the country.

Andrew Dick: Other news. Telehealth, we get a lot of questions about telehealth. There’s been tremendous interest in telehealth from our hospital and healthcare clients all over the country. There’s been tremendous growth in telehealth, but the question I often get is, well, what will happen to the inpatient healthcare facilities or to medical office buildings long term? Is that going to reduce the demand for in-person visits? And the short answer is no, there’s been quite a few studies over the past 18 months talking about demand for telehealth and patient preference. And what you’ll find is if you read those reports, three out of four patients prefer inpatient visits. The only exception is that if you have a follow up visit with your physician, after the initial visit, there are some reports that suggest that follow visits are really ideal for telemedicine. So, keep an eye out for that.

Andrew Dick: The other trend that we’ve noticed, JLL, CBRE and the major healthcare real estate groups have talked about the fact that with telehealth, we expect there will be an amount of demand for medical office space that’s equal to, or in excess of where we’re at today. Really because telehealth requires additional space that’s outfitted for the equipment and designed for clinicians to interact with their patients. Other news, we’re always watching property tax exemptions across the country, because nonprofit healthcare systems enjoy significant financial savings through property tax exemptions. And if those exemptions were to ever to be challenged or to be rolled back, most of the nonprofit clients, their margins, which are often pretty slim to begin with, somewhere around four or 5%, would take a major hit. And most of these clients or health systems, I should say, aren’t really prepared for a challenge to their exemption. But we’ve seen activity in a number of states primary early on the East Coast of late.

Andrew Dick: This is the most recent headline about a Tower Health Hospital where its exemption was denied. When I read the story, I was just shocked at the value of some of these hospital based property tax exemptions. They’re in the hundreds of thousands of dollars, in some cases, they’re valued at a million dollars. And so at any point, those exemptions are challenged or rolled back, the nonprofit healthcare provider has a major liability that it has to deal with that’s usually not budgeted. Other news, really interesting. Again, on the East Coast, for the past two years, there’s been a number of legal battles involving a hospital in New Jersey that’s operated by CarePoint. CarePoint at one point sold off it’s hospital and leased it back, and it’s caused a number of lawsuits challenging whether or not that was a legal transaction. The local community at one point threatened to use imminent domain to try to get control of the hospital assets.

Andrew Dick: And most recently, just a few days ago, there’s a New Jersey state bill that was proposed that would limit how and when the owner of a hospital can evict the operator of a hospital. The bill directly aimed at this CarePoint dispute that’s been going on for some. What’s also interesting is that in one of the neighboring states, Rhode Island, there’s also been the attorney general who’s hit the brakes on a number of transactions that would permit the sale and lease back of hospital facilities in Rhode Island. There are a number of reasons why the attorney general has stopped or tried to stop those transactions. But what we’re finding is that there are a number of private equity groups that come in to try to rescue struggling hospitals. And what they immediately do is separate the operations and the real estate. And in many cases, the private equity groups that own the hospital assets end up setting aggressive rental rates to get aggressive returns.

Andrew Dick: And what happens is the hospital operator sometimes struggles, and then the community gets upset when certain healthcare providers or services aren’t available. So, this is something to keep an eye on. I’ll do a brief regulatory update. A while back, this was a few weeks ago. The public health emergency was extended through January. Why is that significant? Because a number of other laws are tied to the declaration of a public health emergency. For example, those of you who handle stark and kickback compliance issues will know that the stark law waivers in many cases are tied to the declaration of a public health emergency existing. So, what does that mean? That means that for at least the next few weeks we’ll still have the benefit of a number of laws, including the stark law waivers that allow us to be a little bit more creative to deal with struggling tenants, and other issues between hospitals and physicians so long as this declaration exists.

Andrew Dick: And I wouldn’t be surprised if it’s extended again in early 2022. Other updates, we’re always tracking self disclosures under the CMS protocol and the OIG protocol that involve real estate. Here are some recent settlements. I don’t think there’s anything that’s new here other than these self disclosures are consistent with what we’ve seen in the past. Either there’s been a mistake in a leasing arrangement, or someone failed to document something properly and physicians or other referral sources received a benefit. And as a result, the providers decided to self disclose. But some of the settlement numbers are pretty significant here.

Andrew Dick: I show this chart and we update it every year or so. If you’re ever monitoring, where do the self disclosures, like where are the issues that providers are dealing with. This show based on historical data over the past probably eight, nine years, when there is a self-disclosure involving real estate, there was usually a mistake in one of these categories, fair market value, failure to get an agreement signed or failure to put it into writing in general, failure to collect rent. There was some additional space that wasn’t accounted for in some other kind of remuneration. Remuneration, meaning something of value that wasn’t accounted for in the arrangement. Other updates. We’ve been tracking closely the CMS and OSHA vaccine mandates. What’s interesting is, just as those came out and we’re ready to go into effect, a number of complaints were issued and then courts got involved and there was an injunction on the CMS and OSHA mandates.

Andrew Dick: But it’s interesting what we’ve seen. Even after those injunctions had stopped the mandates, there’s been a couple of trends you need to watch here. Some of our health systems in urban areas have started putting into their contracts, a requirement that all vendors comply with a vaccine mandate regardless of whether or not the CMS or OSHA mandates are upheld or permitted to move forward. So, that’s interesting. The other big headline that I didn’t put a picture of the story, but it’s really fascinating. It just came out a couple of days ago. A number of months ago, the major health system said, we’re going to require our employees who be vaccinated. Well, some of the big for profit healthcare providers have just rolled back the mandates. HCA and Tenet are the two big players who have said, we’re having trouble staffing our facilities, so we’re not going to require a vaccine in certain cases. And that just came out in The Wall Street Journal just a few days ago, which is really interesting. Real estate capital trends. I’m going to turn it over to John and Jerimi at this point.

John Marshall: Hey, before we get into any of this, I just would ping the crowd and the audience to see if any of these other experts that are joining the call today have something to opine on relative to telehealth or space utilization trends, or any of the other topics that Andrew covered. This is a good chance for somebody to take a break if you want to ask a question or dig into something you’re experiencing in your respective market or expertise. We’ll move on. This will be pretty quick. I do want to make a couple of notes on Andrew’s slides. As he was talking, I got to admit that I was multitasking a little bit, and I was reading a Becker CFO report email that came out as Andrew was talking. And here’s two things that we’re completely applicable to trends, one of which we didn’t touch on, but I think a lot of people here on the call today are paying close attention to, and that is behavioral health and new behavioral health facilities. In particular, an announcement of SCL and Acadia doing a joint venture project in Colorado.

John Marshall: And then about five minutes after Andrew was done talking about the HCA growth in Florida, there’s a Becker’s article here that says $3 billion investment by HCA into Florida. So, what’s interesting on the whole CON thing, and I’d be interested to hear from others that might be following it in their respective states. Florida’s been lacking for a long time, right? Think about the population growth over the course of years, and really the obsolescence in many cases of some of the hospital campuses and a lot of community hospitals that didn’t have the resources they needed. So, I think that’s going to continue to be an ongoing pressure relief valve, if you will, to get some more and newer facilities accommodated. One thing or I should say three things that they’re all unrelated that are not in the capital transection, before somebody asks. Supply chain issues, inflationary pressures from supply chain issues and labor, and how those three are all interrelated into the delivery of facilities, which we know is a real problem.

John Marshall: I think there’s enough economists out there and enough people that read The Wall Street Journal and other economic related publications that can probably attest nobody knows where that end is in sight. So, we’re not putting that on here just because nobody knows where it’s going, we just know it’s real, right? And so does everybody else who’s trying to deliver facilities these day. All right. So, end of the slide. Historic low interest rate, right? That continues to be a very good positive for people borrowing, whether you are a developer wanting to borrow, or whether you are a hospital. Certainly on the taxable and tax exempt issuance side of the business, there’s never been a more favorable time for hospitals to borrow money.

Jerimi Ullom: John, to your prior point, who knows. But I think most people expect the fed to raise rates next year two or three times. But even though that is expected, rates are down partly due to COVID surge, and new variants and the like. So, stay tuned if rates ever catch up and do in fact start moving up in part to combat inflation. And then secondly related to that, I would say there are two trends. One is we’ve seen a lot more taxable financing than tax exempt in the last year or so. Partly spreads are tight, so there’s not as much benefit to doing a tax exempt deal, but also I think people want to preserve their flexibility for future use of projects in real estate. So, unless it’s something that the health system is really intending to occupy and use, a new patient tower, et cetera, but a lot of these ambulatory facilities and the like, they might change that use down the road, even if they qualify today.

Jerimi Ullom: So, we see a lot more taxable debt these days. And then one thing that we’ve seen at a great deal of are our forward commitments, which never really happened all that much before. There’s a couple other reasons for that. The IRS took away what we’re called advanced refundings on the tax exempt side. But a lot of deals have forward commitments either because they’re trying to synthetically do an advanced refunding or because they’re just anxious about interest rates moving quickly once they start moving. So, a couple thoughts there.

John Marshall: Good thoughts. Thank you. Goes without saying, there’s a continued consolidation amongst both hospital providers and physician groups. Whether it’s a macro consolidation of specialty groups that are PE fueled and creating super groups around the country, or whether it’s just the consolidation amongst hospitals. We don’t see that slowing down and I’d be surprised to hear if somebody does. That sort of consolidation fuels a higher occupancy use by the health system if it’s a health system related consolidation, which is also one of these things that we think could lend a hospital or a health system and take more direct control of its real estate, right? So, you got more of the hospital or health system utilizing its space directly, and you have historically low interest rates that can be done at a taxable level that keep a lot of use flexibility in place. The downside is that valuation are also at a historic high, right? So, there’s a whole bunch of people that are following the capital markets on this call probably, and the cap rate compression on core assets just continues to be pretty amazing.

John Marshall: And I think partially driven by the flood of new capital. Depending on what you’re reading or who you’re getting the information from, we see reports of, I put in here, new capital or nearly $10 billion of new capital announced in the market. It can be anywhere from five to 10 depending on how you’re categorizing that new capital. But it’s PE firms, it’s new REITs, it’s pension fund related money, all seeking to source a more secure investment in the healthcare real estate sector. So, consequently competition for core assets, especially core assets that are majority occupied or leased by a credit entity short supply. So, even though there’s probably some investors or owners that would be interested in selling some of their assets given the extremely high valuation, it’s really hard to replace that. It’s really hard to find the place to redeploy that capital base.

Jerimi Ullom: Yeah. And if you think about what’s going on in the retail and office markets as well, a lot of that money’s looking for a better home. So, we see this in healthcare, and I hear that the cap rates are even more compressed in multifamily. Folks are just looking for alternatives to retail and other segments.

John Marshall: Given some of these confluence of factors, if you’re a hospital and you’re looking to source a third party development solution, you should be seeing historically low rent factors. Sorry, REITs and developers that might be on the call, you’re aware of it as well as everybody else. But in some of the projects, we’ve had an opportunity to assist our clients on, it’s a great time if you want to hire a developer for an extremely low rent factor. Having said that, you also have an opportunity to look to other financial mechanisms that maybe haven’t been as heavily explored in years past. For example, credit tenant lease, CTL structures still have merit for certain types of financings or project delivery solutions. And as several of you on this Zoom call might be aware, we’ve been a favor of the nonprofit foundation, real estate structure as another option for seeking a third party leasing solution.

John Marshall: Andrew, you’re driving next one. And we’ll go over this real quick. If there’s really specific information people would like to explore on how this works, just call me or Jerimi. We’ve spent a lot of time talking through it. Jerimi way more than I have, because he’s got a few years in vetting the model. You essentially have a 501(c)(3) registered owner that’s a foundation. It’s structured as a founding. It’s a charitable entity that serves as the landlord, secures 100% debt financing for a project. Very flexible lease terms from 10, 12, 15 year operating hybrid leases, up to 20, 25, 30 year fully amortizing leases, flexible purchase options during the entirety of the lease term at the debt balance, not at a fair market value equation. So, generally speaking, way more accretive to an underlying tenant that might wish to take control of that asset sooner rather than waiting for the lease-

Jerimi Ullom: John, one thing I’ll jump in there for the health systems and kind of the providers on the call. We’ve seen a lot of the dynamic where the proposals come from the foundation or from the developer, what have you. I think the future trend is really for the health systems to kind of say, here’s what we want, right? Here’s the accounting treatment we want. Here’s the term of lease we want. Here’s the obligations we’re willing to accept. Tell me how you can make that work. Because one of the things we’ve seen is that there’s so much flexibility, particularly in this model that we get into a situation where folks have difficulty picking, right? It’s like the retail store, if they have less variety, sometimes they sell more because it just overwhelms people.

Jerimi Ullom: So, I would say health systems, you guys are in the driver’s seat to design these things both from an accounting standpoint, and a structure, and amortization and length of term. You’re in the position to really design this as much in the way you might design it if you were borrowing directly. So, I think that’ll be something we’ll see more and more of where the health system starts to take control of that and say, here is what we want. Go find the right product or right vehicle to deliver what treatment we’re looking for.

John Marshall: Yeah. Thanks Jerimi. A couple other quick things, just to note. In certain markets or jurisdictions, there’s an opportunity for property tax exemption. That’s not something that we would suggest anybody take as immediate gospel. There are all sorts of regulations around how that gets taken care of. And at the end of the day, assuming it’s a very long term strategic asset for a hospital, there is inherent long term accretive value that’s retained by that sponsoring credit tenant entity.

Jerimi Ullom: And that’s really the overriding factor here. I mean, a lot of folks latch onto property tax exemption, which can provide current savings. That’s wonderful. Where we can get it, we certainly will take it. But people have tended to not pay as much attention to the long term value and rather focus on what’s my rental rate in the next several years. And I understand that from an operating standpoint, but I think folks will start over time to really dig a little deeper and say, okay, the real value in this is, I’m going to pay for this facility once, right? I’m not going to lease it for another 40 years y the time I’m done. I’m going to lease it for an initial term of 15 and maybe get to 2025, and then I’m going to be able to take ownership of it.

Jerimi Ullom: So, I think that long term value will start to overwhelm some of other benefits as people recognize it more. And as I think in the market depending where interest rates go and depending where cap rates go, it might get harder to generate current year savings, even though there’s all of this value created over 20 years for the health system.

John Marshall: Right. Andrew, I think we’re done with that slide.

Jerimi Ullom: Andrew, we could do this in two slides, what took you like 15. So, see how Danielle does.

John Marshall: I do want to raise a question that was brought up by one of our participants and it’s a fair point on just the rising costs associated with construction and labor on delivering projects. There’s an inherent conflict on the risk associated with that and the spreads that developers essentially can achieve to manage those escalating costs. And so while I’m not suggesting that rent should be at historic lows, there is evidence that rent factors, the yield on cost have been at historic lows. Yet there’s also sensitivity to the fact that developers are put in a position where they have to manage supply chain and construction cost escalation risk that has been really challenging. So, there is a creative tension there that I think will probably need to be worked out amongst the tenant and the entities delivering the space.

Danielle Bergner: Thank you, John. Hello everyone. I’m Danielle Bergner, I’m an attorney in Hall Renders real estate group. I’m going to finish out the program today by talking a little bit about another big macro trend We’ve been watching closely in recent years, and that is the entry of healthcare into housing ventures. So, I always start by addressing what is usually a fairly obvious question, which is why are we talking about housing? And the reason is that housing instability is increasingly becoming a growing concern for healthcare. I have an excerpt here, a headline from a recent Georgia Health News article that says, “Housing is a health issue, a big one.” And that’s very true. And whether healthcare, likes it or not, the reality is the lack of safe, decent, affordable housing for populations in need of it are presenting on the doorstep of healthcare every day.

Danielle Bergner: So, what is the role of hospitals in housing? Nationally, healthcare organizations are realizing that traditional medicine and healthcare alone isn’t enough. And so healthcare organizations are entering social interventions and housing being a big one. I think that one of the reasons healthcare systems are gravitating to housing as a social intervention strategy is, it is a particularly accessible and flexible, and I would say tangible way for healthcare systems to make a difference in the communities that they serve. Housing is also a really interesting opportunity for healthcare systems to target specific populations and to achieve different outcomes depending on the needs of a particular community. So, for example, you may adopt one strategy to address homeless populations, a different strategy to address a shortage of housing for senior populations, or as we’re seeing with a number of our clients nationally, financial contributions to support workforce needs for hospital employees in need of affordable housing.

Danielle Bergner: So, I’m showing a graph here that really is intended just to highlight over the last 10 or so years, what’s happened in the housing markets nationally. And the short story is that most of the new construction nationally in the last 10 years, has been in higher rent market rate housing. And so what’s happened is we’ve seen a decline in construction and opening of affordable rents. So, rents under $1,000 a month plus or minus, depending on the market have declined substantially over the last 10 years while construction of higher rent units has actually increased. And so what we see nationally as a trend is a growing gap between the need for affordable units and the availability of affordable units. I would also note that the markets are watching very closely what the COVID 19 pandemic does to this need for affordable housing. Experts generally agree that the pandemic is going to exacerbate housing related strains in most communities nationally.

Danielle Bergner: So, what we’ve been monitoring closely in particular in this last year is an increased ground swell of dialogue and action amongst hospitals and healthcare systems to address housing. At the Health 2021 Conference this year, a number a panel discussion with a number of executives from Cleveland Clinic, UMass and Boston Medical Center talked extensively about why their systems are investing in housing, why they are adopting it as a core social intervention strategy, community benefit strategy, and what they are expecting to see in terms of returns, not just financial, but also social in the communities that they serve.

Danielle Bergner: And I didn’t want to cover just a handful of trends that we’re seeing in terms of strategies that are being adopted by healthcare systems nationally. I call this closing the gap. What is healthcare doing exactly to start closing the gap between the need and the supply for affordable housing? I would say one high level trend that we see nationally is hospital anchored mixed use campus style projects where the hospital or the hospital clinic serves as the anchor for a mixed use development kind of surrounding the hospital campus, or even throughout the campus to a certain extent. One good example of this is Cleveland Clinic has a project underway located adjacent to one of its clinics, where they will have not just housing, but grocery stores to serve what had been historically food deserts, laundry facilities, community centers. So, in other words, the hospital is really using the hospital’s presence in the community to create a community around the hospital to support the needs of the people that they’re serving.

Danielle Bergner: Another high level trend that we’ve been monitoring is the growth of public private partnerships in the area of housing. Another example of this would be Denver Health this year partnered with the Denver Housing Authority to repurpose a surplus hospital administration building for 110 units of affordable housing near the Denver Health Campus. This project leveraged low income housing tax credits. It leveraged the public housing authorities access to project based vouchers, and was partially financed through a ground lease financing from Denver Health. So, Denver Health did not convey fee title to the Denver Housing Authority in this case. Denver Health financed the housing authorities acquisition through a long term ground lease structure that basically served to preserve the real estate very long term for Denver Health, but to facilitate for at least the next probably for more decades, an affordable housing project.

Danielle Bergner: I liked this project too, because it was a creative reuse of a surplus, what was underutilized administrative building for Denver Health. And we know nationally that this is a challenge for health systems, what to do with these surplus buildings. I will say that conversion to housing does not work particularly well for traditional medical hospital facilities, but it can work really well with surplus administrative buildings, just because of the physical characteristics of those types of buildings generally.

John Marshall: Hey, Danielle, you raised an interesting point there real quick, that the potential administrative conversion, and one of the things I’d be interested to hear from the group, maybe it can be just through a chat is how many hospitals or clients that our hospitals are looking at a major reduction of space in their administrative footprint. And my guess is it’s significant based upon a lot of other health systems we’ve talked to in the past year. But that might be something that’s part of a macro trend, Andrew, that we want to pay attention to going forward as to whether or not that administrative reduction actually happens, and then what to do with those buildings and that footprint, right?

Danielle Bergner: That’s right. And I would say it’s a great opportunity for affordable housing because to the extent that health systems can assist in the buy down of the cost of the land through something like land donation or ground lease structures, that can go a long way to closing the gap in a typical affordable housing capital stack. So, that’s why I like this Denver Health project, because it really puts all those pieces together and is a good example of how people can partner in that respect. I do want to address a question that came in in the chat. The question is, do you see these housing projects focusing more on public needs or more on employees of the health system or both? The answer is both. And it really depends on the market. So, in some markets, employee housing is a more acute concern for the health system.

Danielle Bergner: These would be higher rent markets where employees of the health system, moderate income employees of the health system are finding it difficult to secure affordable housing near or at least relatively near their place of employment. That issue is not as acute in markets that are not particularly high rent markets. In lower rent markets, so think upper Midwest to a certain extent over into Pennsylvania, some parts of the East Coast, the true additional rust belt type markets. Here the issue is not as much high rent as it is low income. And so depending on the market, the focus of the intervention might be a little bit different for the health systems. And this is what makes housing such an interesting strategy for health systems is because depending on what the actual needs of the community may be, the health system can tailor a housing intervention, a housing investment to meet exactly the needs of the community or the population that they’re trying to impact.

Danielle Bergner: That’s a great question. Thanks. Another trend, and this question that I just answered touches on it is hospital employee workforce housing. I cite an example here of Atrium Health partnership that included workforce housing for Atrium employees. This particular project included over 340 units of housing with 20% of those units being set aside for Atrium Health employees. Here in this particular market, the issue is a real spike in rents. And so a lot of Atrium employees are finding themselves in need of affordable housing. I would say another significant trend that we are actively monitoring is how hospitals and health systems are partnering with community development financial institutions, or CDFIs to establish funds for housing.

Danielle Bergner: So, some hospitals and health systems have taken what I would call a more passive investment approach in housing, where instead of making direct investment in a particular project or with a specific investor or developer, the health system is actually pooling its funds with a CDFI, which then essentially uses the funds, administers the funds and funnels the money into affordable housing initiatives in the community. I cite an example here, Bon Secours has partnered with Enterprise Community Development for years on housing funds in and around the Bon Secours campus. They’ve together developed over 800 units of affordable housing that serve the community that Bon Secours serves as well.

Danielle Bergner: And that wraps up my housing intervention. There’s one question that came in, Andrew, that I’ll answer here. The question is, has the issue of nonprofit healthcare organization investing in housing for community employees raised concerns around organization’s tax exempt status or the use of tax exempt debt? So, that’s a good question. That is one of the legal and business questions that we always evaluate when we’re looking at these projects with our clients. The short answer is there are ways to structure hospital investment in these project so as to not run a follow of these concerns. But yes, that is absolutely an issue that we look at with every one of these projects.

Jerimi Ullom: And the last part of that question, use of tax exempt debt. I think workforce housing, it’s not rent restricted, it’s not reserved to folks that make a certain level of very median income. My off the top of my head answer is that that’s probably not going to qualify for tax exempt debt. If it’s dedicated the workforce for the organization’s purpose, then maybe it’s charitable, but I think that would be the analysis. That just means maybe you don’t do this with tax compliance, right?

Danielle Bergner: Correct. Correct. And I would say that we didn’t spend a lot of time on it here because this is more of a high level trend discussion, but this is why I still advocate for the low income housing tax credit as still being one of the most efficient ways to finance affordable housing. You can finance affordable housing without the low income housing tax credit, but when you do that, you just have a much larger gap to fill in your capital stack. So, this is the benefit of finding a trusted partner of a hospital or health system finding a trusted tax credit development partner, like a housing authority. Housing authorities are great partners for these projects for hospitals and health systems, because they’re governmental, they tend to have the same alignment of community interests. But there are a lot of other really great low income housing tax credit developers nationally, including a number of nonprofit developers that really have a charitable mission of expanding affordable housing opportunities nationally. So, those are also good partners for hospitals and health systems.

Andrew Dick: Terrific. Thanks, Danielle, and thanks everyone for joining. Okay. Well, thanks again for joining. We do plan to post this discussion on our podcast channel in about a week. And some of you have asked if we would share the slide deck, I will check with my co-presenters and if you’re interested, I will send it to you. Just send me a note here on Zoom or send me an email. I’d also like to say that we just launched a new platform where we will be sending out our monthly healthcare real estate news letter and our weekly update on trends in the industry. If you’d like to be added to that list, let me know and I will add you. Thanks again for participating.

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An Interview with Tamia Kramer, AVP of Real Estate, Ardent Health Services

An Interview with Tamia Kramer, AVP of Real Estate, Ardent Health Services

In this interview, Andrew sits down with Tamia Kramer, to talk about her real estate career, building a centralized real estate function for Ardent Health Services and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Tamia Kramer

AVP of Real Estate, Ardent Health Services

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today we’ll be speaking with Tamia Kramer, the associate vice president of real estate at Ardent Health Services. Ardent is a national hospital and healthcare system that’s based in Nashville, Tennessee. We’re going to talk about Tamia’s background, Ardent Health Services and trends in the healthcare real estate industry. Tamia, thanks for joining me.

Tamia Kramer: Thanks for the invite, Andrew.

Andrew Dick: Tamia, before we talk about your role at Ardent, let’s talk about your background and tell us where you’re from and what you wanted to be when you pursued a professional career.

Tamia Kramer: So I’m from a little bit of everywhere. I was a military brat growing up, went to 14 different schools. I went to college in Texas. That’s actually where I lived for the 18 years before I moved to Nashville with Ardent. Went to college at Texas women’s university, and really knew that I was fueled at negotiation and analytical review of information and decided to pursue working within the real estate industry and start as a broker, but ended up taking my career down that path. And so I bring that level of experience to this role at Ardent.

Andrew Dick: Got it. And so when you worked in the commercial real estate industry, talk about your roles. I mean, it’s my understanding you were a commercial broker, you worked for a developer. Tell us a little bit about your experience.

Tamia Kramer: Yeah, so I started out working for an industrial real estate developer and kind of an administrative capacity and that really gave me a snapshot into the industry itself and the ins and outs. And let me begin to hone some of my negotiation and analytical skills. From there, I decided to double down on that career path and become a broker. Got my real estate license working for a local firm in Dallas. And the primary client that I had to start out with was a healthcare client. I actually worked on the corporate headquarters of the former Triad hospitals campus and managed all of their real estate transactions. And then as far as the developer piece of it goes, in addition to the brokerage side of things, I’ve also gotten some experience with build-to-suit type developments related to the expansion of some of those healthcare clients and specifically art and health as well.

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

Tamia Kramer: Yeah, so I was working in-house for another healthcare company in 2017. Ardent reached out to me and was interested in centralizing some of their real estate functionality at the corporate office. At the time, the real estate functions were all on a case-by-case basis at the facility level. And so that led to either a lack of visibility or cohesiveness with our strategic plans. And there was a lot of benefit to giving that visibility to the leadership team at the corporate office. So I presented to the executive team, gave them a plan on how exactly we would go about centralizing the department. And at that point, they extended an offer to me. And I took that role in mid-2017.

Andrew Dick: And to me, it sounds like when you presented to the executive team, it was really to build out a real estate department, and so what does that mean? Talk about building out a centralized real estate department within a larger health system. That sounds like a heavy lift.

Tamia Kramer: Yes, very much so it was slow going at first, a little bumpy along the way. The first thing that you have to do in trying to stand up a real estate department that didn’t exist previously is getting your arms around what you currently have, and we had a lot of lease documents, but they weren’t in a centralized location, they were not all electronic. So a large part of what I did to start was just taking inventory of everything that we have and a baseline of where we’re at and then start the process of making sure that each of those agreements is compliant, it’s current, and try to add value wherever you can.

Tamia Kramer: Another function that we work to streamline and centralize is the billing and collection of all of our income leases. So what that means is sending out rent statements to any tenants that lease space from us and then collecting on those funds and reporting those down at the facility level. Previously, the hospitals each managed that locally and at the end of the day, if rent isn’t paid, that is a problem, not just from a business standpoint, but also a compliance standpoint. And so it has helped us to get in front of a lot of those issues, kind of create a standardized process of billing and collections and not letting anything get too far gone before it’s addressed.

Andrew Dick: Got it. And so you’ve been at Ardent for a number of years now and so what are some of the key takeaways? I mean, did you implement like a centralized technology database or how did it work when you started centralizing the real estate function?

Tamia Kramer: Yeah, we did. So we have a web-based platform that we use that holds all of our real estate leases. We are able to pull reports out of that system. We use that same system to build the income tenants, their rent, and any other amounts that are owed under the lease. We’ve created a site selection, an optimization system using various demographics and business intelligence data to help us determine where we want to be and why we want to be there. So that’s added a level of improvement to the locations that we decide to pursue. Rather than taking a wait-and-see approach and trial and error, we’re trying to get it right the first time where we can. So that has significantly helped. In addition, we’ve got a data room of various floor plans, schematics measurements that we have been able to collect over the last four years by engaging a firm, an architectural firm to help us remeasure all of our spaces to ensure that what we’re releasing is in fact accurate.

Andrew Dick: So Tamia, talk about, let’s transition and talk a little bit about strategy. So one of the big issues that healthcare providers face today in the real estate world is whether to own or lease their facilities. How do you approach those decisions and does Ardent have a certain perspective on whether to own or to lease?

Tamia Kramer: So it’s approached at the highest levels, we certainly want the local division leadership and the Ardent leadership to kind of be the driving force behind whether we decide to own or lease something. I will tell you that the historic approach is into lease property. Now that does not mean that we do not own property, we have a healthy amount of both, but we do have a preference to lease. And the reason for that preference is that it doesn’t tie up large capital sums of money in those hard assets that could otherwise be deployed into operational type functionality and also an expansion of our footprint and of our various healthcare activities and market.

Andrew Dick: And so let’s also talk about the impact of COVID, Tamia, so how is the impact of COVID changed the way you’re doing business on behalf of the health system?

Tamia Kramer: So we are always trying to be as smart as possible about the dollars that we spend, but COVID really made us focus even more on that and tried to leverage what we could in order to improve existing terms or close locations in favor of better locations. I’m sure a lot of other healthcare companies have gone through that same exercise. Now we’ve also, from a corporate office standpoint and an administrative space standpoint, we’ve been looking at how to better utilize the space that we have and ways that we can improve efficiencies.

Tamia Kramer: One thing that we have started looking at and we’ve implemented fairly recently is a hybrid type working environment where people are in the office 1, 2, 3 days a week, the rest of the week, they’re working remotely from home. That has enabled us through some creative exercises to potentially reduce our corporate office footprint by over 30%. We’re currently sitting in about 104,000 square feet and it looks as though we may be able to reduce that footprint down to about 75,000, still meet all of our needs, and actually improve efficiencies and collaboration across the board. And in that same approach is being used in each of our local markets as well to evaluate our use of administrative space and how much we in fact actually need.

Andrew Dick: Got it. So Tamia, when we talk about administrative office space, there are often strong feelings on behalf of the employees that use the space. Has there been any pushback from employees that like to have a traditional office, or how have your team members responded to this more hybrid approach?

Tamia Kramer: Before we implemented that, we actually distributed a survey to all of our staff and we asked them to weigh in on what they wanted the corporate office of the future to look like, what was important to them. And at that point, when we deployed the survey, we had already started working remotely for the most part because of COVID, because of all of the lockdowns and the restrictions and we didn’t have a cohesive hybrid working policy developed yet. And we weren’t sure if it was going to continue in the future. So to get a decent baseline of where exactly the future was going to be taking us, we deployed that survey and the survey came back with 73% of the staff wanted to work in some type of hybrid environment. That was pretty telling, only 11% of the respondents came back and said that they wanted to work in the office five days a week, which was, it was a little shocking to everybody that was reviewing the results.

Tamia Kramer: But that told us what we needed to know that with the changes that COVID brought around, we were better serving our employees by giving them a chance to work in the environment that they thrive in, whether that’s in an office without distractions from home or working from home if there aren’t any distractions at home. And so focusing on where someone thrives rather than just having somebody sit at a desk just to sit at a desk, it’s kind of, it’s been a culture change here at Ardent and I can tell you that from my perspective, I’m happier. I think I have a better work-life balance as a result and I think that that is probably the case with a lot of my colleagues. I will tell you that we are planning on doing a secondary survey just to test the waters again and make sure that what everybody thought they wanted, earlier in this year is actually working for them before we start making some long-term space reduction decisions.

Andrew Dick: Yeah, that’s interesting because it seems like each company has a little bit different response to those types of surveys, whereas, in the law firm world where I work, the attorneys always want an office and aren’t as flexible when it comes to giving up an office. But that’s interesting how Ardent approached it and how things are working out. So Tamia, let’s talk a little bit about trends in the industry. What are some of the bigger trends in the healthcare real estate industry that you’re noticing?

Tamia Kramer: So I am noticing more of an ambulatory strategy. That is where access points are at an increase and access points are the goal. People are looking for convenience, they’re looking for things close to their home. They don’t necessarily want to travel to an on-campus large acute care type facility and have to navigate all of the halls there just to get to a run-of-the-mill doctor’s appointment. And so we’re trying to increase those access points across most of our markets.

Tamia Kramer: I am seeing that that is an increasing trend. We’ve partnered with some Ardent care providers that are helping us meet that goal in several of our markets, specifically near Austin and Topeka, and several others. So I trend toward urgent care, I trend towards increased access points and also just making sure that any new developments that are created, they’re using the dollars as best they can. The construction cost is just through the roof right now, which is obviously increasing the cost of any real estate ownership and or leases associated with those developments. So just noticing a little bit more cost-consciousness across the industry as a whole.

Andrew Dick: And what about telehealth? Tamia seems like health systems have had a big increase in demand for telehealth services. Has that changed the way that you and your team operate?

Tamia Kramer: Absolutely. So I would say that we are starting to utilize portions in some of our clinics as a telehealth room, as a place where doctors can go in and have a dedicated area to conduct those telehealth visits. When in person visits aren’t possible, it’s definitely increased our volumes. Now we don’t, it doesn’t necessarily translate to more dollars but if we are able to get access to more patients, then that’s not a bad thing, even if we’re not necessarily seeing them in person, they’re getting the quality care that they need. And they’ll likely be come back to us for more care if they had a quality experience.

Andrew Dick: Yeah. I think that’s what I’m hearing from other providers as well. So talk about your young professionals who are getting started in the healthcare real estate business, what advice would you give to someone who’s new in the business that wants to learn as much as they can? What would you tell them?

Tamia Kramer: So I would say that healthcare real estate is a little bit of a different animal from typical commercial real estate. Mostly in that there are compliance parameters that you have to stay within in order to keep yourself out of trouble. And those don’t necessarily align with the typical, get the best deal for your client approach that you will typically see in commercial real estate. There have actually been some times that I have had to approach a landlord and ask them to increase my rent, because it was not fair market value any longer.

Tamia Kramer: And you typically won’t ever see anybody do that in commercial real estate. It’s get the best deal you can. The reason why we have to be careful with that in healthcare is you cannot give any type of incentive for any referral business. And if, for instance, we’re leasing space from a referral source and we are not paying them at least the fair market value for the rent, or more fair, more money, more than fair market value for the rent, then that could be construed as an incentive to refer. So it, I would say that go into it still with making the best financial deal possible at heart, but understanding that the most important thing to do is to actually stay within those compliance and regulatory bar rails.

Andrew Dick: Yeah, that’s right. I agree with you from, in the healthcare world, the regulatory environment is very different than in the traditional business world. So Tamia, this has been great. Where can the audience learn more about you and Ardent health services?

Tamia Kramer: So you can go on our website at There are several links on that webpage that will navigate you through our health systems and our history where we started at, where we’re going. There’s also a link to careers and different news articles that are available that talk a little bit about what we do and our impact in the community. And I’m on LinkedIn so, I mean, I’m welcome to connect with anybody that wants to know a little bit more about what I do, a little bit about Ardent or just wants to talk about real estate.

Andrew Dick: Great. Well, thanks Tamia, this was a good conversation and thanks to our audience for listening on your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the healthcare real estate advisor to be added the list. Please email me at

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An Interview with Collin Hart, CEO, ERE Healthcare Real Estate Advisors

An Interview with Collin Hart, CEO, ERE Healthcare Real Estate Advisors

In this interview, Andrew Dick sits down with Collin Hart, to talk about his company and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Collin Hart

CEO, ERE Healthcare Real Estate Advisors

Andrew Dick: Hello, and welcome to The Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today we will be speaking with Collin Hart, the CEO and managing director of ERE Healthcare Real Estate Advisors. ERE is a healthcare real estate consulting and brokerage firm.

We’re going to talk about Collin’s background, the company he leads, and trends in the industry. Collin, thanks for joining me.

Collin Hart: Andrew, thanks so much for having me today.

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

Collin Hart: Sure. I actually happened into the real estate business by chance, but I’ll kind of start at the beginning and give you a little bit of understanding of where I come from.

Collin Hart: So I originally grew up in the Carolinas, and I started my undergraduate degree at NC State University in Raleigh, North Carolina, and I was going for business. But sometime between my sophomore and junior year, I was looking for an internship, and I basically was late in the game. I didn’t have anything lined up for the summer. And I was kind of looking at my options and figured I, I wasn’t sure what I was going to do.

Collin Hart: So I ended up going to a family reunion and I ran into a cousin of mine. And I mentioned to him that I was looking for an internship and he said, “Well, that’s perfect. We’re looking for an intern. We run a real estate business in south Florida. We own a bunch of shopping centers, and we’d love to have you down.”

Collin Hart: So I didn’t have any other options, and I thought this might be a good one. So I decided to move down to Palm Beach Gardens for the month of July. And basically, I was working at his company. It’s a family office. And so during the day I was learning all about property acquisitions, management, leasing, working with tenants, and then in the evenings he was mentoring me.

Collin Hart: And so at the end of that internship, I moved back up to NC State and I’m reflecting on that experience. And I decided that I learned more in that month working with my cousin and be mentored by him than I learned in my first two years of university. And so with that, I decided, hey, I really want to have a career in real estate. And I moved down to Florida to continue school, but also continue working with him.

Collin Hart: And so that’s how I got started. And eventually I moved into an acquisitions role for that company. And so, as I mentioned originally, they were owning shopping centers all over the state of Florida. But we started branching out and looking for other asset types to acquire. And so we got into the single-tenant real estate space. And so, in case you’re not familiar, that’s fast food restaurants, drug stores, gas stations, basically single-tenant net lease properties that you can really own anywhere. And basically, your job as a landlord is to collect rent. Okay?

Collin Hart: And so that allowed us to really open up our box. And so I got into the role of acquisitions, buying these properties all over. So we acquired about a hundred million dollars of real estate all over the country in about 30 different states. And so fast forward, and I got to the point where I realized I was never going to own any of those assets.

Collin Hart: And so I thought, maybe I ought to forge my own path. And so from that point I left the company, and I went to New York and I worked for a private REIT in acquisitions in New York. And so just in the year that I worked in acquisitions, we bought $300 million of real estate all over the country.

Collin Hart: So I’m coming from this private, we’re investing our own money, into working with an entity that’s investing on behalf of others and really needs to get money out the door. So I got a lot of great experience there, but ultimately decided that I was not set up for cold weather. And so I relocated to Southern California.

Collin Hart: And so at that point I had kind of left the principal side of the business, I no longer worked for that REIT. But at the REIT, we acquiring three different types of properties. We were acquiring single-tenant industrial assets, single-tenant retail assets, and then single-tenant medical assets. And that was really my first foray into the medical real estate world.

Collin Hart: And so what I noticed is that the REIT, we were getting the best deals on all the medical real estate. And I think the reason was because there was poor representation, or no representation, on behalf of the owners of those medical properties. And a lot of times we were buying properties from doctors.

Collin Hart: So that was pretty much the advent of the start of our company, ERE Healthcare Real Estate. Where we said, hey, instead of being on the buy-side, I can move to the sell-side, to the advisory side, and fill a gap in the market, helping these folks who really are getting taken advantage of to now represent their best interests, and get the best possible outcome for them on a real estate sale.

Andrew Dick: Got it. So I know you worked for an investment bank as well. At what point did you say, hey, I need to start my own company, I need to forge my own path? And what really prompted that, Collin?

Collin Hart: Sure. Yeah, so thanks for filling in that gap there.

Collin Hart: Yeah, between the private REIT that I worked for and the founding of ERE, I briefly worked for an investment bank. And so, obviously an investment bank focuses on advising business owners on how to monetize their businesses. And so we were in the real estate side of that. And so I was working on a small team, and basically we would help with the real estate when a practice, or hospital, or healthcare organization was being sold.

Collin Hart: And I just didn’t feel like the real estate was the number one focus. Because again, we were just a piece of the investment bank’s business. And so oftentimes the outcomes would be subpar on the real estate because we were trying to get the best possible outcome on the enterprise.

Collin Hart: And so when I saw that conflict of interest, or not the best total or aggregate outcome, I said, hey, let’s focus just on the real estate side of things. And that was really the founding of ERE.

Andrew Dick: Got it. And did you start the business on your own, or did you come over with a partner?

Collin Hart: I started with a partner. Fortunately, I met some really great people working at the bank. And so as part of that, a couple of us left at different, times and ultimately ended up coming together and founding ERE together.

Andrew Dick: Got it. So talk about your typical client. Is it the physician, independent physician? Talk a little bit about the client base.

Collin Hart: Sure. So I would say that we’ve worked with all different types of healthcare organizations. It could be institutional real estate investors, it could be a health system, or it could be the independent physician groups. I would say the majority of our business is in working with those independent physician groups, generally because real estate is maybe the third or fourth tier of their expertise, right?

Collin Hart: Number one, their physicians and providers. Number two, their members of their community, members of their family. Number three, there may be business people and investors. And then number four, perhaps real estate is the focus. So those are the folks who we can work with, where we can add value to their situation. And so that’s where a lot of our business comes from. We’ll certainly advise the health systems and the others, but at the end of the day, we’re able to deliver the most value with the folks who perhaps have the least experience in real estate.

Andrew Dick: Got it. And Collin, talk about where you’re at in the country and markets that you’re serving. Or maybe it’s just nationally.

Collin Hart: Sure, yeah. So we have offices in Southern California and in Texas. And so while we have just those two offices, we’re really focused all over the country. And the reason for that is because it’s not like there’s hundreds of physician-owned medical buildings in any one market. Generally we’re working with the specialty physicians in any one market.

Collin Hart: So that might be gastroenterologists, orthopods, urologists, dermatologists, nephrologists, any of these specialty folks, often who are in a position where they own their practice and then they also own their real estate.

Collin Hart: So we literally travel across the country. I mean, we’re working on transactions now all the way from, let’s say south Florida to Alaska, believe it or not. So this is our first deal in Alaska and we’re really excited to help those folks.

Andrew Dick: That’s great. So talk about the type of services you’re providing. A lot of times we think of brokers who are trying to convince physicians to sell their real estate, or participate in a sale lease back or an UPREIT transaction. What is your role when you’re working with clients, and what is the objective?

Collin Hart: Yeah, that’s a great question and I appreciate that. So I will tell you that we’ve probably told just as many people, that they should not sell their real estate, as those who we’ve told, you really should sell your real estate. And so we really take an advisory approach. While we are a brokerage and we do make money when we sell real estate on behalf of our clients, at the end of the day, we take a long-term perspective on our transactions with our clients.

Collin Hart: And so we generally are not pushing them for a sale. Generally, they reach out to us, or we’ve been in touch with them for many years, and we advise them on certain points in the life cycle of their business that, hey, it might make sense for them to explore a real estate transaction.

Collin Hart: So the services that we offer, to kind of get back to your question, while our primary business is selling real estate, oftentimes on behalf of physicians, there’s a lot more to it, right?

Collin Hart: So you’re an attorney, and I’m assuming you understand the correlation between the strength of the lease and the value of the real estate. Right?

Andrew Dick: Mm-hm (affirmative).

Collin Hart: Right. So that’s where we try to differentiate ourselves as advisors. While we sell real estate, we’re really experts in leases as well. And so we get involved oftentimes in the lease negotiation process. Totally, we can bring aggressive offers, we run a competitive marketing process to generate multiple offers on our client’s real estate when they’re ready to sell it. But there’s a lot of buildup to that, oftentimes over the course of a couple of years.

Collin Hart: And so one of our biggest business segments right now is, we’re working with independent physician groups who are exploring a sale of their practice, let’s say to private equity or some aggregator. And so when they’re going through a transaction like that, if they own their practice and they own their real estate, and they’re selling off their practice but retaining that real estate, there’s going to need to be a new lease executed or negotiated between the new owner of the practice and the original physician to retain the real estate.

Collin Hart: And so we see so often that the physicians are so focused on the practice deal, that they don’t pay attention to the real estate and they negotiate subpar terms. So what we’ve tried to do is create a lot of education surrounding that, and the value of your real estate, and the importance of the lease terms. And so we often come in when a practice is going through a PE deal to help them negotiate that lease. So that whether they decide sell the real estate or not, they have the option.

Andrew Dick: Got it. So talk about some of the areas of expertise. I know you and I have talked about different private equity deals right now, the private equity firms are really aggressive going after certain specialties. And I know that you and your team have developed an area of expertise with ophthalmologist. And talk a little bit about that, Collin.

Collin Hart: Sure. I kind of fell into the world of ophthalmology just by chance, kind of like the same way I got into real estate. And so what ended up happening is, we were working with a couple of ophthalmology practices several years ago, and they were really satisfied with the outcome.

Collin Hart: And so we started getting involved with the different ophthalmology professional organizations, like the trade organizations that really catered to the physicians, the providers.

Collin Hart: And so in going to a couple of those conferences, I noticed that everybody’s talking about private equity and practice operations, but really nobody was talking about real estate. And I didn’t understand that. And so in, corresponding a lot with these different professional organizations, we’re able to create a consultant membership or role for ourselves where we can add value, not only to those individual physician groups that are part of the organization, but also contribute to the knowledge base.

Collin Hart: And ultimately, that’s what we’re about. So for us it’s just about delivering value from a longterm perspective, not only to specific clients but to that industry or specialty.

Andrew Dick: Got it. And so when you’re working with physicians, what are some of the concerns that they raise your. You’re right that in a traditional sale of their practice they’re focused on the economics of the sale of the practice, and the real estate doesn’t always get a lot of attention.

Collin Hart: Right.

Andrew Dick: What type of things are you helping them with? Negotiate the lease term, negotiate the lease rate, the form of the lease, things like that?
Collin Hart: Sure. It’s all of those things plus many more. And so let’s just take the private equity piece out of the equation to start out, right? Let’s just say it’s a traditional sale and leaseback transaction that we’re working on with an independent physician group, just to kind of simplify the discussion.

Collin Hart: And so everybody talks about, hey, we want to get the most money, right? I’ve never heard anybody say I want less money. And so that’s always how the conversations begin, but ultimately it comes down to, what terms are you willing to agree to in order to get to a price like that?

Collin Hart: And so what we’re kind of working against is a lot of brokers, unfortunately, I won’t say advisors, but a lot of brokers in the market kind of lead those discussions, or try to bait some of their perspective clients with the most aggressive pricing possible.

Collin Hart: And so maybe there’s really low cap rates that are available, but hey, is the practice, or are the partners willing to sign up for all the obligations that are necessary to get to something like that?

Collin Hart: So our education process is related to pricing, and certainly we can bring aggressive pricing as part of our marketing process. But it’s helping our practices understand what the implications of a lease are. What are the market terms of a lease? What is the length of lease that helps them optimize the value of the real estate? What is the rental rate that not only is sustainable for their practice, but also is in line with fair market value?

Collin Hart: And so there’s a lot of nuance to that as I’m sure you know, as council, right? And there’s no right answer. But ultimately our goal is to try and balance the short-term objectives of the sale of the real estate, and kind of getting the most proceeds, with the long-term objectives of the practice, which are ultimately sustainability, right?

Collin Hart: We’re not here to put any of our client practices out of business, it’s more about helping them balance those objectives.

Andrew Dick: Got it. So Collin talk about, you’ve been doing this for a while. Talk about how the industry has evolved. I mean, it seems to me that private equity, at least as of late, has been really driving a lot of deal activity. I was just looking at the BOMA MOB agenda for November, private equities prominently displayed. In terms of, that’s a discussion topic.

Collin Hart: Sure.

Andrew Dick: Is that one of the driving forces of the activity, as of the last couple of years? Or what else are you seeing in the industry? I mean, it seems to me that private equity is having a very big impact on the healthcare real estate industry.

Collin Hart: So here’s why I think it’s having a big impact, and there’s changes in real estate, but there’s also changes in the operational side of the business. And the practices, right? Like the delivery of healthcare.

Collin Hart: So on the real estate side, first of all, you’re seeing so much more interest in healthcare real estate because it fared so well during the recession and through the pandemic, right? Rent collections were high and tenants remain in business. And if you look at the investment landscape in the real estate world today, well, retail’s not that appealing of a place to invest, just given everything’s moving online.

Collin Hart: And then let’s say multifamily, which has traditionally been a really attractive investment class, is a little bit less certain because, hey, for the time being, you can’t kick your tenants out if they don’t pay rent. So that leaves a lot of investors looking at, what are the options? And because of the successful track record of healthcare real estate, they say, hey, maybe we should explore this. Right?

Collin Hart: So that’s, I think, why there’s a lot of additional interest and big volume of transactions in our space. Now, on the provider side, and the practice and operations side, I’m not a physician. As I know, you’re not either. And so I can only begin to understand the challenges that they’re having.

Collin Hart: But I think 20, 30, 40 years ago, practicing medicine provided a lot of freedom for the providers. It allowed a lot of creativity, and delivery of care, and running their own business. But what we’re seeing in healthcare, as is the case in many other industries, is there’s a lot of aggregation. And so it makes it challenging for independent practices to continue operating profitably, successfully, with limited risk.

Collin Hart: And so, particularly because there’s so much pressure on costs from all the third party payers and Medicare, I think it makes it even more challenging for independent practices to be sustainable.

Collin Hart: And so what we’re seeing, especially in a post-COVID world is, hey, if I could be part of a bigger organization as an independent provider, whether it be a health system or I’m under the umbrella of some private equity-backed management services organization that gives me negotiating power at a big company, but allows me to operate within the confines of my practice on my own, that might be an appealing idea. And so I think that’s, what’s driving a lot of the trend towards consolidation in the practice side of things.

Collin Hart: And as a result of that, I think that affects healthcare real estate too. Because think about it like this. Andrew, if you own your practice, you probably bought or built your real estate as a way to control the destiny of your practice, right? It’s an investment, but it’s also, the investment part is like secondary. Number one, you just wanted to own your home, let’s say. Right?

Collin Hart: So if you’re selling your practice, and you no longer control the tenancy in your building, it totally changes the dynamic of the real estate investment. And so from that perspective, we’re seeing a lot of folks say, well, the reason I bought or built my real estate was to control the practice, but I don’t control the practice anymore. So why do I own this real estate? And so that’s, at least for us, driving a lot of deal flow.

Andrew Dick: So Collin, one question I thought of is, when we see independent physicians join a larger group or join a roll up under a private equity model, sometimes I’ve seen these independent docs are very entrepreneurial. And sometimes they say, look, I want to give this a shot for a couple of years, but at some point I may want to go back to being an independent, or maybe reserve the right to do that.

Andrew Dick: Does that come up often in discussions with physicians? Meaning, hey, I may want to terminate the lease with the new provider entity, and then go back, have the right to go back to what I was doing. I’ve seen that come up a couple of times, Collin. As some of the independence are so, sometimes they want all the benefits of joining in on a larger group, but sometimes they get frustrated by the bureaucracy.

Collin Hart: Sure, so I agree with you. And I think we’ll see a wave of that in the next five to 10 years. Here’s why. In our client relationships, the folks who are really driving the practice sales and the real estate sales are the previous generation of providers. Those are the entrepreneurial guys that you’re referencing that built up their practice because they wanted to control everything.

Collin Hart: The reason that they’re selling is because they need an exit strategy. They need some way to get the sweat equity out that they built up through those decades of practicing. And so they look to the younger providers who are coming out of school, and we’re seeing a different financial and work profile associated with those folks. They have less money, they expect more, but they also have more debt. And so as a result of that, those incoming providers probably aren’t the best candidate to buy the practice from the senior physicians. And so the senior physicians don’t really have an exit strategy. So private equity or a health system would provide that.

Collin Hart: Now, fast forward five years, the senior physicians who sold are out, and the junior guys are still around. And I think eventually you’ll see this, we want to get away from working for somebody, and we want to go back to independent practice. And so I think eventually that’ll happen. But along with that comes hard work, risk, and entrepreneurship, right?

Collin Hart: And a lot of the generalizations that we’re hearing from our clients who, again, are usually the senior guys are, hey, we don’t see the same mentality in our incoming providers that we had when we started in practice. So it remains to be seen, right? I mean, my crystal ball’s about as hazy as yours.

Andrew Dick: Yeah. I tend to agree with you though, that I predict there will be a wave over the next three, four, five years of some of these docs who have joined in a larger practice, become employed and say, you know what? I kind of want to go back out on my own, or join a smaller group.

Collin Hart: Right.

Andrew Dick: Where I have a little bit more autonomy. So yeah. I agree with you.

Andrew Dick: Collin, switching gears a little bit, where do you see the opportunities in the healthcare real estate industry?

Collin Hart: Sure.

Andrew Dick: A lot of activity, right, over the past two years. It just seems more and more investors coming into the space, where are the opportunities?

Collin Hart: Yeah, I agree with you. I think historically there’s been so much focus on hospital credit, health system credit, corporate credit, right? Whether it be a hospital, or whether it be a national operator like a DaVita or Fresenius, or some of the bigger urgent care chains that are popping up.

Collin Hart: I think that corporate credit has always been something that feels safe, that you can hang your hat on as a real estate investor. But I think the real opportunity lies in understanding some of the smaller credit-worthy tenants, and really getting a better understanding of the operations, and what makes them dominant in particular areas. And that they own the market there for a reason. And they’re independent for a reason.

Collin Hart: And I think that makes for a very compelling investment thesis. And it’s not new, I mean, I’m not coining something and saying, hey, everybody should go focus on this. There are certainly plenty of participants who are focused on that. But I think that’s where a lot of the bigger opportunity is, especially in terms of risk and reward, right? Because if you look at some of those traditionally desirable corporate credit deals, the cap rates or yields on those are really low.

Collin Hart: So if you’re looking for a little bit better risk-reward profile, if you properly underwrite some of these smaller credits, I think there’s some value arbitrage to be had there.

Andrew Dick: Yeah, I agree with you. Collin, what about surgery centers? I don’t know how often you run into physicians that have ownership in a surgery center. There’s been an awful lot of activity in surgery centers over the last year or two.

Collin Hart: Sure.

Andrew Dick: Seems to be that they’re gaining more traction, but there’s also been a lot of new development of surgery centers in certain markets. And what’s your thoughts on that opportunities in that industry?

Collin Hart: Sure. So again, I’m not a provider, so I can’t give you the nitty-gritty in terms of the pros and cons of surgery centers. Here’s what I’ll share with you. Obviously there’s a push to outpatient care. And I think the reasoning for that is for pressure on costs and outpatient care is less expensive to deliver, and therefore the payers want that. That’s number one.

Collin Hart: Number two, I think you’re seeing better outcomes and lower infection rates in an outpatient environment. So not only is it better for cost, it’s better for outcomes, right? So that’s, I think that’s great, and those are things that are achieved in an ASC setting.

Collin Hart: Now from a real estate investment perspective, I would say 75% of the transactions that we work on have some ASC or surgery center component, right? So it’s a big part of what we do.

Collin Hart: And I think there’s always going to be demand for that, especially when we were talking about surveying your different investment opportunities across the real estate spectrum. You can buy retail goods online, certainly everyone’s always going to need a place to live so there’s always an investment thesis for multifamily.

Collin Hart: But the same applies to surgery centers. Which is, hey, you can’t buy procedures on the internet, right? So if someone needs LASIK, or they need to have their cataracts removed, or they need a colonoscopy, or you need a new knee, I mean, we can’t do that via telehealth, right? And so I think that’s the compelling investment thesis behind AFCs is, you need somewhere to do the procedure. So I think that in the long run, that’s where it’s at, as opposed to inpatient care.

Collin Hart: But I think maybe you were alluding to, you’re seeing lots of ASC development, and is that a sustainable model? Is that your question?

Andrew Dick: Yeah, Collin, that’s right. We know that there’s tremendous demand for those facilities, not just on the real estate side, but on the [OPCO 00:27:21] side. And anytime you see big players like Optum jumping into that space and buying up hundreds of surgery centers, you have to take notice.

Andrew Dick: And so I’ve just, I’ve seen a tremendous amount of development activity when we’re looking at trends in the industry. And I just think it’s interesting to watch. I mean, surgery centers have always been out there, but just seems like there’s an awful lot of momentum right now.

Collin Hart: Right.

Andrew Dick: In terms of investors looking for those assets, but also operating providers looking to gain access to new patient populations.

Collin Hart: Yeah, I agree with you. And just to continue on that a little bit, I think part of the consolidation play, be it in practices or in the surgery component, like in an ASC environment, part of the value proposition for folks buying into the enterprise is, hey, if we own more of these operations, we have more negotiating power with the payers. So I think that’s also driving a push into an interest in that space as well.

Andrew Dick: Makes sense. Collin, let’s switch gears.

Collin Hart: Sure.
Andrew Dick: A couple more questions before we wrap up. Last time we spoke, we talked about veterinary clinics. I find those very interesting because they’re also becoming hot right now, from an investor perspective. We’re seeing private equity move into that space as well. What are your thoughts?

Collin Hart: So it’s pretty top-of-mind for us. We just completed a transaction where we sold six veterinary hospitals. And so that was our first engagement in the space, but we learned a lot about it. I think there are a lot of parallels between human health care and veterinary care, but actually you said, hey, private equity is moving into it. Actually, private equity in veterinary care is probably a decade ahead of where it is in human healthcare.

Collin Hart: And so I think if you really study and look at the vet care consolidation, that’s what the future holds for human healthcare as well. And so I think the reason for that earlier consolidation is because there’s obviously less regulation related to the care of animals versus humans, number one.

Collin Hart: But are were some major operators out there in the vet care space. And the trends that we’re seeing in vet care are pretty similar to healthcare in that the consolidation is driven by pricing power, driven by demand for succession planning from those senior founding docs.

Collin Hart: But what’s unique about that care is, in human healthcare we have this third-party payer system. But in veterinary care, do you have a pet or an animal?

Andrew Dick: We did for many years, and I think I know where you’re going.

Collin Hart: Okay.

Andrew Dick: Out-of-pocket private pay.

Collin Hart: Out-of-pocket, yes. So in human healthcare it’s like your insurance company, you pay your deductible, your insurance company foots the bill for the rest. And we don’t necessarily see what happens behind the scenes there as a patient. But for veterinary care, if your dog is sick, you take your dog and you pay for it, cash, that day. And that’s not to say there aren’t some insurance policies for pets, but generally you’re reimbursed directly by the insurance company after you pay the bill.

Collin Hart: And so that’s a pretty interesting value proposition for an owner of a vet practice, because you’re not beholden to these big payers who are putting pressure on your pricing. So I think vet care is a desirable investment segment from that perspective. And obviously, I mean, I know you don’t have a pet now, but the growth in pet ownership has never been greater, especially through COVID.

Collin Hart: And so more people are having pets, and maybe waiting ’til later in life to have a child, right? So they treat their pets like a member of their family, and as such they’re willing to spend money on their health care. So I think it’s a super interesting space, and a lot of parallels to human health care and the real estate surrounding that.

Andrew Dick: Well, I find it interesting as well. Thanks for the insight.

Collin Hart: Sure.

Andrew Dick: Last question. What advice would you give to a young professional getting into the healthcare real estate business?

Collin Hart: I think that’s a great question. And I’ve thought about it a lot, especially as we grow our team. And I think I would take it back to an earlier part of our conversation, where we have a really long-term perspective, and we’re not pushy in terms of transactions, right?

Collin Hart: My business lives and dies by transactions, but we’re not focused on that. We’re focused on delivering value to our clients. And so I think that if you’re new coming into the business, and you can focus on delivering value, whatever capacity or role you have in the business, I think you’ll be successful. It’s all about that long-term perspective, that persistence, and that delivery of value.

Andrew Dick: Got it. Collin, where can our audience learn more about you and your company?

Collin Hart: Sure. So our website is pretty simple, it’s just six letters. It’s And you can find everything about our team, and our company, and all our contact information on our website.

Andrew Dick: Great. Collin, thanks for joining us today. A great discussion. Thanks to our audience as well, for listening on your Apple or Android device. Please subscribe to our podcast and leave feedback for us.

Andrew Dick: We also publish a newsletter called The Health Care Real Estate Advisor. To be added to the list, please email me at

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An Interview with Brannen Edge III, President and CEO, Flagship Healthcare Properties

An Interview with Brannen Edge III, President and CEO, Flagship Healthcare

In this interview, Andrew Dick sits down with Brannen Edge III, to talk about the evolution of Flagship Healthcare Properties and trends in the health care real estate industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Brannen Edge III

President, CEO, Flagship Healthcare Properties

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney at Hall Render, the largest healthcare focus law firm in the country. Today, we will be speaking with traded Edge III, the president and chief executive officer of Flagship Healthcare Properties, LLC. Flagship is a privately held real estate company that owns, manages and develops healthcare facilities. We’re going to talk about Brannen’s background, the evolution of the company and trends in the industry. Brannen, thanks for joining me today.

Brannen Edge: Andrew, thanks for inviting me and pleasure to be with you.

Andrew Dick: Terrific. Well Brannen, before we talk about your role as the chief executive officer at Flagship, let’s talk about your background, tell us where you’re from, where you went to college and what you wanted to be.

Brannen Edge: Sure. So, before moving to North Carolina, I was born and raised in Richmond, Virginia. Lived there, my whole childhood went to James Madison University for undergrad, up in Harrisonburg, Virginia, and after graduation initially started out in banking. So, I describe myself as a recovering banker. I had gone to Charlotte for a conference, middle of my time at JMU, the first time I visited Charlotte, and was so impressed with the city. It was a clean city, a growing city, a business-friendly city. So, as I approached graduation, really all of my efforts were focused on how do I find a job in Charlotte? Which is a little unusual, Richmond has a way of bringing its natives back to Richmond, but I wanted to do something a little different and frankly, I really didn’t care what industry it was.

Brannen Edge: I wanted to find some training program that would teach me how to do some something. I found that in BB&T and joined their training program right out of school. It was actually located in Winston Salem, which is about 80 miles from Charlotte. I thought, “All right, that’s close enough. I can do a pit stop in Winston Salem and then find my way to Charlotte,” which is what I did. It was a great pit stop because I met my now wife in Winston and had a great experience with the bank.

Brannen Edge: But after about six years of working with the bank, where I learned a bunch about credit, and operating companies, and service companies, and manufacturing companies and real estate companies, I realized that I didn’t want to be a banker for the rest of my days. A number of my clients that were in the real estate side appeared to be having a lot more fun than I was having in the banking world. So I used that opportunity to go back to business school and spent two years in Chapel Hill, also known as Blue Heaven. Then during that time, is when I found the founder of Flagship and joined forces with Charles Campbell in 2006. So, that’s what I made the shift from the banking world to the healthcare, real estate world.

Andrew Dick: So, talk about that opportunity and how you met Charles and how did you all decide to come together and start your business?

Brannen Edge: Sure, sure. So this business school’s, I guess like many universities and graduate programs are focused on getting you a job, that is from day one. So there I was in the fall of 2005 and newly married, newly resigned from my full-time employment and very much in debt with student loans. I knew where I had come from in terms of being with a public company, a big company in the form of the bank, and an old company, the bank had been around for 150 years. I wanted to do something the exact opposite. I wanted to find a young company that was growing, that entrepreneurial, that was in the real estate and private equity space. So, literally searching online for opportunities, I came across a press release from the early Flagship, Flagship 1.0, which had just launched earlier that year in 2005.

Brannen Edge: So, I reached out cold call to Charles and said, “You don’t know me, and you don’t know that you need to have an intern next summer, but I’m willing to do whatever it is.” So I did, I worked as an intern that summer, between first and second year of business school, and I think I was employee number five or six or something like that at the time. Then continued working with Charles my second year and then joined full-time after graduation. So, that’s how it got started. We were initially, a very small company working with family offices and high net worth individual investors to find real estate opportunities. And in pretty short order, focused exclusively on healthcare, which is how the firm and I got our start in the healthcare business.

Andrew Dick: So Brannen, when we’ve spoken before, you talked about the company evolving and what I’ll call the merger of Brackett and Flagship, talk a little bit about that and how the business really started to grow.

Brannen Edge: Sure. So you’re exactly right, Andrew, that that was the seminal moment for our company, which occurred in 2010. Up until that point, the legacy Flagship was really an investment firm in the real estate world. And in 2008, 2009, we purchased a building from the Brackett company, which was another firm focused on the healthcare, real estate space, also located in Charlotte, whose roots dated back to the mid 1980s. We bought a medical office building for our investors from the Brackett company, but Flagship at the time didn’t have property management skills. It didn’t have leasing and brokerage skills. We didn’t have those resources internally and we were really, really impressed with the platform and the people that the Brackett company employed. So, on the heels of the great financial crisis, we approached the Brackett company and said, “Look, we can probably be a better firm if we’re together, as opposed to separate.” They saw things the same way.

Brannen Edge: So we brought those two companies together initially as a joint venture. Then as I described, the slowest, longest merger and small business history, we integrated those two companies over the next four or five years. At that time I was really … I was not the CEO of the Brackett company, I was not the CEO of legacy Flagship. So, I was tapped as really the neutral party to integrate those two companies together. So, moved from my prior role to become president of what at the time was Brackett Flagship Properties. Then subsequently, we changed the name to Flagship Healthcare Properties. But that moment in 2010 really laid the groundwork for where we are today, which was the decision to be a vertically integrated, full service, healthcare real estate firm. That we made that decision, that how we were going to compete in the industry, how we were going to be able to serve our clients, whether they were tenants, healthcare providers, or investors, was going to be by providing the services that we do today.

Brannen Edge: So property management, maintenance and engineering, asset management, ground up development, acquisitions, investments, full service accounting, all of those services we have under one roof now, so that we are in our buildings every day, building relationships with our tenants and the healthcare providers that we serve. We didn’t want to be in a situation where investors were calling us and saying, “Well, how’s my investment performing?” We’d have to say, “Well, let me go check with the people that are taking care of your building and we’ll get right back to you.” We are the people taking care of your buildings.

Brannen Edge: And so that today is the single biggest differentiator, I think that Flagship has, versus some of the other folks in the industry. We allocate capital and it’s a critical role for us, but it’s only one facet of what we do.

Andrew Dick: So, that was a terrific summary. So Brannen, talk about the company today. So, fast forward today, talk about the size of the company in terms of employees, where your properties are located, where you’re doing business, give us a snapshot of what everything looks like today.

Brannen Edge: Sure, sure. So, the company as we’ve grown over the past 11 years and morphed into that full service provider, our mission, our whole purpose for being, is to provide extraordinary stewardship and outcomes for all we gratefully serve in healthcare real estate. So, that’s a mouthful, but what does that mean? So, we’ve really got three primary constituents and all of them are extremely important and none of them can get the short end of the stick. So, we view our investors, our tenants, and our employees as being critical to success and if we let one of those groups down, or put one of those groups well ahead of the others, there’s going to be problems. So, we work really hard to try to make our company a culture that attracts and retains really good people and we’ve got, I think the best in the business. We’ve got 86 employees now, and those are again, across the spectrum of asset management and property management and leasing and brokerage, and on the investment side, and the ground up development side, and the accounting side.

Brannen Edge: That’s what allows us to deliver excellent service to our tenants. And if we do that, we do that job and we can help meet their needs, they’re more likely to turn to us for their real estate needs. If we can deliver on the tenant side, that allows us to generate attractive returns to our investors and the investors provide the capital that lets us continue to grow and attract and retain employees. So, that virtuous circle is what keeps us going.

Brannen Edge: We are focused geographically on the Southeast and Southern Mid-Atlantic. So we own properties across 10 states right now, and that’s where we deploy our capital, our investors’ capital, is in that Southeast footprint. But when I look at the areas where we have services, we manage a building in Nebraska, not exactly in the Southeast, but that’s where one of our clients went and they asked us if we would help them with buildings that are outside of our footprint. Of course, we will follow our clients just about anywhere, but our focus is on growing our business and brand and services in the Southeast and Southern Mid-Atlantic.

Brannen Edge: The other thing you asked about was the types of properties that we’ve got. We are laser focused on the clinical outpatient healthcare sector. And so what does that mean? Well, one way to describe the properties that we seek to work on, or build, or lease, or manage and maintain, are those buildings where a patient enters the building to receive care from a healthcare provider and they leave without spending the night. So, we are not invested in senior housing facilities, or inpatient rehab hospitals, or skilled nursing, or acute care hospitals. Not that there’s anything wrong with those businesses, but they’re very different from what we are good at and know. So, I like to say, we love having senior housing as neighbor, we just aren’t looking to have them as tenants. We share the same patient population and same demographics, but we’re focused on the outpatient sector. So, that’s predominantly medical office buildings and ambulatory surgery centers.

Andrew Dick: Got it. So, let’s transition a little bit Brannen, and talk about Flagship’s REIT, because I think that is one service line that you offer that’s a little bit different than some of your competitors. There are lots of publicly traded REITs, a lot of investment funds that focus on healthcare assets, but Flagship has its own private REIT. Let’s talk a little bit about that and the evolution of that business, which is pretty interesting, based on what we’ve talked about before.

Brannen Edge: Yeah, yeah. Thank you, Andrew. I’ll describe our process, or journey of getting to the private REIT structure in Flagship Healthcare Trust. It was a journey and we’ve had some iterations along the way. Before 2010, we were doing all of our investments one off. We would do silo investments, we would have capital from a family or a group of high net worth individual investors, and we’d go and purchase or develop an asset, and we managed each of those investments separately. They were all separately capitalized and it worked. It worked well and investors were happy and the projects were profitable and turned out well, but we didn’t have any sort of synergy doing that. I like to say we weren’t managing a portfolio of say, 30 buildings, we were managing one building 30 different times.

Brannen Edge: So, everything had separate accounts, and separate reserves, and separate leasing teams, and separate agreements. So, we weren’t being efficient as a manager and our investors weren’t really getting the diversification because an investor might be in building number one, but not in buildings two through 30. So there really wasn’t that diversification.

Brannen Edge: So, the next iteration for us happened in 2012, when we launched our first closed-end fund. We raised money from accredited investors and from institutional investors. We did our first fund and we did a second … it was a venture with USAA Real Estate Company, but it operated much like a closed-end fund and started raising our third fund. At that time, we took a step back and this was 2016, 2017 and said, “What are we doing?”

Brannen Edge: Our investors were asking us … It was coming time to look at selling our first fund, liquidating that, and our investors almost in unison said, “Please don’t do that. We like the buildings that we’re invested in. We don’t want you to create a tax issue or a reinvestment issue by selling these funds.” We said, “Well, geez, we don’t really want to sell them either. We’re we’re in the business to be long-term owners in real estate and if our business model is to attract and retain the best and brightest in the healthcare real estate industry, how does that align with selling a big portfolio of properties every few years?”

Brannen Edge: Meanwhile, our tenants, the healthcare providers and healthcare systems, they really care about long-term ownership. They don’t want the owners of their property to be short-term holders. They want to know that you’ve got empathy for what they’re doing, that you are going to be taking care of these assets as if you’re going to own them forever. It didn’t really line up with a shorter term investment fund type structure.

Brannen Edge: So we engaged advisors to help us figure out how could we be structured that would create better alignment between our investors, and our tenants, and our employees, and the private REIT structure is what rose to the top. And admittedly, when we were talking about the private REIT structure, we didn’t understand what that meant and familiar with public traded REITs and there’s some excellent ones out there, but we didn’t really want to be public. But we’d heard about public non-traded REITs and those had not a great reputation at the time. It’s gotten better since then but we said, “I don’t know that we want to go down private REIT path.” It was explained to us that said, “Look, the structure as a private REIT is a tax structure.” REITs avoid double taxation, as long as you’re distributing 90% of your taxable income to investors. It looks and feels just like an open-ended fund, but it preserves a great deal of optionality.

Brannen Edge: Meanwhile, being private, we think avoids a lot of the correlation with the public markets. So, we get asked a lot by investors or prospective investors, “Why should I buy a private REIT as opposed to a public REIT?” My response is always, it’s not an either/or. There are some excellent public REITs out there and many that we are fortunate to work for on the management leasing side.

Brannen Edge: What we think we bring to the table is because we are private, we’re not correlated with the public markets. So, for investors who want to have an allocation to healthcare real estate, we think we provide that and maybe provide a better representation of the value of our healthcare real estate assets, as opposed to whatever’s happening from day to day in the stock market. So, it is almost like putting on a tailored suit or a tailored sport coat. When we got to the launch of Flagship Healthcare Trust four years ago, it felt like we were putting on a sport coat that had been tailored, it just fit, and our investors feel the same way. So, we’ve continued to grow and new capital, but just as importantly, attract additional capital from our existing investors who continue to believe in what we’re doing.

Andrew Dick: It’s a great story and I can appreciate why you selected the private REIT structure, right, it’s not subject to the whims of the market. That makes a lot of sense. So, talk about the REIT, number of properties, how much equity you currently have, things like that, that you’re able to share?

Brannen Edge: Sure, sure. Absolutely. So, we are structured as a Reg D private placement. All that means is that our investor base are considered accredited investors. We have about 350 shareholders. A number of those shareholders have been with us for many, many years, even predating the REIT’s launch. When we converted our legacy closed-end funds, all of those investors and the legacy closed-end funds had the option to either cash out of those funds and take their money and go elsewhere, or contribute their interests into launching the REIT. We had 94% of our investors by capital say, “This is exactly the structure that I want.” So when they joined us in the launch of the REIT, back in late 2017, we were about $55 million of equity. Since then, we’ve grown to where we are today, which is right at $250 million of equity, and about $600 million of gross property value. That’s about two million square feet in the REIT across 73 properties, and in 10 states in the Southeast and Southern Mid-Atlantic.

Brannen Edge: That’s in addition to about an equal number of properties and approximately three million square feet of properties that we manage for third party owners. And those are institutional investors, those are public REITs, and those are private individuals, or healthcare practices that want to own their own real estate but don’t want to have the headaches of property management or leasing. So we gladly do those services for others, as well as for our own account.

Andrew Dick: Terrific. I’m assuming that the REIT follows your investment philosophy, that it’s primarily MOBs, outpatient healthcare facilities, ASCs?
Brannen Edge: As exactly right, it’s ASCs and MOBs, are the predominant assets. We have a blend of multi-tenant buildings and single tenant buildings, a number of practices who make the decision in this current environment to lock in attractive pricing on their buildings, but they don’t have any desire to move. We’re doing a number of sale lease pack transactions with practices, both groups that are independent, as well as groups that are affiliated with healthcare systems. An interesting unexpected benefit of our REIT structure is that the vast majority of those sale lease back transactions, the selling groups, if they’re groups of physicians or investors, are electing to UPREIT a portion of their sale into Flagship. So, essentially a seller of a medical office building who chooses to work with Flagship, they can receive cash when they sell us a building, or they can receive operating partnership units in our REIT, and essentially it’s tax deferred in most instances, and it provides diversification for those sellers.

Brannen Edge: So, an investor who owned 100% of one building can UPREIT and all of a sudden, they’ve got that same value spread across a much more diversified portfolio of more than 70 assets. Meanwhile, they’re locking in their current valuation on their building and able to decide on their timeline, when to recognize that taxable gain on their own terms. So, it’s been something that we didn’t expect would be as popular as it has been, but it’s been a major source of our growth as we continue to grow our footprint. But it is all clinical healthcare outpatient. So, ASCs and MOBs are our primary investment targets.

Andrew Dick: Got it. So, let’s transition for a minute and talk about the healthcare real estate industry in general, over the past five, six, seven, eight, years, the asset class has really come into its own and becoming more and more attractive investors of all types. Talk about cap rate compression, trends in the industry. It seems like there’s an awful lot of demand for these assets right now. How does a company like Flagship through its REIT, compete for assets in a market that just seems very hot right now?

Brannen Edge: You’re exactly right. It is overwhelming the amount of capital that is chasing the healthcare real estate industry right now. It’s coming from traditional real estate investors who hadn’t previously been exposed to the healthcare sector. It’s coming from international investors, both individual and sovereign wealth funds. Everybody it seems, wants to get into healthcare real estate. So, the secret is out. Now, when we started in this business, plus or minus 20 years ago, healthcare real estate was really not its own asset class. It was lumped into other asset classes. Was it part of the office market, or was it part of the retail market, or do they just lump it as other? Now, it’s a clearly defined asset class and it’s clearly defined for good reason.

Brannen Edge: Through the great financial crisis, our portfolio and that of most healthcare real estate performed really, really well. And of course, values were impacted across all sectors in the great financial crisis, but we really didn’t see tenants that were handing over their keys and shutting their doors. It was a very resilient asset class. We’ve had bankers that would come and visit with us back during the Great Recession and saying, “Look, the credit folks say I can’t lend to anything unless it’s government backed or it’s healthcare-related or student housing. So what do you have for me?” When you fast forward the movie through the pandemic that we’re going through now with COVID, the portfolio did extremely well. Our tenants were extremely resilient and I describe the industry as it’s now more akin to a consumer staple than it is to something that is voluntary.

Brannen Edge: Americans want and demand and deserve healthcare and a pandemic’s not going to get in the way of receiving care. So, it was really impressive to see how these healthcare providers adapted to the global pandemic, whether it was changing the way they were having patients wait for care or alternating how they were seeing patients. But what didn’t happen was stopping seeing patients. Telemedicine had a big boon and folks wondered, “Is this going to replace the need for medical office buildings?” The answer was a resounding no. It became an additional avenue for providing care to patients but it was an additional outlet, it wasn’t a replacement.

Brannen Edge: So we saw a surge in telemedicine, but not one that overtook or replaced inpatient face-to-face visits. It’s interesting, we are really agnostic at Flagship of whether we’re buying on campus buildings or off campus buildings. We’re seeing really a proliferation of off campus buildings as healthcare providers recognize the three Cs in healthcare, of care, convenience, and cost. It is much more convenient and able to be delivered at a much lower cost when you have outpatient settings. So, I think last year, there were 60 plus million surgeries that were done in the US and over 60% of them were done in an outpatient surgery center environment.

Brannen Edge: So, 20 years ago you would be going to the hospital campus and having your knee procedure, or your wrist procedure done inpatient and on the campus, today, it’s generally not happening that way. Medicare and Medicaid are increasingly approving, and even requiring some of these procedures to be done in an outpatient setting, which is really good for both the providers and for the patient. So, that’s going to continue to grow and that’s why we’re laser focused on that outpatient setting.

Andrew Dick: Yep and I would add, through the pandemic, we saw that patients were hesitant to go to a hospital campus for fear of picking up the virus or contracting the virus. So, those outpatient facilities that are off campus seem even more attractive during difficult periods like we’re living through now.

Brannen Edge: You’re exactly right. That hospital acquired infection has all always been present but in the age of COVID in the pandemic, it got much greater scrutiny. So, I don’t think there’s any going back from this shift.

Andrew Dick: So Brannen, we’re near the end of our interview. Let’s talk a little bit about advice for young professionals. We’ve got a lot of folks who listen, that are starting out in the healthcare real estate profession. What advice would you have, someone who’s getting started in the business?

Brannen Edge: Gosh, that’s a great question. I guess I would say, try to figure out what you like and work toward achieving that. Oh, by the way, that’s a lifelong learning. So what you like to do at 21 and are working towards then, may be different than when you’re 31 or 41 or 51. So, continue to try to figure out what it is that makes you tick and gets you excited to go to work in the morning, I’d say, do every job to the best of your ability, even if it’s not exactly where you want to be and maybe especially if it’s not where you want to be. If you can focus on knocking the ball out of the park, opportunities will find you. So, do everything that you can to the best of your ability. Ask questions, that’s something that … that natural curiosity, I think, is a benefit for everybody.

Brannen Edge: It’s okay to not have the answers and shouldn’t be afraid to ask for help or ask questions to learn more. And finally, don’t be afraid to fail. A little bit better to fail quickly if you can, but you are going to make mistakes and it’s fun to find an environment where you can be supported when you make those mistakes and learn from those mistakes and move on. But healthcare real estate industry has got great tailwinds. We’ve got demographics that are providing a huge lift to the industry. So, for young folks that are looking at careers in various sectors, I think this has got a great next few decades in front of us.

Andrew Dick: Well, that’s good advice. So as we wrap up, where can our audience learn more about you and Flagship Healthcare properties?

Brannen Edge: Sure, please, we’d welcome visitors to our website at, or our sister website for the REIT at We’ve got an active social media presence, so follow us on Instagram and Facebook. If you have questions or we can provide any support, feel free to reach out to us. Call us, email us, text us.

Andrew Dick: Terrific. Thanks, Brannen. Thanks to our audience for listening on your Apple or Android device. Please subscribe to the podcast and leave feedback. We also publish a newsletter called The Healthcare Real Estate Advisor. To be added to the list. Please email me at

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An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

In this interview, Andrew Dick sits down with Kevin Jones, Managing Director and Real Estate Practice Leader with ZRG Partners to talk about professional development and executive recruiting in the healthcare real estate industry. 

Podcast Participants

Andrew Dick

Hall Render

Kevin Jones

ZRG Partners

Andrew Dick: Hello, and welcome to the Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we will be speaking with Kevin Jones, a managing director and real estate practice leader with ZRG Partners. Kevin helps real estate and healthcare companies with executive searches. We’re going to talk about Kevin’s background, the healthcare real estate industry and what he looks for when recruiting for executive positions within the real estate industry. Kevin, thanks for joining me.

Kevin Jones: Thank you, Andrew. Always a pleasure.

Andrew Dick: Kevin, before we talk about your role at ZRG Partners, let’s talk about your background. Tell us where you’re from, where you went to school and what you aspired to be.

Kevin Jones: Sure. Well, the first part of my career, if you will, is largely uninspiring. I went to Indiana University in Pennsylvania, which spent the rest of my life explaining that’s actually in Pennsylvania and not Indiana. However, I actually joined a recruitment firm right out of school, so I had no industry sector experience. And if I think about my career and my background, it really boils down to three to four significant decisions and changes that I made. The first one is leaving the firm that I started with after nine years to join as one of the partners at Crown Advisors. And crown was only a few months old at that point.

Kevin Jones: And I have a 13 year run to really effectively build that firm, helped build that firm from the ground up. Although at the time, the plan was just to stay there for the next 20 years, I couldn’t see it. The firm, it topped out. And my timing there was that I wanted to do a lot more in the firm, became a lifestyle business, which is great. But it was just focused on the partnership and the lifestyle that the business created. That was the second big risk that I took, is I left just to start the Jones Group. And that’s when I doubled down on my commitment to healthcare real estate.

Kevin Jones: For the next eight years, I focused on becoming a subject matter expert in the healthcare real estate sector, became embedded in the business in that community. That’s where I really understood the value of becoming a specialist. As an insider, you could build meaningful relationships versus just somebody that, who calls into the sector, if you will. So, that was a great run on my own. And I established relationships that I believe will be with me the rest of my career. About three and a half years ago, I was actually approached by a search firm to build a global real estate executive search practice at ZRG.

Kevin Jones: And so frankly, that’s been a heavy lift. But the nice part about ZRG is we have a robust healthcare executive search practice across the board. So I bolted into the healthcare group when I started. And our roots and healthcare as a search firm, we actually have a partner that’s a medical doctor. We focus on clinical academic medical centers and of course health systems, as well as PE backed healthcare firms. So within that group, I was able to use that as leverage to build the global real estate practice. And now, though the real estate practice is anchored in the US, we have outposts in Brazil, London and Dubai and it gives us a legitimate global reach.

Kevin Jones: I still do largely healthcare real estate, but as a practice, we’re doing probably 60, 50 or 60% in commercial real estate. And then I do the balance in healthcare real estate.

Andrew Dick: So Kevin, how did you at some point, and it sounds like many years ago, you identified healthcare real estate as a niche that you wanted to pursue. How did you end up working on searches in the healthcare real estate industry? That’s a pretty narrow niche.

Kevin Jones: Yeah. Yeah. It goes back a while. I was actually at the first BOMA Healthcare Conference in San Francisco. There might’ve been 45 people there. You’d have to, Laurie Damon would have to fact check me on that, but it was very small. And like a lot of people in this sector, Andrew, I had a personal experience that just drew me to healthcare and hospital real estate. So it became an interest. Once I discovered it, it became an interest. And like you build a practice anywhere, you get some companies that are growing and you work really hard to satisfy them and as they grow, your practice grows. And I had done that with a couple of pioneering firms in the sector, where I’d worked closely with their founder.

Kevin Jones: And as they grew market to market, they just tapped me on the shoulder and I helped them open. They went from a local brand to a national brand and I did all those searches. So through that process, that’s how I just became embedded in the business when it was much smaller than it is today. It was an easier effort because when people start to recognize you specialize in their startup sector, if you will, they recognize you. So it was easy to make my way around the block with all the players and as the sector grew, my practice grew. It was really more serendipity than, I did something spot on to make it grow.

Andrew Dick: Sure. So Kevin, give us an idea of the type of assignments you’ve had over the years in the industry. Would this be C-Suite executives or give us some examples?

Kevin Jones: Sure. Yeah. And focusing on the sector, I would say I do C-Suite, as well as the people reporting into the C-Suite. That’s really my strikes zone. And I’ve done some board advisory work, as well. I would say a typical search, it involves… I had done a search for a senior managing director for a group that does healthcare real estate consulting. And the leader of that group, somewhat of a legendary person in the sector frankly, was retiring. So, they engaged us to find that replacement and that’s always tricky to find somebody that’s been embedded and worked with the team for decades to bring a new leader in. And we did just that. It was a very successful search. It took us probably eight months, which was three months too long, frankly.

Kevin Jones: But when you work at that level, you’ve got to work around non-competes, you’ve got to work around other competitive covenants to try to get the timing right. Nobody wants to go against that. But that’s a typical search. And what I see when people come to me often, they’re looking for more than a plug and play person. They want somebody that has deep experience in the sector, but also they have that ability to be the face of the franchise. Somebody that knows how to sell and lead and execute. I see that a lot and I get that a lot. So that’s probably the type of role that I see, because they’re just so hard to find. You really need to know those people first, just to get their attention to consider something because they’re generally well paid, well taken care of because they bring such, three components of value to the organization.

Andrew Dick: Let’s talk about that, Kevin. We have quite a few young professionals who have been in the business maybe a couple of years, the healthcare real estate business. Or young professionals who are looking at getting into the healthcare real estate business. Let’s talk about the skills that you look for and your clients look for when trying to identify talent. You hit on a couple things, the ability to sell, interact well with others, et cetera. Talk more about that. What advice would you give to someone who’s really trying to make a name for themselves in the industry?

Kevin Jones: Sure. And that’s a great question. I actually have kids in that same period in their lives. This is something I’ve thought about. I think it’s, the thing is, it’s not new, right? It’s a generational to generational piece of advice. But I think the first thing is for most people, they need to redefine what sales is to them. Everybody carries around this baggage of what sales is and what it isn’t and the immediate cliches and imagery that comes with it. That’s obviously so old fashioned. I challenge people to, that they really need to just look at that. Do some self discovery and understand really, what’s your hang up on that word and what that means. They need to redefine it because every business is driven by sales and top line revenue.

Kevin Jones: There’s no way around that. And the more you can impact that, the more value you bring to an organization. I think most people, some of the conversations I’ve had with people, they just will tell me, “Well, I won’t sell.” And I think, “All right. Well then, good luck and stay where you are and nestle in, because that takes away a lot of your growth opportunities.” So that’s a little bit of personal work. You really need to evaluate what it is, what your hangups are around it. You need to read on the subject, very contemporary material on what it is, because that really is going to be a game changer. And once you’re able to embrace that and put your talents to use around it, that’s going to change your value to the market. And that changes everything.

Andrew Dick: That’s a great point, Kevin. We have on the team I lead, we have a number of young professionals and we talk a lot about building a personal brand and getting your name out in the industry. And in other words, even as lawyers, we have to sell. We sell a little differently maybe than other industries and we’re subject to ethical rules that prohibit us from doing certain things. But I think you’re spot on, Kevin. I think that in certain circles, when you talk about sales and those types of skills, it can turn people off. But in my experience, individuals who master the art of developing relationships and building a personal brand, tend to rise to the top. And I think that’s what you’re saying.

Kevin Jones: You’re exactly right. That’s what you see across the board. You bring up something else too, is networking is a large part of that. And networking, frankly, networking was real work for me. I mean, I obviously love what I do and it’s a cool business, frankly. But when I would go to a conference, networking would be so challenging. And I probably still haven’t been to a conference in a while, but I still get nervous and feel like I’m intruding. You’ve got to get over all those hangups and networking is an amazing skillset. It’s just that, and it’s like a skillset. You have to practice. You have to do some of the corny role playing. You have to really get outside of your comfort zone and become effective.

Kevin Jones: And that takes, more than anything, the things that I hear now is self-awareness, social and professional awareness, C-Suite and board presence. Those are really important elements and that’s communication skills. That’s style. That’s how you carry yourself, to a T. So you need to keep that in mind. If you want to be in the C-Suite, you really need that self-awareness and social awareness. And if it doesn’t come naturally, even if it does come naturally, it’s something that you need to work on and practice so you’re prepared. I’ve always, I’m going to butcher it, but I’ve always kind of hung on the Abe Lincoln quote. Prepare yourself, for one day, your chance will come. It’s one of those things where you need to be prepared. You need to practice beforehand. And when you find yourself in that situation, you’re ready.

Kevin Jones: Networking’s a big part of that and it’s going to be again. You’ve been in this space for a while too, Andrew. We went from one conference a year to maybe two a month. It is a business in and of itself, or it will be, and that’s fine. That’s a great opportunity to meet people, to sell yourself, to create that personal brand. The opportunities exist and the more you embrace that, the more you get comfortable with it and dive into it versus shy away and just try to back away from conversation… When people talk about coming out of their comfort zone, that’s a perfect example. It really is. And then, that’s when you’d need to develop a self-awareness and have a ready list of conversation points or topics or trends that you’re seeing.

Kevin Jones: Asking questions is always the way to engage conversation. Ask important questions. In those situations, you can start personal, but you really want to be able to learn how to leverage that into business. What do you want to ask about your legal needs, about your recruitment needs and your growth strategies? That’s when you have those conversations. Everybody’s at ease and disarmed, and it really is just a conversation. We both know everybody loves to talk about that. Nobody doesn’t want to talk about their growth plans or their growth strategy or their troubling situations professionally. So, develop a strong list of questions to ask, and that makes it a lot easier.

Andrew Dick: Great advice, Kevin. Let’s dig just a little deeper for the folks who are starting out in the industry. Talk about in your experience. I mean, you hit on a couple things about some individuals are maybe introverted or are uncomfortable networking and putting themselves out there a little bit. What tips do you have in terms of, do those individuals, should they seek out mentors who can help them or coaches? We live in a world where there’s an awful lot of coaching going on, which I find really interesting. What tips would you give? Do you see executives or young professionals seeking out mentorships with more senior level professionals to help them through that journey?

Kevin Jones: Yeah. Obviously, mentoring works, but it often doesn’t work. It’s not like you can be assigned or go up and approach somebody and say, “Be my mentor.” Right? And you might pick the wrong person. You really might. My advice, my approach to that is, and it’s think of it more of not like the old way of I’ve got one mentor and I do whatever that person tells me and I follow them around. But maybe target three people, three types of mentors and define what they are. Somebody that’s just amazing in sales and networking. Somebody that technically has a lot of depth, and somebody that you respect from an integrity standpoint, that seems to have the, I’m not going to use the word balance because I’m not a fan of that approach. It’s somebody that has balanced a career and a family or healthy relationships outside of work, is a better way to put it.

Kevin Jones: You don’t just walk up to the person and ask, but again, you develop your list of questions. And when you are around people like that, whether it’s a cocktail party or a conference, you have your line of questions. So, how did you get into what? Just like we’re engaged in here, right? Where are you from? What do you do? What do you do outside of work? Those are easy questions to answer, and then you feel yourself out. You’re going to resonate with somebody or not, and then you just latch on. And a mentor, that’s not a lifetime relationship, right? Somebody might just, it might be a five-year gig if you will, of where you need that help, and then you maintain those relationships. And they’re meaningful relationships, that you don’t have to just find one person that you follow around for 30 years. That’s an old fashioned way, in my opinion. And I think you can get a lot of value from different perspectives.

Andrew Dick: Good advice. Before we talk about some trends in the healthcare real estate industry, let me just ask one more general question, Kevin. When you’re undertaking a search, I know ZRG has a number of different tools to help find the right person. Maybe talk about how that search process works when you narrow the list of candidates and what metrics are you looking at? I think you’ve hit on some of them, sales and ability to work well with others. But how does that work when you narrow the field?

Kevin Jones: That’s a good question. Well, and look, that’s the reason I joined ZRG. I’ve always been in smaller boutique, real estate focused companies, whether my own or at Crown and when I started. And ZRG is very different. We’re actually the fastest growing search firm, maybe two out of the last three years. Through the pandemic, we’ve added maybe 10 plus managing directors where everybody else was shrinking. So it’s a very contrarian minded search firm and our approach and our thinking is to be the biggest search firm outside of the top five. We’re not looking to then become public or the size of a Korn Ferry or Heidrick because when we compete against those firms, we’re more nimble. We’re more flexible. Our culture is genuinely collaborative and that makes us better as a firm, as we approach these searches.

Kevin Jones: And like any sector, people grow tired of the old guard, of the way they’ve always done things and they want to do something different. And search is no different. And I agree, I’m glad you noticed our tools because they really are unique. It’s more than just a prop that we can set up. The assessments we do, and really, it’s the skills and attributes grid that our CEOs developed and we’ve refined over years. But it weights key skills and attributes, and we’re able to then create data points along the lines for each candidate. So you can rank them, frankly. Let’s say you create a batting order, but we’re very clear that doesn’t make your decision for you. It just gives you data points. You’re still having to hire the person.

Kevin Jones: This creates a very interesting dialogue because some people might score people differently or differently from us. You’re able to pick out what those points are. I think the strongest aspect of using our dashboard of tools, it keeps everybody on the same page where everybody’s interviewing, say on the seven same skills and attributes and what we’ve determined to be keys. In real estate, I find the interviewing technique is click and close. Once somebody clicks with somebody, they try to close them on either side of the table. And this process, it really forces the team because you’ve got to answer back to your team in terms of, this is how I ranked this person on all of these attributes. You can’t just then drift off into sports or family or politics, whatever you might be off topic. It forces everybody on the team to interview from the same criteria.

Kevin Jones: So everybody’s evaluating that candidate. I always think the value of a search firm is we continue evaluation. We’re doing a search right now for a chief revenue officer. There’s a lot of likeability around, say the two lead candidates, but from our process, we’re still in market talking to people. We’re also continuing to evaluate these candidates. We’re not just assuming, this is the person that we’re going to go through and hire. We’re continuing to critique and evaluate and share that with our client. That’s valuable because that’s where mistakes in hiring are made. You have that good first interview, and then you just glide to the finish line versus the continuing conversation, digging deeper. You’ve got this.

Kevin Jones: And I’ll go through frankly, through a process and I’ll re-rank my skills and attributes. The deeper you get to know somebody in the process, they might go from a four to four and a half or four to three, because as you dig and you talk to that person, I might talk to somebody 15 times through the course of a search candidate. You’re continuing to revisit and ask questions and that really helps in our clients just getting that right person in the seat. Does that answer your question?

Andrew Dick: It does. Just one follow up, Kevin. You talked about one search that took approximately eight months. When you’re hiring, I mean that was a special search, you’re replacing a leader of a group. On average, how long does the process take when you’re going, hiring maybe a C-Suite executive? Is it five months, six months? Or how long can someone expect to take, to go through a process?

Kevin Jones: It’s a three month process to identify and get commitment, and then you’ve got to work through the final piece of resignation. But yeah, within three to four months, the heavy lifting will be done and you’ve got one candidate that you’re finalizing. You should have somebody warming up in the bullpen as well, just in case.

Andrew Dick: Okay. And one more follow up, Kevin, because I enjoy this discussion. I find when I talk with professionals in the real estate industry, sometimes I feel like there are folks who are focused on the salary offered by a position. But in my opinion, that seems shortsighted. What are you seeing in terms of individuals looking for growth and opportunity? What’s your advice to a young person? It seems to me that they shouldn’t be focused just on salary or the location of the opportunity, but really, is there an opportunity to grow, to learn, to be mentored? What advice would you give there when an individual’s kind of considering a couple of different opportunities? What do you think is important?

Kevin Jones: Sure. Again, a very good question. It goes back to the advice you’d give. The other piece I would give to somebody that’s looking at a career is, re-examine what work means to you. So many people get hung up on work-life balance and whether they’ll be home and what their commute will look like. I really look at it is don’t even use the word work. You’re just spending your time. You can build a foundation, a professional foundation and a personal foundation to grow and merge those two. There’s a bridge between that. It’s not one or the other. So, I do. And work’s one of those things where we have these concepts that we’ve never questioned. They just kind of come up through our upbringing and we never reevaluate these things that we learned from a young age. Sales and work are two things that I think are worth reexamining throughout your life.

Kevin Jones: But the question is, to go back to your question, Andrew, I would say this, is you’re exactly right. People get hung up on salary and they get hung up on title and things like that. When you’re at that pivot point, and I’d mentioned mine. There were three to four really that were pivotal in my career. I think you need to recognize when those periods are in terms of, this is a pivot move and this is an opportunity. And then don’t ask yourself, what will I make in the next 12 months? But you need to sit and who am I going to be in the next three to five years? How can I grow? Who can I transform into being with this experience? And we see that with our private equity clients all the time, of when you join a growing private equity operating company and take that through a cycle, you’re a different person.

Kevin Jones: You’ve got a merit badge after that because of your experience there. So think about who you can become in this role versus what you’re going to make in 12 months. I think if you step back and take that process, that’s going to be very clear and that helps your answer. Now, comp always comes into play. It’s why we do it, certainly. But if the comp is close and one just has something more exciting to it, then you should certainly take that risk. It’s not a risk-free professional life that we live in, and you need to make smart risks and you need to make sure that the return isn’t so much in 12 months. I’ve made several moves where I actually had to take a step back. What I’ve learned through that process has been, the return is extraordinary. That’s what I would switch around and reconsider when people are looking at that.

Andrew Dick: Good advice. Thanks, Kevin. Let’s switch gears. Let’s talk about the healthcare real estate industry. The industry has grown tremendously. As you mentioned, you were at, I think the first BOMA MOB Conference, a small conference pre-COVID. It’s turned into what I would consider to be a mega conference, thousands of people. And then I think through COVID, we’ve seen even more growth in demand for healthcare real estate assets. Give us your perspective on the industry today.

Kevin Jones: Yeah. Well, it’s certainly different. There’s a couple things. If you recall, Andrew, I remember when the Affordable Care Act was a game changer the first time it came through. And the industry stood still waiting for some sign to act, a green light or red light to have certainty to go forward. And now, healthcare needs to be as nimble and decisive as any other sector. The old school bureaucracy, this is how we’ve always done things. It doesn’t translate into 2021. And we’re seeing a lot of that, frankly. We are seeing that old guard, that old way of thinking, it doesn’t translate and it’s not going to transform into future success, even if its worked in the past.

Kevin Jones: And frankly, I feel it’s an exciting time to be in healthcare if you’re prepared to be part of the change. If you’re clinging to what is, and that’s obviously always scary, regardless of what you’re doing. I’m seeing it. If you look at trends, I would be remiss not to say the words, proptech or data science. Those elements are becoming embedded in every sector, the technology efficiencies and data science. So I’m not minimizing that, but I don’t think that’s an insightful trend right now. That’s an obvious trend. I’m working with some firms that are leveraging machine learning and AI in terms of investment strategy and thesis, in terms of underwriting. It’s really a remarkable, if not scary, the depth that machine learning is coming into real estate from a decision making standpoint.

Kevin Jones: So I think that’s really interesting, where it just takes a more global picture, demographics, returns, all the things you want to put into the pot of stew. And it’s coming out with really smart and insightful answers. That’s really where I’m seeing in terms of technology, the proptech, the data, that’s really important. But there’s more to come and there’s even more forward thinking when it comes to applying technology within commercial real estate. In residential, for that matter.

Andrew Dick: I would agree. I think that there is. I’ve seen an awful lot of growth in site selection technology that’s really interesting. We’ve seen an awful lot of growth in telehealth and retail healthcare. And when you see a lot of private equity firms, as you mentioned, getting into this business, the healthcare business and the healthcare real estate business, I think we’re going to see more and more change. They’re typically very aggressive in trying to implement new models, so it’s exciting.

Kevin Jones: It’s exciting and it is different. The evolution is important. It goes back to my business in executive search. I mean, certainly that’s my day job, but with the changes and the speed of change right now, as a practice, my services have evolved into further introductory services. Whether it’s capital markets, joint ventures, project and pipeline introductions, mergers, team carve-outs. So, people are coming to me less with, “Hey, I need to hire this individual,” though that’s still the business. But more, “This is my larger problem of what I’m trying to solve. How can you help me solve that larger problem?” And it isn’t necessarily… A great example is this. We’re seeing more chief revenue officer searches right now. I think you could quickly just say, “Oh, that’s a head of sales,” but it really isn’t.

Kevin Jones: As you know, so many people that are trying to grow, they’ll hire a VP of business development and stick them in a region and say, “Grow the region.” Market facing people. The chief revenue officer role is transformative because this is a person that comes in that’s part of the C-Suite, and they’re really creating that repeatable systematic revenue process. If you have the right person, they’re not only looking at driving growth in revenue, but they’re creating systems and procedures to work with the sales team. And really, they should be strong assessors of talent to recognize this is the model. This is the model of person that we need to plug into this role, not just a VP of business development to go knock on doors.

Kevin Jones: And then the other component is identifying your client base. And how do you build more revenue from that in a very creative way? And then, how is that sustainable? How do we create revenue when the development market dips? How do we still keep cashflow and revenue expanding? That’s a strategy role, but the skill set really is in sales and marketing. But more so than just being a savvy client facing sales pro, the person brings a next level strategy to the business that frankly, the CEO, COO and CFO, they generally don’t have that background, that technical background. They also are not devoting the time to do that because they’ve got other full-time jobs.

Kevin Jones: So that’s been another trend that we’re seeing of people bringing in that transformative CRO. And that goes to the point, really part of the thing that we’re discussing here is the business is changing quickly. It’s exciting if you’re out in front of it. The problem I’ve seen is so many firms think they’re out in front of it. They feel like, yeah, we’ve got this. We’ve been through this before. But it’s a different, this, it’s a different scenario than it has been historically.

Andrew Dick: So Kevin, I have one more question as we wrap up. We’ve seen a lot of articles in the real estate industry about work from home and what that’s going to mean post COVID. What’s your take? Are we going to see organizations ask their teams to come back to the office? What will that look like? Any predictions?

Kevin Jones: That’s a big one. And this is just my opinion. I’m not an expert in that world. That involves sociology, psychology. The people that think everybody’s, everything’s going to go back to work from the office, largely have large office portfolios. So they can’t afford to even think anything different. I do see people coming back, but in a very different manner and a more effective manner, not just for Face Time. I have got clients and I know firms are looking to bring everybody back full time. I think that goes the way of the tie, right? Once you stop wearing a tie, it’s hard to put one back on. I think we’ve got a great experience on how to do this, but the real factor is having the right person.

Kevin Jones: If you’ve got the right person, they could work from anywhere and be productive. And if you have the wrong person, they can be in the office every day and still not quite get it and get it done. I don’t see office going away. If you look at your office, I think our own personal experiences play to it. I’m in a role where I can effectively work from home, but I’m very excited to get back on the road and work face to face. I still go into my office twice a week right now because I crave that interaction and you can’t create, or even have a culture if everybody’s working from home. I think everybody’s grown tired of the video conferences.

Kevin Jones: They’re very effective and they’ll play a greater role going forward. But I think we all know as a society that Face Time, personal interaction, it’s not healthy to do away with that in any, whether it’s professional or personal. You need to build that into your business plan, frankly, and make sure it’s effective.

Andrew Dick: Well, Kevin, I’ve enjoyed this conversation and I’ve enjoyed getting to know you over the past 12 months or so. Where can our audience learn more about you and ZRG Partners?

Kevin Jones: Sure. Easy to find, is our website. My email’s So those are two very easy ways to find me. I’m all over LinkedIn as well, so I’m easy to get to.

Andrew Dick: Well, thanks again, Kevin. 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 Healthcare Real Estate Advisor. To be added to the list, please email me at


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An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

In this interview, Andrew Dick sits down with Connor Siversky, Research Analyst, Real Estate with Berenberg Capital Markets to talk about publicly traded healthcare REITs.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Connor Siversky

Research Analyst, Real Estate, Berenberg Capital Markets

• BCM is making a market in Ventas (VTR)
• BCM is making a market in Medical Properties Trust (MPW)
• BCM is making a market in Omega healthcare (OHI)
• BCM is making a market in LTC properties (LTC)
• BCM is making a market in Caretrust REIT (CTRE)
• BCM is making a market in Healthcare Realty (HR)
• BCM is making a market in Healthcare Trust of America (HTA)
• BCM is making a market in Physicians Realty (DOC)
• BCM is making a market in Community Healthcare Trust (CHCT)
• BCM has no company-specific disclosures on Alexandria (ARE)
• BCM has no company-specific disclosures on Welltower (WELL)
• BCM has no company-specific disclosures on Healthpeak (PEAK)
• BCM has no company-specific disclosures on Sabra Healthcare (SBRA)
• BCM has no company-specific disclosures on National health investors (NHI)
• BCM has no company-specific disclosures on Global Medical REIT (GMRE)

Andrew Dick: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we are speaking with Connor Siversky, a REIT research analyst with Berenberg Capital Markets. Connor currently covers nearly all of the publicly traded healthcare REITs, which gives him a unique perspective on the healthcare real estate sector. We’re going to talk about Connor’s background, the different healthcare REITs that he covers, and a variety of other healthcare real estate topics. Connor, thanks for joining me today.

Connor Siversky: Thanks for having me, Andrew.

Andrew Dick: Connor, before we jumped into the discussion, talk about your role at Berenberg Capital Markets and your background.

Connor Siversky: Yeah, sure. I was born and raised in New Jersey, town of Montclair. Stayed in the state, went to Rutgers New Brunswick as an undergrad, got a degree in finance. And then I think in the fifth grade I said I wanted to be an investment banker ski racer, so I think I got pretty close to one of those goals.

Andrew Dick: How did you end up at Berenberg Capital Markets? It’s an interesting niche covering healthcare REITs.

Connor Siversky: Yeah. For sure. For sure. I took a bit of a backdoor to get into the securities business. Immediately after college, I was doing construction. There was a little ferry New Jersey based GC called Mobile Construction. We did all sorts of projects throughout the state, a lot of municipal work. Incredible learning experience to see how those boots all work on the ground. And then I moved to a property manager called Solstice Residential in New York City. I was on the special projects team there. We had an excellent boss and mentor, in some respects. His name was Ken Lupano. We did a whole slew of projects in and around the borough, so Local Law 11 projects, roof replacements, facade replacements, leak repairs, all sorts of things like that.

Connor Siversky: I got to see a lot of different parts of the city, whether that was from the roof of 220 Madison Ave or maybe on the trains going to the different boroughs. It was a very interesting experience as well. Around spring, summer 2018 I got a recommendation from a buddy I actually went to college with and took on the associate role in the real estate team at Berenberg Capital Markets. Definitely a bit of a learning curve coming from the construction side of things, but some aspects of training fell in the right direction. It wasn’t very long turnaround before we were writing notes, building models, and all the things like that. It definitely helped that the lead analyst on the team, Nate Crossett, he’s still there today, extremely knowledgeable in remodeling and equity research in general. He was a ton of help in my development as an analyst.

Andrew Dick: And so how did you get the responsibility of covering healthcare REITs? Pretty narrow niche.

Connor Siversky: Yeah. It was a pretty fast turnaround, too. Nate had started covering the data centers, and then he moved on to the net lease group. He was up to capacity pretty quickly. And right around April 2018 or 2019, sorry, I think I had gotten the mandate to cover the healthcare names. Right after the first level of the CFA that June, I pretty much spent the entire summer working on the initiation report and launched on the eight names September 2019.

Andrew Dick: Got it. And for the listeners that aren’t familiar with how firms like yours review REITs and provide recommendations, how does that work in layman’s terms?

Connor Siversky: Typically, I mean, from start to finish, if we’re initiating on a company, we’ll read through all the 10-Ks, 10-Qs, the quarterly reports. We’ll use the financials. We’ll build out a financial model. We use a four pronged valuation systems. We have an AFFO multiple. We do a discounted cashflow with the AFFO out of 10 years. We do a net asset valuation, an appraisal of the portfolio at a point in time, and then a TV EBITDA multiple. Through the writing, depending on our opinions of maybe the intangible aspects of the company in conjunction with the valuation, we’ll come up with our rating. And we do a traditional buy, sell, hold at Berenberg Capital Markets, so a buy and sell would be a 15% upside or downside, respectively, and then the hold rating is anywhere in the middle.

Andrew Dick: Got it. And right now you’re covering most of the well-known healthcare REITs. I think when we spoke before, Connor, you said there’s really only a couple that you don’t cover. What are the two or three that you don’t cover?

Connor Siversky: Yeah, so we covered pretty much all the healthcare REITs that I would consider really coverable. I think DHC would be the last one, and then there’s another named SNR. Neither of those names have a lot of coverage, so those are ones that we’ve left off the table for now.

Andrew Dick: Got it. You’re covering a pretty wide gamut of diversified healthcare REITs, and then a number of pure-play REITs, for example, senior housing, medical office buildings, some of those pure-play REITs, but you’ve got a lot to cover there. How many REITs are you really covering today? Is it 10 or 15? I mean, the healthcare REIT sector is pretty big.

Connor Siversky: The healthcare REIT sector, we have 14 names in the healthcare REIT sector, and then four more names, the smaller cap industrial REITs, which is something that we’re going to be working on going forward as well. So, it’s 18 total at the moment.

Andrew Dick: Got it. And so when you think about breaking down the sector, when you’re talking to others in the industry, how do you break it down? I mean, I typically think of the big three that are diversified healthcare REITs: Ventas, Welltower, Healthpeak. And then there’s all these other niche players. I mean, is that the right way to think about it?

Connor Siversky: Right. It’s an interesting question because I think when you look at the healthcare REITs from an outside perspective, you want to lump them all together, but they’re really quite different, right? So, maybe if I just run down the list here, you could start with the life sciences assets, laboratory space, biotech, pharmaceutical development. And the real name there is ARE, Alexandria. And you also have Healthpeak and Ventas, which are building out life science portfolios as well. Then you’ve got medical office buildings, so outpatient medical office buildings, surgery centers, things like that. HTA, HR, and DOC are really the dedicated names in that space. Healthpeak, Welltower, and Ventas, they have some MOB portfolios as well.

Connor Siversky: And then when you look at the smaller names, say GMRE and CHCT, they chase after some medical office buildings, probably smaller assets in secondary and tertiary markets where they’re not really competing with those larger names. Of course, you have skilled nursing and senior housing. The important difference between the two of them, so skilled nursing is primarily funded by Medicare and Medicaid, right? The three main names in that sub-sector would be Omega (OHI), Sabra, and CTRE. And then LTC, NHI, they have SNIF portfolios as well. And then senior housing, again, there’s an element of diversity within senior housing in itself, so Welltower and Ventas are really the biggest names here. The interesting element in those portfolios are the operating portfolios where the REIT is the owner and the operator in effect. Sabra has an operating portfolio as well. And then they also have the net lease portfolios as do Omega (OHI), CTRE, LTC, and NHI.

Connor Siversky: You also have hospitals. The only true player in the hospital real estate space, at least in terms of the public REITs, is MPW. They take a unique approach here, an international approach, to investing in hospital real estate. They’ve been growing very quickly over the past several years. Very interesting name to keep track of. And then I think, finally, again, going back to the smaller cap names, more diversified assets, surgery centers, ambulatory care centers, some medical office buildings, dialysis clinics, things like that, and that’s where you’ll find GMRE and CHCT. And these names are interesting. I mean, they’re looking at these secondary and tertiary markets. They’re finding higher yields than some of their larger peers do. And they’re not really competing for those assets in primary market, so they can find higher yields. They have a better spread versus their cost of capital. And they’ve been growing very quickly over the past several years as well.

Andrew Dick: So, Connor, looking at all these different healthcare REITs, which ones do you find interesting right now in the world that we live? Which sectors are you focused on, or which rates do you really like right now based on the interesting world that we live in?

Connor Siversky: Right. The pandemic environment has definitely had a profound impact on healthcare in general and the healthcare real estate owners. There are a lot of different dynamics at play here. I think the names we like right now have an element of safety in them. For example, Alexandria (ARE), they have very strong tenants. Even though they can be grouped as office buildings, there’s still an element of human interaction within those facilities. By and large, all of those facilities are open. ARE has done a very good job on leasing and growing the portfolio with a 1.3 to $1.6 billion development pipeline. That’s one name we like a lot.

Connor Siversky: I do like the medical office buildings. Their share price has been depressed somewhat this year, so their cost of capital is a little bit higher. It’s harder for them to generate growth from external opportunities when they can only manage, say, a 50 to 100 basis point spread against their AFFO. But, they’re very high quality facilities. People are still going out and getting elected procedures. And for the most part, these names have been collecting all of their rents through the entire year, so you can definitely see an element of resiliency for the medical office buildings. Again, that would be HTA, HR, and DOC.

Connor Siversky: I like skilled nursing compared to discretionary senior housing. I think a very interesting name within skilled nursing is OHI. It’s one of the larger names in the space. They have a huge reach in terms of who their operator tenants are. They have the best cost of capital among the skilled nursing names, so when the time is right, when it’s prudent to do so, I would expect these guys to go out and start acquiring assets again and generate some external growth. Interestingly-

Andrew Dick: They’ve been around a long time. We’ve talked about that before.

Connor Siversky: Right. Right. They have been around for a long time. If I remember correctly, I don’t think they’ve had to cut the dividend in either 17 or 18 years. And the management team has been in place for a long time as well. They’re very clear with their messaging. They’ve done a great job managing skilled nursing assets, which is a very tough business to be in, especially in the current environment. And then one interesting takeaway there is that the skilled nursing operators have been the beneficiaries, of some degree, of government support through the pandemic. I would never want to say that they’re completely out of the woods yet, but these are also portfolios that have been collecting high-ninety percents of their contractual rents pretty much every month.

Andrew Dick: Which is impressive. Yeah. How do you look at a company like MPW? We haven’t talked about hospitals, but you made a point that, look, they’re international, they’ve been growing significantly. I find the company to be really interesting. How do you react to it?

Connor Siversky: Right. I mean, I agree with you completely there. They’re really the only name among the public REITs that are going after hospitals. And I think you can take into consideration that underwriting hospitals is quite difficult. I mean, from my understanding, you would have to go in there; you have to underwrite the patient flows to a certain degree; you have to have a familiarity with the physician groups operating in the hospital’s geography as well. And also, who are your competitors within those markets? It’s a very dynamic underwriting process. And I think MPW definitely has a bit of a strategic advantage of being able to underwrite those assets.

Connor Siversky: They’ve been growing very quickly over the past several years. 2019, 2020 in particular, they’ve done multi-billion dollars in acquisition for both years on an international scale as well: Australia, the UK, Switzerland, Germany. They’re even going into Columbia now. They definitely have wide reach. They’re definitely approaching the real estate space in general from somewhat of a unique avenue. And I would expect them … this year, I think they’re going to continue to execute on external opportunities. And it’s also worth noting, too, that hospitals, you can consider them, by and large, critical pieces of healthcare infrastructure. There’s definitely an element of social and government support for those operators and those assets as well.

Andrew Dick: Yeah. Good point. What about diversified REITs?

Connor Siversky: So, the diversified REITs, I mean, you can look at this in two ways. Maybe we could say this is the big three that have MOB portfolios. They have their senior housing operating portfolios, the net lease portfolios, but, to me, I like to look at GMRE and CHCT for these names. They have a lot of smaller assets that they can pick up in these secondary, maybe tertiary markets throughout the United States. And through this business model, which I think is very valid, particularly in the current environment where REITs are coming down, they can acquire at seven, eight, in some cases, nine, ten percent cap rates. And the math just works out as such that GMRE and CHCT, I mean, they can generate 10% AFFO growth if they continue to execute on these opportunities, not withstanding any kind of tenant issues or something like that. But, for the past couple of years, they’ve been pretty stable in that regard.

Andrew Dick: Talk about the impact of COVID on the REIT industry.

Connor Siversky: There are a lot of impacts in a lot of different places. I mean, I think maybe we could rewind to late February, early March when the issue was really coming to a head when we all started to get eyes on it. I think the most profound impacts have been in senior care businesses. In terms of skilled nursing, I mean, you’ve seen the headlines all over the place. It’s a very dangerous situation to be one of those more frail patients in this current environment. The impact has been felt there. Also, in senior housing I think one of the developments that really impacted the real estate fundamentals is that as the virus rolled inland from the coastal cities, it would force the state and the local governments to shut down admissions for these facilities.

Connor Siversky: There’s always a background rate of attrition, as much as I hate to sound morbid, but when you combine that with admissions restrictions and also an element of fear involved in maybe enrolling into one of these facilities or maybe electing to go to one of these facilities as a senior citizen, the impact on the real estate fundamentals has not been good. When we look at the Q4 NIC map data dump that came out a couple of weeks back, you see both skilled nursing and senior housing occupancy is down approximately 10% across the board. Obviously, it varies in different markets, but when you’re underwriting … let’s just say, if you’re underwriting a skilled nursing facility at 83% stabilized occupancy, and now you’re down to 75%, I mean, that’s a very profound difference in how the facility’s cashflow profile looks.

Andrew Dick: Where do you the most opportunities, Connor, for some of the healthcare REIT sub-sectors as, hopefully, over the next six to nine months, we’ll see some recovery as the vaccine is more widely distributed. Do you think that’s going to help valuations? Are these REITs going to recover or is that already priced in?

Connor Siversky: I think for the time being there are still some headwinds at play. I mean, we still see that we’re still getting an element … we’re still seeing rising infection counts in a lot of locales. Vaccine distribution maybe hasn’t gone as smoothly as we would have hoped thus far. I think safety is somewhat the name of the game right now. And I think if you’re looking for yield, you can hide out in some of the skilled nursing names, such as OHI. If you’re looking for stability of your tenant base, you can look at the medical office building names. And if you’re looking for a combination of both, I think Alexandria is a very attractive option where you can get very strong tenants. You can also get internal and external growth, albeit at a bit of a premium valuation. As we make it to the spring and summer months, I think the dynamics will change somewhat.

Connor Siversky: If we can start to see a trough in occupancy for senior housing and skilled nursing, if you can start to see these REITs get more comfortable getting back into the external environment, then we can start to see a reemergence of AFFO growth. And at the moment, these REITs are trading at depressed valuations versus where they were before the pandemic. I think there will be a time when those options become very attractive again, but for now, for safety sake, I think you remain in a holding pattern for most of those names.

Andrew Dick: Yeah. I have one question, Connor. That’s a great response. One question that we hadn’t talked about is we have a pretty diverse group of healthcare REITs that are publicly traded. We’re seeing some growth in these privately or non-public REITs. How does that affect the public REIT market in your opinion? I feel like we’ve got a number of these smaller, regional private healthcare REITs that some of the developers operate. Does that have any impact on the public REITs that you’re covering? Is there competition for investment? What are your thoughts?

Connor Siversky: I’m sorry. You cut off at the beginning of your question there. Could you run that by me again?

Andrew Dick: Sure. So, Connor, what do you think about some of the private healthcare REITs that aren’t publicly traded? Do those compete with the public REITs? I mean, we’re seeing more and more developers and investors create their own funds or REITs. Is it one or the other? Are they looking for … How do you distinguish those private and public rates? I mean, what are the investors chasing there?

Connor Siversky: I mean, I think the reality of the situation is that any investor is going to be going after a high quality asset. When we look into our primary markets, whether it’s a long-term thesis for senior housing, or maybe a shorter term play for something more stable in the current environment, like a medical office building, you’re going to have more eyes on those assets. Without digging into too much specifics where we see maybe private equity funds with these private funds getting involved in real estate, I think the intuitive answer is that you see some cap rate compression. And in one sense, that’ll benefit the revaluations in terms of the NAV. In another sense, if their AFFO multiples aren’t increasing to a level where they can generate accretion based on their financing methods, then it makes it more difficult for them to grow. It’s a bit of a double-edged sword there.

Andrew Dick: Great. Moving on to the end, we had a couple of questions. What advice would you give to someone who’s just getting into the real estate business or the equity research business? You’re still a relatively young guy. You’ve learned the business quickly. What advice would you have for someone who’s starting out in the business?

Connor Siversky: Yeah. It might sound a little cliché, but I think the best advice is just to talk to as many people as possible and act like a sponge in that regard. In finance in general and equity research in general, there’s so much to learn whether it comes from valuation or the narratives you want to push, or how stocks are traded or what kind of different funds or entities look at the stock. I mean, every time that we have a client call, or if I get on the phone with one of the corporates, you always try to take away a couple of key points that help expand your knowledge of what we’re studying and what we’re looking at. Ultimately, you can pick up a lot from reading a 10-K or a 10-Q, and we do that as well.

Connor Siversky: But, sometimes the best pieces of information will come from someone else or a message from someone else, or maybe asking to have a more clear or more detailed explanation for one of the dynamics that’s coming into the market. And that could come from maybe one of our salespeople at Berenberg. It could come from an IR conduct at another company or maybe the funds come from. There are really, I think, a ton of different ways to just keep learning about the dynamics of real estate or healthcare real estate specifically.

Andrew Dick: Great. So, Connor, I know you’re in the business of publishing research on healthcare REITs, where can folks find more information about you and your company?

Connor Siversky: Well, we are operating … I mean, as a broker dealer, the research, it goes to our clients specifically. It’s not exactly publicly available to anybody who wants it. I would definitely recommend if anybody wants to learn more about the healthcare REITs, you always go to the IR websites. You can always take up … the supplementals are full of valuable information like that. In terms of help with the industry, I mean, there’s always LinkedIn, there’s always the Berenberg website, if someone wishes to have access to our research, but I can’t exactly provide it myself like that.

Andrew Dick: Sure. Well, Connor, thanks for being a guest on our podcast. Thanks to our listeners as well. We publish a newsletter called the Health Care Real Estate Advisor. To be added to list please email me at

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An Interview with David Auerbach, Institutional Trader, World Equity Group

An Interview with David Auerbach, Institutional Trader, World Equity Group

An Interview with David Auerbach, Institutional Trader, World Equity Group. In this interview, Andrew Dick interviews David Auerbach, Institutional Trader, World Equity Group. Andrew sits down with David to talk about trends in the real estate investment trust (REIT) industry.

Podcast Participants

Andrew Dick

Attorney, Hall Render

David Auerbach

Institutional Trader, World Equity Group

Andrew Dick: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we’ll be talking with David Auerbach. David’s an institutional trader at World Equity Group. He specializes in real estate investment trusts or REITs, preferred stocks, close end funds and ETFs. He’s well-known in the REIT industry for being a thought leader, mentor and commentator on trends in the industry. Today, we’re going to talk about healthcare REITs, other REIT product types, the industry in general, and some of David’s other interests. David, thanks for joining me.

David Auerbach: Thank you for having me. I really appreciate it.

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

David Auerbach: I’m born and raised in Dallas, Texas. With the exception of the four years that I spent at the university of Texas at Austin, welcome Horns, I have found myself back in my old neighborhood. I did spend a couple of years going to Southern Methodist University in their grad school program at night. I have spent my entire career here in good old big D.

Andrew Dick: After you got out of college, you ended up working as a financial advisor. It sounds like you’ve always worked in the equity space, but talk about your first job out of college.

David Auerbach: Sure, so to rewind further than that growing up, I was always fascinated by Wall Street, watching CNN in the early days, learning about Warren Buffett, reading the Wall Street Journal when they used to publish stock tables on the paper. I was just drawn to it at such a young age. My parents love telling the story like six, seven years old kids are up watching cartoons and I’m watching business news just to watch the ticker. I knew at a very young age that I wanted to go down this road.

David Auerbach: I graduated from UT and joined up with a local practice, a CPAs financial advisor, where he my boss was a certified public accountant. He had a book of Wall Street clients. As a result, he brought me on. He helped me get my licenses. It was a great foot in the door to learn about the business, learn about the retail network.

David Auerbach: From there, I went to a firm called Green Street Advisors, which had their trading desk based here in Dallas. Green Street is and was considered the preeminent research firm in the country. I was very privileged to learn from some wonderful mentors, people that I’m still in touch with to this day, that they really paved the way for my entire career. The running joke with that job is that the day I started in March of 2000 was the day that the market rally officially ended. Every couple of years I’ll get an email from my former boss, just like, “You know my portfolio took a hit that day that we hired you.” I’ll never forget it. I spent about 11 years working at Green Street, just under 12 years. It was just a great spot. I’m still very close with a lot of people. It made me the trader and person that I am today.

David Auerbach: From there then I went to a firm called Esposito Securities here in Dallas. I was working on a relationships, the ETF universe. From there I’ve found myself now working with World Equity Group. I’m also working with a partner on some consulting in IR type information. We’ll get into some other things, but it was really that Green Street got me my start in this career, and I’m very lucky.

Andrew Dick: David, what does it mean to be an institutional trader for those listeners that may not be familiar with that title?

David Auerbach: Sure. That’s a great question. I do get that question very often. Institutional trader would be somebody who would talk to a family office, a hedge fund, a mutual fund, a bank, a pension plan, some type of big institution that would have multiple millions of dollars under management or more. You have to qualify to be an institutional investor. There’s various check boxes that a firm would fill out. It’s different than a typical retail broker advisor who would be dealing with what I call the mom and pop investors. Whenever I recommend a company or I’m talking about something, I always refer to the mom and pop in Missoula, Montana. That’s where I always fall back onto Missoula, Montana. It’s a whole different audience. There are high net worth individuals that can qualify under some of the accredited investor, institutional investor check boxes, but traditionally it’s firms that that’s what they manage as an institutional advisor.

Andrew Dick: Got it. When you’re making purchases or selling equities, these are presumably high, big dollar amounts we’re talking about lots of shares, not the retail investor.

David Auerbach: There are some retail investors that do trade that kind of volume, but yes, that is correct. There would be big size orders and on behalf of those guys. Correct.

Andrew Dick: Got it. Okay, so David, just to provide some more background, I met you a couple of years ago. You’ve been a great resource for me and for many others. I think, I found you because I had heard you speaking on one of the Nareit podcasts where they had an update a couple of years ago. Just want to thank you for all the information you share with the REIT community and just a great resource. If you haven’t met David, he’s always willing to help. We will talk a little bit more about that here in a little while. David, we appreciate your thoughts.

Andrew Dick: Let’s talk about the healthcare REIT industry, because that’s really the space that I work in and that’s what our audience is primarily concerned about. We’ll hit on that, but we’re going to dive into some of the other REIT asset types. We just finished the third quarter earnings report for, I think, just yesterday or today was one of the last healthcare REITs reported. I saw that one of the REIT analysts just send out a note about national healthcare investors.

Andrew Dick: Let’s talk about the big three David. When we talk about the big three that’s Ventas, Welltower and what is now called Health Peak. Those are in my mind, diversified healthcare REITs big players in the space with really different models in some cases. Give us a flyover of your perspective of those REITs today. I know we’ve talked in the past about Ventas and its CEO. She’s really dynamic. She’s tough. I have no doubt that she’s going to make Ventas perform very well after we come out of COVID, but give us your thoughts, David.

David Auerbach: Sure, so first from a very high level perspective, I’ve been out on record and I will probably until the day I die, I will say that the healthcare REITs is the only sector that I can think of that will literally make money off of every single American or any individual whatsoever at some point in our lifetime. No matter how you look at it, some kind of healthcare company is going to make money off of you. Whether you have to go to the hospital, the doctor’s office, a medical office building to see a doctor, rehab, sadly, hospice, end of life, assisted living, senior housing. There are so many different segments of the industry that as a whole, the healthcare REITs combined will make money off of every single one of us. I always ended it with as they always say, “Do you know who’s undefeated in sports, don’t you?”

Andrew Dick: Who’s that?

David Auerbach: Father Time. And so I’ve [inaudible 00:08:26] Father Time, hate to say it, we are several minutes older than we were when we started this conversation. As a result, that’s why I’m such a big fan of these companies. Ventas, Welltower, good old HCP, or now Health Peak, as you comment, they are the big three. They’ve been around for so long. They run such effective companies. They make money off of every single American. What’s really interesting when you look back at when COVID started, the one industry that took a hit right off the bat was the healthcare REITs, because of them finding the cases in some of the senior housing communities.

David Auerbach: The talk from the sector has been, “Okay, this happened. How are we going to address this head on, face the pandemic inside our communities, and then deal with the aftereffects coming on the other side?” Well, we’re not out on the other side, but what did we learn from earning season? It wasn’t as bad in the third quarter as it was in the second quarter and as it was towards the tail end of the first quarter. These guys have expected to have occupancy declines this year. I was just reading the Welltower release record as we were getting on the air here, and I think their number, their shop occupancy came in down like 125 basis points, but they were projecting down 125 to 175. If you’re coming in within your expectation, it’s almost like a win in itself.

David Auerbach: If you remember going back, putting on your hat from like 10, 15 years ago, when companies would announce earnings, remember, there was always two numbers. There was the first call estimates, and then the whisper number. Remember the whisper number If you did, it was one thing to beat the first call. That’s nothing, but unless you beat the whisper number, that’s what everybody focused on. Well, for the healthcare REITs, it seems to have been over the past couple of quarters. It’s not everything that they’re doing. It’s what’s the number of the occupancy, looking at their same housing occupancy numbers, shop. If they’re able to come in at, or within a certain range or better than then that’s a win. You’re noticing that happening.

Andrew Dick: David, we’ve talked before about the big three different strategies, a lot of new headlines over the last couple of weeks. One in particular you and I were just talking about is a Health Peak, formerly known as a HCP, moving its headquarters to Denver. They were looking at Dallas …

David Auerbach: Correct.

Andrew Dick: … and Nashville. Then they ended up in Denver. Health Peak’s also been in the news because their strategy has, they’ve given more emphasis over the last couple of years on life sciences properties. Then they’ve announced that they’re going to start disposing of a large volume of senior housing assets. Maybe you could give your thoughts on Health Peak, and then we can talk a little bit about Ventas.

David Auerbach: The Health Peak news is really interesting to me. I remember when they rebranded to Health Peak from HCP just a couple of years ago, not even a couple of years ago now. People were scratching their heads trying to figure out what’s Health Peak. I don’t quite understand. Now, as you just mentioned with them announcing this big senior housing portfolio disposition, as well as moving their headquarters, this is a massive corporate and strategy shift that the company is undertaking. There’s good healthcare companies that are out there outside of the big three, thinking about what Health Peak focuses on. Then you have guys wide Omega Health, OHI, Medical Properties, MPW, where there’s guys focusing on the hospitals, there’s guys that are focusing on the medical office aspect of it.

David Auerbach: I commend Health Peak for making this change. Obviously, a lot of people are taking advantage of good relocations. I mean, Colorado has seen a massive inflow of folks recently, and so what a great place to consider building your headquarters. Everybody is relocating to Dallas too, of course. Texas has very far favorable property taxes and no state income tax. I think if you’re noticing here that this, I don’t think their strategy shift is done.

David Auerbach: I think this is just another step of things that they’re trying to evolve into, because one of the things that I love to talk to you about, and I always pester you about this is talking about Father Time, the nursing home today is different than the nursing home that our grandparents were in. Frankly, what we are going to move into down the road is going to look different than what we see today. I’m curious, thinking about the next generation. I know we’re going to talk about some more of this down the road here in a little bit, but thinking about how we are so technology oriented today by way of our cell phones, are iPads and all this other stuff. How is that going to be implemented and integrated into the nursing home of the future? How is that going to be implemented into the office building, the medical office building that we walk into into the future?

David Auerbach: I think that one of the things, and I know we’re going to talk about Ventas and the life science space and the lab innovation, but I think that just like a lot of companies, like McDonald’s has their test kitchen, I think some of these other guys have, like the hotel REITs, just to shift gears. A lot of the hotel companies like Marriott and Hilton have a lab set up on their campus where they’re working on future innovation. This is what the hotel room of tomorrow is going to look like. This is what the office building of the future is going to look like. I’m pretty sure that some of these guys and their HQs as well, I think they’re trying to figure out what’s the healthcare property going to look like 30 years from now, 20 years from now, because a gen seer who lives pretty much behind the screen, 24/7, they’re going to expect that to be implemented in their daily lives at the next chapter where they move into. These are the things that keep me up at night.

Andrew Dick: Yep. Nope. All good points. You mentioned nursing home you’re right, LTC, Omega, really good companies, what I consider more of a pure play, long-term care REIT. Talk about Ventas, because I know you really like Ventas in the sense that Debbie is a dynamic CEO and just seems to provide really great leadership, and the company historically has done very well.

David Auerbach: You summed it up great. Because when you look, as far as leaders are concerned, Debbie is always one of the first people that is always mentioned. When I was growing up in the industry, and I believe they still do today, her nickname was Diamond Debbie, because everything that she touched, turned to gold. Debbie is so well-respected, and more importantly, she’s such a nice person. I remember talking to her at a conference so many years ago. I went up to her, and I was like fan boy around her, gushing. She’s like, “Stop, just quit it. I’m a nice person.”

David Auerbach: I joke, but in all seriousness, when you achieve the status that Ventas has achieved, when you’re as big as they are, when you’re in the S&P 500, when you’ve earned this cachet, it says you’re doing something right. Thinking about how the company has evolved just in the past 20 years that I’ve been following it, they’ve done one, I want to say two or three public mergers you may may know better off top of my head, but I think three public mergers.

David Auerbach: They’ve now going towards some of these life science deals, like the big joint venture that just announced with the government of Singapore last week, with what they’re doing with One Use City in Philadelphia, I believe it’s in Philly, and some of these other places, they’re looking at the next step as well. You’ll know, it’s like Boston properties, which is an office REIT, announced this big, huge lab space deal just a couple of days ago in Waltham, Massachusetts. Alexandria who is considered to be the pioneer of life science and lab space, they’re always in the conversation.

David Auerbach: Ventas has made such a push over the past couple of years, that this is a big shift. It’s not just, we’re going to operate a bunch of communities and hospitals. They’re focusing on again, the development side of things right now. One of the other, thinking about REITs and how office REITs and healthcare REITs and where they’re in space together, it costs a lot more to build one of these properties because of the sterile nature of lab space and the white glove, white coat, wearing the hood and everything that these guys and the walls. Think about Homer Simpson where he puts his hands on the gloves to do, that’s what these guys are building.

David Auerbach: As a result, the fabrication costs of these properties are so expensive. But remember, and we’re going to talk about this in some other sectors in a little bit, who do you think pays for that stuff? Ventas is the one building the property, but guess what? That costs is going to be passed off to the tenant that’s moving in there. They’re already inherently able to charge an additional premium on the states, because they’ve gone to this effort to build out a white coat lab facility.

David Auerbach: As Debbie’s, she owns a piece of the Pittsburgh Penguins. I’m a Dallas Stars fan. I can’t blame her. Pittsburgh’s got a good team. Thinking in terms of hockey, one of the great expressions is don’t watch where the puck is, watch where the puck’s going. Keep your eyes on where the puck is going to be. That’s what they’re doing. They’re literally trying to stay ahead of the puck. This is one size matters, when you have a pretty stellar balance sheet, when you’re, I have to pull up the rate. I’m guessing they’re pretty highly rated. Your cost of capital is very small. You can go out and get 30 year money for pennies on the dollar for some of these guys and use that to build these properties that are going to be effective 20, 30 years down the road. It’s a really interesting story. Again, how can anybody not trust what she’s trying to do? That’s my opinion.

Andrew Dick: Yeah. One more, I agree, David. I agree. All good points. Let’s talk about Welltower real quick, and then we’ll transition to some of the other sectors. Welltower had a change in CEO. Tom DeRosa stepped down. The chief investment officer was promoted to CEO. Any thoughts there or how the industry reacted? Tom had been around for a while. Welltower, I think has performed over a long period of time. It’s performed pretty well. Big company. They seem to be more interested in finding senior housing opportunities when you compare that to Ventas or Health Peak. Any thoughts on Welltower before we transition?

David Auerbach: You brought up a really good point about the transition, because Tom was so well-respected. A lot of folks were speculating, “What does he know that we don’t know? Why now? What’s happening?” Mr. Mitra has been around for so long, as you had mentioned, that because of his experience, it’s a natural transition. It’d be one thing from them to bring in somebody from the total outside that had nothing to do with the company. When it’s really next up on the bench to take over, it’s not like they’re changing their strategy shifts. As you know, they also did a huge outpatient facility disposition right at the same time.

David Auerbach: This is a little bit similar to what Health Peak was doing is they’re shifting their strategy a little bit, but they’re rebounding. As I mentioned, their occupancy came in within their target people are watching, and so the question that a lot of these folks have to answer, whether you’re a retail investor listening to this podcast or an institutional guy, but the big picture that remains, and I asked you, “What’s your definition of longterm?” When I was growing up in school, when I was taking finance classes and everything, we were taught that the longterm would mean your retirement money. You’re 18, 19, 20 years old sitting in your first classes. When they define longterm, they’re talking 50 years from now, okay? If you talk to a gen Z kid, that’s coming out of college today, that’s 22, and you asked him what his definition of longterm is, two years, maybe five years. Their timeframes are different.

David Auerbach: I ask the person that’s listening to this podcast today, “What’s your definition of long-term.” If you’re thinking about something many, many, many years down the road, then I leave you this question of thinking about Welltower and what they do and their properties, thinking about Ventas, thinking about Health Peak. It’s not what’s happening today with COVID, it’s what is this going to look like 10, 15, 20, 30, 50 years down the road.

David Auerbach: Now you want my take. Here’s what I think. There’s a reason why you’ve got the big three and a lot of the other players that are out there, Capitol senior, you mentioned LTC, Genesis, Brookdale, some of these other operators that are out there. When you have so many companies that make up the sector, I was always taught to think one thing, the big get bigger, the small get smaller. In a universe that probably is dominated by an 80/20, 90/10, and they know what that means, where 20% of the folks control 80% of the properties or more, It means that these guys are going to continue to acquire their smaller competitors. If you, we’ll use Ventas as the example, as I mentioned, I think they’ve done two or three public mergers, but maybe more. When Ventas wants to grow, they’re not just going to go buy a property or two, they’re going to buy a company to grow.

David Auerbach: I think these guys are, Welltower helped pick these guys. The big three are doing a good job driving down their lanes of a highway, knowing what they know so well, that it’s pretty much everybody trying to get in their lanes. Because of their size, they can just muscle them out. I think it’s going to be really interesting to watch, especially as we get older and as this industry shifts. As we move on, I will say again, keep in the back of your head, medical office buildings, senior housing facilities, the rehab facility, drug rehab, a hospital for your x-rays, unfortunately for your end of life and your hospice care final living days, the healthcare REITs are the guys that are making money off of every single one of these people. That’s you. That’s me. That’s my mother and father, my grandmother, my grandfather, my brother, my sister. Every single one of us is going to be paying money to these guys.

Andrew Dick: Yep. Good point, David. Let’s switch gears. You and I have talked about other REIT sectors before. Give us an idea of what’s happened over the last six or eight months as a result of COVID. I mean, we’ve all heard or read the headlines about the retail sector. It’s taken a beating. You and I have talked before about companies like Simon Property Group, which happens to be headquartered here in Indianapolis, where I’m at. The company in my opinion is really well ran, has some of the best properties in the world. I think once we get through COVID, it’s going to be just fine. Give us your take.

David Auerbach: I have the most respect for David Simon of Simon Property Group. You will never hear me say anything bad about him whatsoever. There’s some great, great, great stories that go under the radar in COVID right now, because as you mentioned, everybody focuses on the work from home situation, so therefore, the office building is dead, what they read about with JC Penney and Sears and some of these retail closures and the mall is dead. Now, everything, obviously there is an asterisk pre-COVID, post-COVID. We all understand that. Let’s take a couple of different sectors at a time and we’ll hit on some different points.

David Auerbach: Okay, first things first, you and I are doing this podcast on the web today. I’m looking at you. You’re looking at me. I hear you. You hear me. This is all being run through data centers and cell towers. Data center REITs and cell tower REITs have been two of the best performing sectors this entire year. We’re all Zooming using cell towers. As a result, these are the guys that are benefiting the most from that.

David Auerbach: Take it one more step. Okay, I don’t know about you, but my wife and I, we love this little tiny website called Of course, it’s great. With Prime they deliver within the hour. It’s awesome. The thing about where all that stuff is stored, all that stuff stored at big industrial warehouses that are owned by a bunch of REITs. Another sector that’s done amazingly well this year is the industrial REITs, because Amazon, Walmart, Target, all these guys have these big, huge warehouses that store their products and their properties.

David Auerbach: You mentioned retail, Simon. Okay, so Simon has been very active this year. They just had the earnings a couple of days ago. It’s a great transcript to read. If you haven’t, I highly suggest you read it. David’s really tapped into what’s going on. What Simon’s been doing, they joined up with a company called Authentic Brands. They have been going out and acquiring a bunch of retailers this year. People were like, “Why? Why are you buying JC penny? Why are you buying Lucky Brands and Brooks Brothers? What is the benefit there?”

David Auerbach: The answer is there’s a variety of reasons. The big 10,000 foot version of why they’re buying this, think about how much real estate a JC penny owns at a property as an anchor tenant. I’m just going to throw a number out there. Let’s just assume a 50,000 square foot box. It could be less. It could be more. But let’s just use a random 50,000 foot number. Why is this important? Okay. Simon will be more than happy to buy a 50,000 foot empty vacant box and then do a couple of different things. We can bring in a new tenant that’s not around there right now. One of the questions that they got asked on their call was about a joint venture they have that [inaudible 00:27:11] talked about called Allied Esports. Allied Esports is an e-sports arena that kids or folks can go and watch people play video games, participate in some of these games. Instead of watching on Twitch or on one of these online platforms, it’s a way to draw traffic back to the mall, the millennial generation, back to the mall.

David Auerbach: If that doesn’t work out, Simon would be more than happy to spend some money and taking that 50,000 foot box and breaking it up into a 20,000 foot box, another 20,000 foot box and a 10,000 foot box. Now you can bring in three other tenants to make up one space. More importantly, in the call, they mentioned that they’re signing more leases right now during COVID on the look out through on the other side here that it’s, they call it the Warby effect, the Warby Parker effect. Are you familiar with the term called showrooming?

Andrew Dick: Uh-uh (negative).

David Auerbach: Have you heard the term showrooming? For those that don’t know showrooming is I’m going to go to the store. I’m going to look at the product. I’m going to play with it, touch around with it, but then go home and order it online. I’m not going to buy it in the store. It used to be very frowned upon. It killed Circuit City. Best Buy took a big hit form it. If you go back and read some of their transcripts in the early 2000s, they talk about this showrooming effect.

David Auerbach: Well, now the Simons of the world and some of these other retailers have said, “Okay, you know what? People are going to be people. They’re going to do what they want to do. Instead of shunning it, let’s embrace it.” A perfect example of that was Tesla. If you recall, Tesla built dealerships in these malls, but you couldn’t buy the car there. You had to go home and do the process online. They put it there for you to showroom it. Come check it out, come press the buttons, come hear the engine roar or not roar exactly, and then go home and buy the car online. These guys at Simons of the world said, “You know what? Go ahead, Warby, go ahead and go to a store here. Don’t make any sales. We don’t care. You’re going to pay us rent. Then you have a chance now to expand your footprint.” I think that you’re seeing the shift in the retail landscape of the bricks and mortar enhances their online component. I’m a big fan of what’s happening in the data centers and the towers.

David Auerbach: I’ll give you one more statistic before we move on to a different sector. The former CEO of American Tower, his name is Jim Taiclet. He went off to a company called Lockheed Martin. He’s looking out for your defense. Jim had a great quote a couple of years ago at a conference I was at. I use it in every interview, because it staggers me. There’s 24 hours of content posted to YouTube every minute. That stat’s a couple of years old. If you assume things only go up, let’s say that number is now 28 hours or 30 hours. That’s a lot of content. Where is that being stored? It’s in this thing called the cloud. It just floats above us. In all seriousness, it’s housed in data centers in servers and racks and all these buildings across the country. That’s run by data center REITs, Digital Realty, Core Site Realty, Cyrus One, QTS. There’s several publicly traded data center REITs.

David Auerbach: Another interesting way to play it’s through the ETF space. If you play exchange traded funds, if you don’t know what an exchange traded fund, I call it a publicly traded mutual fund. You can buy a basket of tower and data center REITs. There’s two products out there. One is run by a company called Pacer Benchmark, the ticker is SRVR. It’s the data center and server or tower infrastructure ETF, and then Global X, which is another very large ETF issuer, just launched one a couple of weeks ago on their tickers VPN, how appropriate Victor, Paul Nancy. These are just some interesting ways to potentially play a couple of different spaces.

David Auerbach: One more sector that’s getting a lot of coverage right now is cannabis. There are several, there’s one publicly traded cannabis, [inaudible 00:31:19] pure play, and that’s Innovative Industrial, IIPR. You’ve got a couple other companies that are trying to get their foot in the door, try to grow in the warehouse side of the cannabis space. You have a big candidate. One of the first SPACs, the special purpose entities, focusing in REITs was just filed a couple of weeks, just launched a couple weeks ago. It’s involved in the cannabis space. The company’s called Subversive. You’re seeing, one of the questions I always ask when I get to talk to the analyst or the company is this, “What’s the next sector? What’s the next industry?” If you go back 10, 20 years ago, nobody would have talked about towers and data centers. If you go back 10 years ago, nobody would have talked about cannabis REITs. Now, the question becomes, “What’s the next sector?”

Andrew Dick: David, those are all good insights. You and I have also talked about some of the more novel or niche REITs that we’ve seen. One in particular, Safehold REIT, relatively new REIT that plays in the ground lease space. It’s performed very well. How do those fit into when you’re looking at the REIT industry overall? I mean, I think it’s a very interesting company.

David Auerbach: I love Safehold. I love the guys there. One of the things that I love about it is that it’s a unique play. If you look at a partner REIT, there’s 10 publicly traded partner REITs, maybe more. There’s 10 plus healthcare, 10 plus office, 10 plus lodging. There’s only one ground lease REIT that’s out there right now, and that’s Safehold. It’s an interesting story, because thinking about the Warren Buffet mantras and things that we grew up on, talking about, number one, being a first mover. They were the first mover to take advantage of this situation.

David Auerbach: Number two, building an island. When you’re out on an Island by yourself, and somebody has to literally, you build a moat around you because as a first mover, somebody is going to have to invest a boatload of capital to go and compete against you. Frankly, up in where they’re located and what they’re doing, there’s really only a handful of guys that can truly compete with them right now at this moment in time, that being Colony Capital and Starwood Capital. I know that they’re, I think they’re tiptoeing into it, but they are not diving into the effect that Safehold has done.

David Auerbach: Number three, they are backed by their parent company, iStar. Now that can both be good and bad. Why do I say that? A lot of the institutional investors in the REIT community sometimes shun the fact that it’s an externally advised company by the parents. Not that there’s necessarily collusion, but it’s not a standalone entity, because it could fall back on the parent to take care of it. But in the same breath, that’s not a bad thing because they can fall back on the parent, and also knowing that if they’re doing a deal, it’s because the parent is behind the deal. As an example, Safehold just did a secondary offering last night. They upsized the deals. It was in the market for two days. They were able to upsize it, but concurrently with it, they did a private placement to the company of a slug of stock.

David Auerbach: Rewind, going back to a COVID, Safehold was the first, one of the few companies and the first company to float a public offering during the pandemic. While everybody was on Zoom doing what you and I were doing now, they may actually get a secondary offering off on the table. At the time, the company, rightfully so, was so established that they were able to get a deal done like this in COVID right at the beginning stages of it.

David Auerbach: What’s interesting is that they have such a unique set of properties. It’s office. It’s lodging. There’s some apartment type stuff. The number one rule of real estate is location, location, location. A lot of the stuff that they’re investing is the intersection of Main and Main is what I call it. Because you have such good properties, with the way that the ground lease works, and I’ll give you the 10,000 foot. For those that don’t know the website to go check it out, it’s a safeholdinc, I-N-C, .com ( It’s a interesting story.

David Auerbach: A ground lease, what happens is pick a building. Let’s just use the Empire State Building, which is owned by a different REIT, but we’ll just use the Empire State Building. What Safehold does is they go to the guys that run the Empire State Building and say, “Okay guys, you own the building, we’ll own what’s below the ground. We’ll own the ground. You rent that from us. Upon the maturity of the lease in 99 years, Safehold will take possession of the Empire State Building.” What they’ve done is they’ve amassed quite a portfolio, above and below ground real estate, that they own, when they talk about their valuation, they equate it to like a 99 year bond. They talk about the MIT bond. It’s in their metrics. It’s just such a unique story that until somebody says, “We’re coming after,” again, who’s to fight against them.

David Auerbach: Now let’s flip it. They do their earnings based on earnings per share. Most REITs focus on FFO or AFFO. That’s one caveat to be aware of. Number two, rates traditionally have a very high dividend yield. Right now, I believe you mentioned Nareit before. I highly recommend you go check out That’s the website for Nareit. Right now, the typical REIT dividend yield, I believe is just around 4%. Safehold is well under that. Now the company says as they go out and acquires how they raise their dividend and raise the yield. Again, thinking about the definition of longterm, Safehold is not a day traders type of game. Safehold is not a name that you’re going to want to sit here and just own for a year. If you’re buying Safehold today, it’s what is this going to look like five, 10 years from now as they continue to amass high quality real estate portfolio.

David Auerbach: One other thing, if you’re a sports fan, and I think you are a sports fan, they happen to be locally here in Texas, because I know this. One of their partners is somebody who used to go by the nickname of The Admiral. Do you know who The Admiral was?

Andrew Dick: No.

David Auerbach: David Robinson, who was a famous basketball player, who played for the San Antonio Spurs, won many, many NBA championships and was in the Navy. He was a Naval, I believe he was an, not national, but he was very highly up in the Navy. He was on the Spurs. His company, Admiral Capital, is a partner with Safehold on some of their Texas properties here. There’s a sports tie in there for you.

Andrew Dick: Very interesting. Yeah, I think the company’s interesting as well. We see a lot of ground leases in the healthcare industry, and so I like it. I think it’s very interesting. David, let’s switch gears. We’ve only got a couple minutes left. Mentoring, last time we spoke you, you told me you’ve been spending a fair amount of time mentoring young professionals. You’ve always given back to the REIT community in terms of your time and resources. I know you used to publish a weekly newsletter. You may still do that.

David Auerbach: Still do.

Andrew Dick: Talk about giving back, mentoring, because a number of folks who listen to the podcast, they’re young professionals looking to advance their career.

David Auerbach: It’s a great topic. I really appreciate you bringing this up. I think at some point in our careers, we know that the next generation is coming up in the ranks. After 20 plus years of doing this, we learn a couple of things. If I’m able to pave the path, smooth the path for the next generation by dealing with my experiences, or if I’m able to answer some questions that they’re afraid to ask, then that gives them a little bit more sense of comfort.

David Auerbach: I’m also a big believer of karma and what goes around, comes around that when I used to interview folks, at my own shops. Whenever anyone would come in, usually there’d be interviewing with four or five, six other people. I would always say the person just to try to, first of all, throw them off a little bit, but second, just so they feel a little bit more at ease, I would always say to the person, “My job here as I sit here and interview you is to get you to ask me the hard hitting questions. You are to ask me the questions that you’re afraid to ask, because I don’t want you to come on board here and say, ‘Well, nobody told me about this. I wasn’t expecting this. How come I didn’t know that this?'” I would always say, “There’s no such thing as stupid questions just stupid people.” Have you heard that expression before.

Andrew Dick: I have.

David Auerbach: I love using that expression. I always say, “There’s no such thing as a stupid question. What you may think is stupid may actually be the secret sauce that what you should be asking that you you didn’t realize that you should ask.” It carries through to the mentorship thing that I’m trying to do, because I want people to number one, not be afraid of the interview process. A lot of people now, because they are so tied to their phones, they lose out on the face-to-face interaction. When you’re sitting across the table from somebody, and if you don’t know how to cure yourself in a face-to-face conversation, you have to understand, you may be investing in this company, be a management of this company, you could own this company, which means you’re going to be dealing with the media and all this other stuff. If you don’t know how to interact with people, what kind of message is that going to say to your boss, your partners, your shareholders, whatever.

David Auerbach: I feel like now, especially with the folks that I’m focusing on, it’s the guys that are anywhere from getting out of high school, going into college, dealing with their first intern type interviews, going into grad school, coming out of grad school, going into their next positions, whatever it is, but if my 20 plus years of REITs and ETFs is able to help them understand just a little bit more of what they’re walking into or I had somebody reaching out to me today asking me about Safehold. I got them an interview with the company. He wanted to understand what is the company. I sent him a friend’s video. I’m like, “Watch this. If you watch this, then when you call the guy and have your interview with him today, you’re able to come prepared with a roster of questions, because you said, ‘I watched your interview. You said this. Can you explain this to me? I don’t understand.'” What does that say to the person across the table from you? This guy spent his time doing his homework. He really cares. He’s really interested.

David Auerbach: When somebody calls me and says, “I’ve got the second interview, I got the job, whatever,” that’s about as valuable as a paycheck is in my opinion. More importantly, it could be a year from now, 10 years from now, a hundred years from now, that guy isn’t going to forget. He is going to remember that I helped him get to that point.

Andrew Dick: David, last question. What advice would you give to a young professional who’s looking to get into the real estate business?

David Auerbach: It’s the same, same thing I’ve heard, that I’m sure you’ve heard a million times over and I stand by it. It’s not what you know, it’s who you know. Networking as a full-time, 24 hour a day job. It’s why I lost my first job as a retail broker before I joined Green Street. My boss and I had a disagreement as far as the proper times to be networking. He thought it should be an after the stock market hours type of job. I said to him, “Wait, if a prospect says they want to have lunch with me, I have to tell him no, because my boss said I can only network after hours?” I said, “That’s the craziest thing I’ve ever heard.” They fired me the next day because I said that. As a result, you and I would have not connected if it wasn’t from networking back in the day. I wouldn’t be able to email David Simon and him email me back on a day of earnings without networking. As I say on a mentorship platform, you never know when you’re going to come across your next partner, your next boss, your next client, whoever it is. It’s all because of networking. I would emphasize get out there, meet folks, explore LinkedIn, ask questions, learn, as Red says in Shawshank, “Get busy living or get busy dying.”

Andrew Dick: Good advice. David, where can our audience, how can they reach you?

David Auerbach: I am affiliated with a broker dealer out of Chicago called World Equity Group. My email address there is davidauerbach, D-A-V-I-D A-U-E-R-B-A-C-H. @weg, W-E-G, ( If they want to ask about the daily REIT note that covers the REIT sector, please feel free to reach out to me at that email address or on my consulting address at, I-R-R-E-A-L-I-Z-E-D, and I’d be happy to chat with you more there as well.

Andrew Dick: Great. David, thanks for your time. Thanks to our audience for listening 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 that list, email me at 

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An interview with Andy Van Zee, Senior Housing Advisors, Marcus & Millichap

An interview with Andy Van Zee, Investment Broker, Knapp Group – Senior Housing Advisors, Marcus & Millichap

An interview with Andy Van Zee. In this interview, Andrew Dick interviews Andy Van Zee, Investment Broker, Knapp Group – Senior Housing Advisors, Marcus & Millichap. Andrew sits down with Andy to talk about senior housing trends.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Andy Van Zee

Investment Broker, Knapp Group – Senior Housing Advisors, Marcus & Millichap 

Andrew Dick: Hello, and welcome to the Health Care Real Estate Advisor podcast. My name is Andrew Dick. I’m an attorney with Hall Render, the largest health care focused law firm in the nation. Today we’ll be talking to Andrew Van Zee. He is an investment broker with Marcus & Millichap. In particular, he works in their senior housing group. We’re going to be talking about his background in the industry, how we ended up where he is at today, and then we’re going to talk about seniors housing in general. Andy, thanks for joining me.

Andrew Van Zee: Hey, thanks, Andrew. Appreciate being able to have this opportunity to talk with you about this.

Andrew Dick: Andy, before we jump in to trends in the industry, tell us about yourself, where you’re from and where you went to school and what you wanted to be when you grow up.

Andrew Van Zee: Absolutely. So I’m originally from small town, Prairie City, Iowa, just East of Des Moines. I grew up there. My family still all lives there. I’m currently in Indianapolis with my family, my personal family, and went to undergrad, South Dakota State, wanted to kind of get far enough away from my parents that I couldn’t drive home on the weekend. I got a political science degree at South Dakota State and originally thought that I was going to get into politics. Did a lot of the grassroots politics route, multiple campaigns working with one of the national parties for several years to a point where let’s just say I ended up on the wrong side of the ticket and needed a little bit of a change. So I went to law school thinking that I was going to end up back into government or politics of some sort, but the Lord had other plans.

Andrew Van Zee: So I went to Thomas M. Cooley Law School, which is now Western Michigan up in Auburn Hills, Michigan. I met my wife at that time. We got married. But she was a Hoosier. So after graduating, we moved down to Indiana, where I found myself working in-house for a major skilled nursing developer and was really introduced to the senior housing industry through that timeframe doing a lot of work specializing in the certificate of need laws. I applied for a certificate of need applications in states across the country, as well as just kind of going through some of the licensing process for our group to be able to continue to grow and expand and was introduced also to some awesome operators during that timeframe, a lot of the people who we were directly in partnership with on new deals or just kind of consultants along the way, a lot of great people in this industry that when I moved on from that position, I started to do some on my own in the world of certificate of need.

Andrew Van Zee: I did a few more projects notably with a major hospital health system actually back in Iowa. Through that timeframe, real estate, that development aspect of being able to see this industry grow and be a part of that is what brought me back to or brought me to Marcus & Millichap. We had networked with them throughout the timeframe when I was doing certificate and need, also looking for beds. Jim Knapp, who is a part of the Knapp Group Senior Housing Advisors within Marcus & Millichap, the team that I’m now associated with, I had called upon him back in 2015. When I joined Marcus & Millichap, it was just a great landing spot to be able to build upon some of the knowledge that I currently had, but also be with a great group of senior agents within the firm to be able to launch and grow outward from there.

Andrew Dick: So thanks, Andy. That’s a very interesting career path, what you and I have had the chance to work together over the years, and I’ve always enjoyed working with you, and I’ve always thought of you as an expert in the long-term care space. When I heard you landed at Marcus & Millichap, I was personally excited for you. It’s a great platform and a great organization. Before we dive into some of the what’s going on in the industry, Andy for our listeners, tell us about the senior housing industry and how you break down the different asset types. I typically think of senior housing as skilled nursing facilities, assisted living, et cetera. But be more specific for maybe those who aren’t familiar with the different asset types.

Andrew Van Zee: Certainly. Well, let me touch a little bit about that and Marcus & Millichap, even the platform that I’m with. So Marcus & Millichap is a full service real estate brokerage company that we only specialize in investment sales. But each agent has their own product type, I should say, that they have really drilled down into and try to become experts within. So within senior housing, we really focus on skilled nursing assisted living, independent living, memory care, and CCRC products that obviously would encompass all of those other four components onto one campus. We only focus on real estate. However, there is times when we do come across home health companies that will be connected with an operator’s skilled nursing business or a senior housing business in some way or another, and we will work with those as well. But primarily, from our platform, we are really focused on that core of skilled nursing assisted living, memory care, independent, and CCRC.

Andrew Van Zee: Medical office space is a separate group within Marcus & Millichap. So we don’t really touch into that as well as a hospital and in those really high acuity dialysis or other dentistry, any of those types of medical type real estate components is now part of our group.

Andrew Dick: So your group is able to focus and really get into the weeds on valuation and what’s going on in the industry is my understanding, Andy?

Andrew Van Zee: That’s exactly right. We really try to become experts throughout Marcus & Millichap, but in the senior housing space, especially when it’s different than any other type of… or I should say of the most real estate components, in which when you’re selling the asset, the underlying real estate asset, most oftentimes you’re selling the business with it, and/or it’s a specially built property where the value is driven by the actual operation of that specialty, skilled nursing, assisted living that has been operated out of that space. So we really are unique in that format that we drill down in to understand both the real estate trends but also the operations. There’s a lot going on, especially in the last couple weeks, months with COVID in the health care space in senior housing specifically that if we tried to cover all of health care, we couldn’t be the experts that we really need to be for our clients.

Andrew Dick: So you mentioned COVID, Andy. I know that senior housing has been significantly impacted by the virus. What has that done, or what are you seeing in the industry as a result of COVID? Has it impacted occupancy? Has it impacted operations financially? What’s it done to sale prices, et cetera? Give us kind of a broad overview?

Andrew Van Zee: Good question, Andrew. It’s definitely had an impact. When we look at what has happened with COVID, it’s had an impact just like any other real estate asset or any other business really. What’s interesting about the health care is it’s always been deemed one of those essential businesses. So the lights have always been on. Employees have always been coming to work. People are still getting care. Even unlike some of the medical office space where a lot of those elective procedures were put on hold or even telemedicine where you could go somewhere else. In senior housing, it’s always been a truly essential part of the economy and a business that has continued to operate. From that standpoint, because it’s continued to operate, it’s been exposed to COVID in more ways than a lot of other industries, and therefore, there have been some negative press that’s come about that exposure.

Andrew Van Zee: But it’s really been six months now past the start of this pandemic. It’s really been a really strong and resilient industry and a fun one to be able to kind of watch and interact with. By and large, I would say starting with the skilled nursing aspect of it, everybody that I have interacted with, every operator has taken COVID seriously on day one. There was a time where I was visiting some facilities before some of the mandates came out back in early March that weren’t letting me. As soon as some of these just even scare started to arise, they were shutting the doors. I would say that that has been something that has been pretty consistent throughout that every operator that I would say has been in the business, and most operators in senior housing are truly in it because there’s something more than just the operation of a business and collecting a paycheck. They want to care if there’s a care component deep within them. They care for those residents that are inside their buildings. They’ve done a good job of containing it.

Andrew Van Zee: Now, that said, there’s been a lot of change. So skilled nursing, obviously, the biggest impact right away was the shutdown of the electives seizures in some of the hospitals. If you had any sort of Medicare component to your revenue model, you weren’t just a truly long-term care and relying upon Medicaid. You had an impact on day one. That was in terms of occupancy. So as occupancy goes down and you weren’t able to continue to backfill those, definitely there’s been an impact on revenue on day one. Assisted living seemed to be a kind of the next, the next group that was impacted, but it wasn’t as immediate. They were affected more through attrition and/or just marketing efforts, kind of a mixed bag, and some of the trends have shown that really, it has been a downward trend on occupancy overall.

Andrew Van Zee: But when there was a run on supplies in March and April, May, there were some reports early on that those assisted living facilities that could market appropriately through virtual tours or just kind of quickly being able to change their strategy, we’re actually seeing an increase in occupancy for a period of time as people were wanting to have more of a secure spot to be. Unfortunately, I think some of the negative press overall of mostly driven by isolation than today than the fear of an outbreak is assisted living and independent living because it is more of a choice to move into those types of facilities. They’re having a slower recovery, whereas skilled nursing, once elective surgeries have picked back up, they have shown a stronger rebound, but it’s also does come back to the quality of the operator. As a whole, overall, the industry occupancy wise, and income’s all driven by occupancy in this category.

Andrew Van Zee: It is still has ways to go to catch up to where we were. But the plus side is there’s been a lot of positive stimulus cashflow that has been pouring into the system from day one, starting with the PPP, but there was Medicare advanced payments. There were a lot of grants that are still now new grant money out there specifically targeted for senior housing operators who can develop or create isolation wings, whether that be brand new or converting still reimbursed for converting those spaces. There are been more reports now on skilled nursing specifically if there’s been an outbreak, and they’ve had to isolate and shut down any part of the organization. Medicaid even is reimbursing some of that 14-day period of time for some groups

Andrew Van Zee: So I think the upside is the government as a whole recognizes that this is a strong industry, I think, that needs to… We need to take care of our residents. We need to take care of our seniors. I think it’s going to be a really good setup for the future. This has always been an industry that has a very long runway, and we’ve always been very bullish when you just look at the aging of the population as a whole. New development has led the way I think on a lot of the growth and a lot of the change in the industry. But because of COVID and because of the focus on the quality of care, and especially in terms of isolating our residents and taking care of our staff, I’m seeing changes that I think will have some long-term impacts overall, that’ll be good, even for the established business who maybe can’t win the market share on day one because they don’t have the newest and shiniest product in town.

Andrew Van Zee: Example, I’ve got an operator that I’m working with in Iowa, done a phenomenal job, kept COVID out of the building. It’s an older property. But they were older in terms of it’s not new within the last 10 years but has still kept COVID out of the building, has kept an isolation wing, always made available for new residents to be able to come into an artificially held occupancy low because of that so that they can have those excess beds open. As a result of that you know, some of these newer advancements that are coming out just recently of COVID testing units in the buildings, because of the focus on the care of residents and staff in this building and the quality that’s been driven, this facility is one of 10 in the state that’s going to get one of those first new testing machines in the building.

Andrew Van Zee: So I think that’s what’s going to be kind of the silver lining, I guess you could say out of all of this going forward is that people have been forced to change throughout this entire process, and they were forced to change very quickly. In the last six months, senior housing has done an amazing job of taking care of the residents and adapting with it through technology of virtual tours, through technology of just virtual meetings, technology of tracking the flow of visitors, but even down to just operationally shifting very quickly, delivering meals in the rooms. You get on social media, and you see countless videos or photos of innovative ways in which family members can still see their loved one in a facility behind a plexiglass wall or something that is… things we have never seen before. Obviously, we’ve never seen this pandemic before, but all of these changes I think are going to set up this industry for a very strong run in the future.

Andrew Van Zee: That said, I’m sorry for being long winded on your question, Andrew. But that said, because of all the stimulus, there’s also been several groups that I think at the first quarter or first half of next year, we’re going to start to see some stress fractures in the operations. Obviously, not everybody in the graduating class or the top of the class. There’s always some that are just getting by. Those who are in this industry today, who have not adapted very well, and I’m not been able to either through a desire or lack of just ability economically or otherwise. I think that when all these stimulus opportunities start to wear off, and some of the cashflow that has come through that has artificially been propping up some of these groups, we’re going to start to see some of those, the fallout that’s going to come with that in terms of exchanges in the marketplace, ultimately sales.

Andrew Van Zee: Hopefully, it’s not foreclosures or anything of that nature, but I think that we’ll start to see a lot more transactions in the near future for those distressed assets than what we are today.

Andrew Dick: So, Andy, that was a great overview. I talked to Rich Anderson, who’s an equity REIT analyst. He covers the publicly traded health care REITs for SMBC bank a couple of days ago. He was comparing skilled nursing to assisted living and independent living. He said most of the stimulus money has really flowed to the skilled nursing operators. Unfortunately, independent living and assisted living operators haven’t received any funding and in most states. Has that impacted how investors look at the different asset types, Andy? I mean, I think you’re you’re right that a lot of folks I’ve talked to said, look, the federal health care programs are not going to allow skilled nursing to fail in most cases. But independent living, assisted living, they’re kind of on their own. I mean, is that a fair analysis, or what are your thoughts?

Andrew Van Zee: Yeah. A good question. You’re absolutely right. Short of the Payroll Protection Program and any type of advancements that was really more for assisted living that actually had employees working independent, depending on how involved you may have had from a staffing standpoint. Yeah, it didn’t get a lot of funding. Didn’t get a lot of help. I know there’s been a lot of talk recently about possibly sending some money in that direction of future stimulus funds. From an operator standpoint, there’s been a lot of groups that have… Well, let me take a step back. From a real estate standpoint, just in general, transaction-wise, everything was really put on hold, screeching, stop, in March. All properties that were on the market remained on the market. But our office, our group didn’t list anything, didn’t put anything new on the market for at least four and a half months.

Andrew Van Zee: That was really true of a lot of the brokerage companies that we’ve networked with or banks or anybody across the board. So there was a lot of money because of the uncertainty of what was to come that nothing transacted. When there were several groups that we were talking to in January and February who were looking at 2020 as a year in which they were wanting to acquire or sell, get out of the business altogether. So the fact that, back to assisted living this, this stimulus aspect of it of until we can actually have, even on these most recent conversations out of Washington is money coming to resonant. It’s held back the flow of inventory on the market, number one. Groups that have seen a decrease in occupancy through this timeframe are afraid to take anything to market that their properties are going to be devalued accordingly.

Andrew Van Zee: For the most part, it’s a very valid concern. The question really comes in is, how long can some of those groups last, and how long will it be before they recover, coupled with the lending aspect of it? A big piece of what we’re seeing during that timeframe of close transactions, where right at the peak of this, we had the lowest interest rates that we’ve had on record in years, and refinancing and looking at new acquisitions as a result of that was a huge opportunity. Then that became unsteady, especially in this market. So we’re starting to see the banks come around and those lending institutions come back on board, which is helping. But we’re still not seeing on assisted living and independent living the occupancies really jumped back as quickly as skilled nursing is.

Andrew Van Zee: Because of that, we’re not seeing as many groups who are willing to just jump into the game and transact as strongly. We have taken a property to market. Our group did within the last month. It was a CCRC that was mostly with no skilled nursing component, so assisted living, independent living, memory care. We did see some good market activity on it. Overall, I think that right now, there’s a lot of pent-up demand in the marketplace. There is still a good opportunity where because there’s nothing out there, and there are groups that need to be active to continue to survive and/or just wants to take advantage of a timeframe where there’s not as much competition on bidding on properties. It’s a little bit more of a buyers’… I mean, a sellers’ market in that way with that pent-up demand. But we’re still not seeing a lot of groups ready to jump into that yet, especially on assisted living and independent living because of potential stimulus money is still coming in and/or these occupancies that just haven’t come right back yet. I hope that answered your question. [crosstalk 00:24:11].

Andrew Dick: No, that was great. That was great. You hit on a couple of points there. One was what the lending institutions are doing. Talk about the capital markets. If you’re the owner of a senior housing facility, is it a difficult time to refinance? If you’re a buyer, and you need some capital, how are the banks looking at the different asset types? Is it tough to get interest, or have prices went up for the cost of capital?

Andrew Van Zee: For the most part, I think the biggest variable right now that is looking at, how hard of a hit did you take on occupancy as well as just kind of the fundamentals, age of the building, what’s your blended rate on your payer types? Financing’s coming back. It definitely pulled back. Even though we had these bottom-of-the-market interest rates, lenders in senior housing were putting floors on those to try to cover some of the risks with the biggest fear being, is COVID going to get into your building and wipe everything out between time for closing and/or shortly after you close on it. Right? So that was the number one thing is we saw floors right away. Then kind of the loan-to-value ratio started to creep up, where you could have maybe gotten a 75% loan-to-value, you were down to 70. Maybe if it’s an older building, 65.

Andrew Van Zee: So some of that amount of leverage that you can put on some of these buildings is definitely been scaled back from what it was at the beginning of the year. I think by and large, we’re starting to see that banks are coming around and slowly more and more are getting onboarded. I would kind of liken the banks to what we’re seeing even on a very macro level with some of the REITs. Some of the REITs on the recent transactions that we’ve had, the recent deals that we’ve had have been the more conservative bidders currently. We’re seeing a lot more of the private equity or just private money in this space being more active in the bidding and in the aggressiveness of those bids right now in the last two to three months. I really likened that to kind of the way the banks are. They’re institutional in that same fashion as the REITs. They’re taking the longer look. They obviously are having to deal with imminent foreclosures that are now starting on other product types outside of just senior housing.

Andrew Van Zee: So as we can have more time from the beginning of this pandemic and more space, more data to show these lending institutions that senior housing is still a safe place. It’s a very safe place to be, and there’s a lot of runway. I foresee that we will continue to have greater access to capital. Even we were projecting that some time after labor day, that it would really start to look more normal. I don’t know that we’re normal in terms of where we were pre-COVID yet. But we are certainly getting back to it much like the rest of the country is, quite honestly, in terms of we have to move on. So is there access to capital, and a very short answer to your question, yes, there is. There definitely is. It may not be as highly leveraged. But the interest rates are still low. They’ve still remained the low, and it’s still a great time to start to be looking at the future in senior housing.

Andrew Dick: Yeah. That was a good summary. I’ll tell you what some of the experts I’ve spoken to remain bullish long term on senior housing, given some of the demographics that we’ve all seen in the news with the aging population. In fact, some of the… I talked to some folks who said they’re looking forward to picking up more of the senior housing assets as things settle down. They just think that the demographics support long-term growth in the industry. Andy, would you agree with that and maybe also weigh in about, some of the critics have said there’s too much supply?

Andrew Van Zee: Sure.

Andrew Dick: Specifically in the independent assisted living areas, but-

Andrew Van Zee: I definitely am very bullish on senior housing in terms of a solid investment, a good long-term investment. I think there’s a lot of runway still here. I believe a lot of groups are believing that as well. We’re starting to see it. Like I said, the Knapp Group within Marcus & Millichap, we’ve successfully put three properties on the market now within the last two months, and I’m actually getting ready to have a call for offers on a skilled nursing facility here in the Midwest next week, and I’ve had some very strong activity of groups, honestly of more groups that have not played in this region before that are looking to grow and expand their footprint. Long term, I think that there definitely is a great time still to even look at senior housing. Early on, within Marcus & Millichap, especially with the retail sector, the retail sector getting a lot of a lot of pressure and even into the multifamily sector. We’re starting to look at some of the lockouts on evictions and the fear of people not making payments in the near future.

Andrew Van Zee: As we were talking to investor groups during the slow time for us as brokers, not the slow time for the industry as they deal with the pandemic, but the slower time for us, we were getting a lot of questions from groups who had never really looked at the space before wanting to see deals, wanting to know what’s going on, wanting to understand it. To that end, it will continue to be a strong space for future growth. Just as you mentioned, there’s a lot of baby boomers still that are aging. The aspect of what it looks like is changing overall. So when you say independent living, assisted living, what’s that look like? Development has slowed, and there was a lot of development in that space, and you could argue that the industry was perhaps becoming over bedded in certain areas. But I don’t really see that that was the case.

Andrew Van Zee: I think it was really certain markets. When you look at the country as a whole, there was obviously been a lot of development in certain metropolitan pockets, some of the hotspots just in real estate in general, Texas, Florida. Those two markets especially have had a lot of focus over the last several years, but some of the more tertiary markets, the secondary markets of the Midwest, the more rural Southeast, some of the West, the mountain region, been a lot of still growth out in those areas. Predominantly, that’s where a lot of the population that is aging is aging in place. I think that what’s going to take place out of this pandemic, what we can look to see is slower development in those categories. But we still have to have development in those areas just to continue to meet the oncoming future demand.

Andrew Van Zee: As far as evaluation is concerned, we have kept our valuations and our cap rates that we’re applying to a lot of these properties that we’re underwriting and listing steady throughout this entire pandemic. Most other brokers are doing the same. Appraisers are doing the same. I think that speaks volumes to this industry as far as where it’s going as well as where the value even is today, even despite some downward pressure from occupancy due to the pandemic. Cap rates have not changed. In some ways, depending on the product type, I think you could argue that those investors, and I can’t back this up a hundred percent yet, there’s just not enough data of transactions yet, but in some ways, some of those investor groups who are transitioning over, maybe from multifamily housing over into assisted living or independent living, I think there’s a possibility that some of those cap rates could even be driven down a little bit as we see capital migrate from different parts of the country or different sectors of the economy into senior housing.

Andrew Dick: All right, Andy. Tell us about the capital markets. Are lenders still willing to make loans to owner-operators to investors? How have the lenders and the equity sources reacted to the current state of the market?

Andrew Van Zee: Good question, Andrew. There’s definitely money available. There’s definitely capital flowing through the industry. By and large, it’s starting to pick up it’s. If we go back to the end of this pandemic back in March, we had record low interest rates across the board and a lot of refinancing, a lot of groups looking to acquire new properties as a result of that, and even some talk about, what are these low rates going to do to cap rates accordingly? Are they going to continue to be driven down with the interest rates? Unfortunately, the brakes were put on pretty hard during that point in time, starting with the banks putting floors on those interest rates, and then with that, also starting to scale back the loan-to-value ratio. So instead of possibly being able to get 7% leverage on a new product, a new property, you might be looking at 70, or in some cases, down to 60 and even 55%.

Andrew Van Zee: That seems to be where a lot of the pullback was coming from the capital markets was the amount of money that they were really wanting to go at risk for on a property. Most of that had to do with just the fact that this overall fear of what happens if we get COVID in the building, what happens if we have an outbreak, and we lose all of our occupancy, all of our residents, all of our income? For the most part, that has not happened. There obviously has been some hotspots, and those hotspots have made the headlines that have tainted a little bit of what we just previously talked about, where I think the industry has been and where it’s going.

Andrew Van Zee: But for the most part, I think the further away that we get from the beginning of this pandemic, the more the whole country even starts to just get into what is the new normal. We’re seeing on the lending side that some of that banking as usual is starting to come back into play. We were projecting that after labor day, we were going to see more of a normalcy in the capital markets area. I don’t know that we can really say that we’re 100% there yet across the board of what pre-COVID was. But we definitely are seeing lenders who are willing to extend capital and who are wanting to get into the game. When it comes to who are looking at deals right now, we as a group, the Knapp Group within Marcus & Millichap, we’ve now launched three new properties onto the market over the last two months and has some really strong interest in all the properties that we’ve put out there.

Andrew Van Zee: There’s definitely some pent-up demand in the space. To that end, what we’re seeing though, from those who are actually bidding on it, it seems as though it’s the private equity, it’s the private owner operators, it’s those who are wanting to take advantage of this timeframe where they don’t have to be bidding as heavily. I shouldn’t say that, where they’re more bullish overall on the marketplace. That’s where we’re seeing more the aggressive bids come in and aggressive to the point where we just had a property, a CCRC with a lot of skilled nursing beds up in the State of Maine. We had a call for offers on a couple of weeks ago, and we had over eight offers on the property, four of them at or above list. Those groups who were bidding on it were the private equity groups who were really pushing that envelope.

Andrew Van Zee: Some of the other properties that we are marketing right now, I’ve got one in the Midwest, a skilled facility in the Midwest, and I’ve got everybody looking at it again, the REITs, the private equity, local groups out of the region, and it seems to be following that trend a little bit more, that the groups that are more interested and a little bit more aggressive in their conversations up until this point are those in the private equity space. So there is definitely money to be had in those groups. I do take advantage of leverage through the capital markets. But from an institutional standpoint, it seems as though that those lenders, whether they were REITs originally or the banks, they were definitely conservative overall but are picking up again. There is money flowing back in the industry, to answer your question.

Andrew Dick: It’s good to hear. I think as real estate professionals, we always worry that the capital markets will slow down, and the lenders and the equity sources will hit pause. But I think what you described is what I’ve experienced as well. I think we’re starting to… Well, we’ve continued to see activity, but we’re seeing even more activity over the past few weeks as everyone starts to realize that this is the new normal. Andy, let’s switch gears. When I’ve talked to you in the past, we’ve talked about trends in the industry, unique concepts that some of the operators have launched, whether it’s a lifestyle type center or a high-end independent or assisted living facility. What type of trends are you seeing like that in the industry, and do those type of products tend to… Are they attractive to investors, or how do the investors react to those kind of niche product types?

Andrew Van Zee: Good question, Andrew. I would say probably that there’s no… So everybody’s looking for the silver bullet, that one product you can continue to punch out over and over and over again. It’s going to be the home run every single time. I always chuckle a little bit when I kind of hear some of those types of conversations thrown around a little bit because there’s not one type of housing products on the regular housing across the country. We are dealing with housing. It’s senior housing. But it’s ultimately still housing. From a niche aspect though, I think that what has been growing and something that is honestly in a little bit of an interest to me, so maybe a little biased when I say this is I really think that some of the smaller facilities that the small house design, the greenhouse design, those types of concepts are going to continue to grow across the country, especially as we look to the more affordable concepts that Welltower has been pushing quite a bit, trying to find solutions for.

Andrew Van Zee: Some of the bigger investment groups are wanting to look, shift a little bit of their focus to, what’s sustainable? What’s a sustainable model, and what’s sustainable in the country long term is getting to that middle class or even, in some degrees, the lower class that are aging at the same rate as the upper class? So some of these smaller types of concepts I think are very attractive for somebody who wants to move into those parts of the country, that middle America, if you will, that traditionally would be overlooked because you can’t plop down a 180, 200-unit facility right there. Now, that said, our cities are also growing. There’s still a lot of growth that needs to continue to happen on a large scale and some of the cities. I think that when you start to look at more of the metropolitan areas and you start to see some of the, let’s just call it an evolution of the villages down at Florida, ultimately, right, that was a very innovative concept of creating a community around a single age group. Senior house is always trying to create community.

Andrew Van Zee: How do you do it? How do you do it in a unique way? I think the wellness center and the intergenerational approach that is starting to pop up, not everywhere, but here and there I think is also becoming more attractive as you start to get into areas where maybe you have a lot of other box assisted living or independent living structures in your market area, and you want to create that niche. What’s one way to do it? I know obviously, a lot of groups have been talking about the wellness model of, how do you incorporate a true wellness lifestyle into it so that you can age in place?

Andrew Van Zee: I really see it as more of an evolution of what the CCRC model started out as, as a means for somebody to age in place, but taking it a little bit further and focusing more on wellness. So there’s a couple of unique developments that I’ve seen over the past several years. There’s one of them in the Midwest where they really focused a lot on the intergenerational aspect of a community with it still being anchored as senior housing, incorporating a wellness center that would allow moms and daughters and grandkids to come in and do yoga classes together or the culinary aspect of having a restaurant, a really good culinary staff that’s quite honestly more open to the public to get a restaurant style dining that’s true restaurant style, open to the community, flowing through there.

Andrew Van Zee: So I think there’s still going to be niches and growth in those types of categories. From an investment standpoint, bigger is always better. Economy of scale is always better. So early on, as those groups are looking for those niche markets, I think, I think that the long-term investment is still probably better for a larger project versus some of the greenhouse model, unless some of the greenhouse style products can be coupled with a portfolio or on a campus, where you have multiple buildings on the same campus, and maybe one of them is memory care. Maybe one of them is assisted living, and maybe one of them is a skilled nursing component and so that you can still create that economy of scale from the operational standpoint. So as we get back to the very beginning of our conversation, I think that the number one thing that’s holding that model back from going large scale very quickly as a lot of people are very interested in it.

Andrew Van Zee: A lot of people are very interested in, I think, and are looking at it is just operationally, how do you make it efficient when you are doing one building at a time in places? So when we start to get some scale and a tipping point of those facilities out there and the operational expertise of knowing how to run those, I think that’s a very unique model that hasn’t had its spotlight to the extent that it probably should yet, especially in terms of investment.

Andrew Dick: Yeah. The greenhouse model is something I’m very interested in. In fact, I talked to Susan Ryan a couple of days ago from the greenhouse project, and hopefully, we’re going to have her on the podcast soon, a very interesting concept, and it seems like it’s performed very well during COVID in terms of… In some cases, the greenhouse model has almost a zero infection rate.

Andrew Van Zee: Absolutely. I think-

Andrew Dick: But again, you’re right. Smaller scale. Some investors say it’s too small, right, to really pique their interest. But yeah. Andy, let’s switch gears. You’ve been in the business for quite some time at this point in the senior housing business. What advice would you give to someone who’s new to the industry looking to meet folks and learn about the industry? What advice would you give someone in that position?

Andrew Van Zee: Yeah. I think the number one thing, if you want to move into senior housing, you have no experience. Maybe you’ve heard about it, maybe just happened onto a podcasts like this one, Andrew, and you hear that it might be a strong area to invest in. I would say there’s an acuity spectrum that we talk about in the industry and starting at the hospital and then working its way down to independent living. Of course, in our focus of senior housing, we start that acuity spectrum of skilled nursing and work your way down. For somebody who’s coming in, I think if you have no experience at all in the service, it’s actually provided inside some of these buildings is to learn about that and learn about those different acuity levels and really start to understand what the differences are in licensure, what the differences are in staffing, what the differences are on reimbursement.

Andrew Van Zee: A lot of these things, especially at the upper end, at the skilled nursing end because there’s so much government reimbursement that comes out of it. A lot of this, you can actually find out if you’re diligent enough. You can do some of your research on those types of reimbursement things and licensing on your own. It comes down to the economics of the lower acuity, the assisted living, maybe the memory care, the independent living that you need to network. You need to find somebody who’s doing it. There’s plenty of good groups out there that you could get in touch with to learn more about it. Contact a local broker. I mean, that’s probably one of the easiest ways. We’re real estate brokers. But I’d call ourselves the Knapp Group Senior Housing Advisors of Marcus & Millichap. We’re advisors predominantly for those who are already in the industry.

Andrew Van Zee: So find a local broker that is maybe willing to spend some time. But be serious. Don’t waste anybody’s time as well. There’s a lot going on in the industry. To be able to find somebody who can be able to really share some of the details with I think is important as long as you’re sincere about it and as long as you’re serious. That said, senior housing has been around for quite some time, and there’s starting be, I think, an evolutionary shift internally just from the age of management, the age of operators who are out there. There are a lot of smaller groups that are retiring or moving on and/or handed the Baton on to the next generation internally, and that leaves us with a lot of mentors, a lot of sages that have been through it before and a lot of opportunities to just be able to grab a cup of coffee with somebody.

Andrew Van Zee: I’ve done that many times both starting out as an attorney in this industry, but then also as a broker, just wanting to continue to learn and grow my craft as well as don’t be afraid to reach out and ask somebody a question. I think that everybody in senior housing that I’ve encountered for the most part loves people. They love working with people, caring for people, serving. There’s so many servants hearts in this industry that if you are sincere about wanting to know, and you want to know for the right reasons, you don’t just want to know to come in to make a buck, but you want to make a difference, there are plenty of people to be able to get to know. But learn the industry first. It’s not the same as any other just real estate investment class.

Andrew Dick: Agreed. Agreed. Well, that’s good advice. Andy, where can our listeners learn more about you and the Knapp Group?

Andrew Van Zee: Yeah. No, thank you. In two ways. The easiest way obviously is going to be going directly to either our website within Marcus & Millichap,, K as in kite,, and/or just going directly to the Marcus & Millichap website, and you can eventually find this that way. It’s just marcusmillichap,

Andrew Dick: Well, Andy, thanks for joining us today. I want to thank our listeners as well. On your Apple or Android device, please like or rate our podcast. We also publish a newsletter called The Health Care Real Estate Advisor. If you would like to be added to that list, please email me at

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An Interview with James Winchester, Lead Financial Analyst, CMAC Partners

An Interview with James Winchester, Lead Financial Analyst, CMAC Partners

An interview with James Winchester. In this interview, Andrew Dick interviews James Winchester, the Lead Financial Analyst with CMAC Partners. Andrew sits down with James to talk about physician-owned real estate strategies.

Podcast Participants

Andrew Dick

Attorney, Hall Render

James Winchester

Lead Financial Analyst, CMAC Partners

Andrew Dick: Hello, and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today, we’ll be speaking with James Winchester, the Lead Financial Analyst for CMAC Partners, a firm that works with physicians to maximize the value of their real estate investments.

Andrew Dick: James has been with CMAC Partners for a number of years. Prior to joining CMAC Partners, he worked for a number of companies, including Siemens. We are going to talk about his role at CMAC, some of the issues faced by physicians that own real estate associated with their medical practice and a couple of other items. James, thanks for joining me.

James Winchester: Thanks for having me Andrew.

Andrew Dick: James, before we talk about your role at CMAC, let’s talk about your background, tell us where you’re from, where you went to college and what you aspired to be?

James Winchester: Great. Well, I’m actually from the UK. I often get confused for being Australian, which I think is probably because I’m starting to pick up some of the Orlando Twine, and I’m becoming this strange little hybrid. But I am actually from London, originally. I did my undergrad education in the UK.

James Winchester: I was actually trained to be a mechanical engineer and decided that that was not for me. Or perhaps it was the other way round, engineering decided that I wasn’t for it. And then I decided that I would make a transition. And I came over to the U.S for grad school, and went to a school down in Florida called Rollins College. And I decided I couldn’t leave the palm trees, and I’m still here today.

Andrew Dick: Terrific. So how did you ultimately end up at CMAC Partners? And then tell us about CMAC in general and what its mission is?

James Winchester: I was actually introduced to CMAC by one of my school connections and I was kind of intrigued by them. They work in a very unique space. And I’d spent some time working at some larger organizations previously and decided I really wanted to work for a smaller organization where I could really be impactful to the bottom line. I was also interested in the fact that they serve clients the whole way through the U.S even though they’re based in Winter Park, Florida.

James Winchester: CMAC is an organization that was started around 16 or 17 years ago now. And really had the mission of assisting physician groups with their real estate financing. And it started off with helping them with bond financing. And there was kind of a unique instrument that groups were able to capitalize on. And when the financial crisis hit in 2008, those bonds became a liquid, and CMAC really had to pivot a little bit. And they were able to really create the same value for their clients, but more using conventional financing with banks and credit unions.

James Winchester: I think that the business has become even more interesting for me. And one of the reasons why I was attracted to it in recent years, is because it’s changed and it’s evolved ever so slightly where we realized that that physician groups, a lot of them are struggling with the same issues across the country. And we’ve created a bunch of solutions that use the financing. And that financing can facilitate some structural changes within the way they operate the real estate. And it’s really become a value-add when we’re going through our process. So we’re not only saving them money, but helping them structure it in a little bit more of a thoughtful way.

Andrew Dick: I like it. Very narrow-niche. Which tells me that you and your colleagues can probably serve the physician clients very well because you’re seeing some of the same issues over and over.

James Winchester: For sure. And we are really specialists in our space. We really only work with one type of group, and that is Independent Physician Practices that have, or are thinking about real estate ownership.

Andrew Dick: Okay, got it. As a financial analyst, tell us what you’re doing on a day to day basis for some of these physician groups?

James Winchester: My role has really evolved into being quite client-facing. I have the opportunity to travel around the country when it’s safe to do so. It’s been a little bit prohibited recently. I really see myself as somebody that really tries to find out the objectives of the practice in the real estate, what are they trying to achieve and what issues may they be encountering at the moment.

James Winchester: And kind of as a by-product, we assist those groups with the real estate financing and save them money in doing so. But really, the primary driver, a lot of the conversations that I have with groups are the issues that are inherent with the way that they’ve been set up historically.

Andrew Dick: So for example, the docs may have set up a partnership or a limited liability company and most practices evolve over time, physicians are buying in and out, and sometimes the way it may have been set up initially may not have been optimized for really what they’re trying to accomplish today. Is that, in a nutshell, what you’re working through with the docs?

James Winchester: Absolutely. We’ve owner-occupied medical real estate. It’s a little bit different from a traditional real estate investment. And there are some ways in which groups can really capitalize on their returns and reduce their risks simply by the way that they structure their real estate. Because the real risk is determined by the credit quality of the operating entity that is occupying the building.

James Winchester: And because that really is in control of the owners of the building of the physicians that own it, they can really, if they have good alignment between the real estate and the practice, they can really maximize their risk adjusted return. And really, a lot of the conversations that we have is helping groups that have gone and entered into good real estate investments at the time. But those real estate investments have really strayed from the objectives of the practice, and suddenly, they become a little bit more risky and the returns are not necessarily as good as what they could be if they looked at it from a holistic lens.

Andrew Dick: Let’s just back up before we do a deep dive into how some of these partnerships and LLCs are set up. Talk about the value of a physician group actually owning their real estate. It sounds like you come in and oftentimes they own their medical office building, for example. But do you also work with groups when they’re thinking about either building a new building or maybe investing in a new medical office building for their practice?

James Winchester: We do. And a lot of the conversations that we have are really helping groups understand what the risks are of them going into a new investment, how to mitigate those risks and what kind of return they’re going to be expecting to receive. And we’re really big advocates of groups investing in the real estate from which they operate for a number of reasons. I think they’re both economic, simply it’s a really good risk-adjusted return. Most of the groups that we work with, if the deal is structured correctly, they’re able to earn cash-on-cash returns of the low to mid teens.

James Winchester: And really, we see it as very advantageous for the groups to be paying rent for themselves and building up their value over time rather than paying it to a third-party. I think even more important than that though, is the non-economic factors, as we like to call them. And one of those is recruitment, for example. One thing that independent physician groups can really offer that a lot of their competitors can’t is some of the ancillary services such as the real estate that are very attractive to the new partners if they can enter affordably.

James Winchester: I think that, for a lot of groups, it can create glue within the partners that are involved in the real estate and something that really binds them together as a group. Probably the last thing is the ability to control the group’s destiny. And a lot of the times, having ownership within the building that the group practice allows them to make expansions, if they decide that that’s strategically important for the practice, or have the ability to control the lease that they’re operating out of to, maybe, reduce their expenses or…. There are a number of different things that I think groups can take advantage of with real estate ownership that they don’t have the opportunity to without it.

Andrew Dick: I think you hit on the two points that I’ve seen over my career. Which has really… You mentioned the glue that can keep a group together, which I think is right. And also the recruitment benefits of bringing in younger or newer physicians, I should say, into the practice. It’s a nice bonus for those docs to be able to buy into the real estate as well.

Andrew Dick: That’s something that many of the health systems can’t offer when you’re competing for newer physicians because the health systems typically don’t allow physicians to invest in real estate opportunities that the health system is undertaking. So I think you’re exactly right. It can be also a powerful wealth-building tool for the physicians.

Andrew Dick: So when we talk about setting up a real estate company or a partnership, what are the things you and your colleagues think about, James, when putting the deal together, if you could start from scratch?

James Winchester: We think that… Firstly, probably, as I mentioned before, the alignment of the ownership of the practice and the real estate entity can be really important. We work with a lot of groups that when they first go into exploring whether they’re going to invest in their real estate, they may have 50% of the physicians interested in participating. We think that that is not necessarily desirable. And if we can increase that number and you may be in a situation where you can’t get everybody involved, that if you can get a solid amount of the practice involved in the real estate, it can reduce some of the problems that are inherent along the way.

James Winchester: There are often conflicts of interest as you see the diversion of those two ownership groups. Because it is an economic asset. And oftentimes, it can be contentious if rents are set at certain levels or leases are negotiated in certain ways that are going to impact individuals within the group disproportionately because of that disparate ownership.

James Winchester: So I’ll say first and foremost, we’re really looking to try and create that alignment. I think a lot of that becomes really an education process. And if the transaction is put through and structured in the correct way, a lot of the times, it can be very desirable. And that’s not necessarily understood from the onset. So if we can really explain that, make it transparent, I think most of the groups that we work with feel pretty comfortable that they can get the vast majority of physicians on board.

James Winchester: I think alongside that, especially for new groups that are new to real estate, they may not be aware of some of the issues that come along the way of having a dynamic ownership group. Which is very different from what we see from a traditional real estate investment where you have new partners coming in and you need to be able to buy existing partners out. So we really look for structures and help groups through structures that make sense and are sustainable for as long as possible.

Andrew Dick: You hit on some really important points, the conflicts of interest that can exist as a big one. You’re exactly right that if only a handful of the physicians in the practice invest in the real estate company, there can be a number of conflicts when you go to negotiate the lease terms and negotiate renewals or talk about the future of the practice. I think you’re exactly right. That alignment is huge. And to the extent that you could get all of the physician partners in the practice to also invest in the real estate, I think that would make the transaction much easier and eliminate a number of conflicts.

Andrew Dick: One of the issues you and I have talked about before is the buy-in and buy-out process for a number of these practice groups. Especially if it’s a real estate partnership or company that’s been around for a number of years and buying in can be very expensive for a newer physician that maybe doesn’t have the capital to buy in or access to capital.

Andrew Dick: Talk about that process, the buy-in and buy-out and some of the things you think about to make sure it can work. Because if you’re going to offer a new physician, for example, an opportunity to buy in, it’s got to be set up in a way that it’s truly an opportunity where that physician can afford to buy in. Maybe talk about that just a little bit, James.

James Winchester: You’re absolutely right. It generally occurs as the real estate investment matures. Most groups will look at kind of an 80% loan-to-value structure or thereabouts, maybe a little bit higher in some cases. And it therefore means that, at the inception of a project, the partners are collectively having to come up with around 20% of the equity, maybe 15% of the equity, based off of the financing that they’re able to achieve.

James Winchester: And what we see is, as the real estate matures and that debt is paid down, and most of the time we’re looking at buildings that are appreciating depending on the market that they’re in, there becomes a widening movement and a delta between the assets and liabilities that’s increasing to the point where, as you mentioned, it can become not achievable for new partners to be able to buy-in based off of the traditional way with which these buildings are valued.

James Winchester: And we’ve seen groups where those buy-ins can be above a million dollars. And you’re looking at the physicians that are typically going to be the most highly leveraged because they’re at that stage of their career where they may have student debt, they may be looking to make their first home purchases. It’s just a difficult conversation for a lot of groups as that number goes up.

James Winchester: And we certainly see, for different groups, that that number can be different. And some are happy to, and don’t see any problems if the buying is quite substantial relative to what other groups see. And they can really struggle much earlier on in the process. We certainly recognize that as an issue. What a lot of groups, I think, don’t recognize it. I think that they recognize the buy-in side much more quickly than they recognize the other side, which can be equally problematic.

James Winchester: And that’s buying out partners. Especially as we’re seeing an aging population and many of the physicians that have been working to build up their equity in these real estate investments are looking to leave the practice and therefore liquidate their shares in the real estate ownership, that there can often be a real struggle to be able to facilitate that process. Especially if that buy-out of those physicians is paid over a short period of time.

James Winchester: And if there are a number of buy-outs that are occurring at the same time without adequate buy-ins occurring at the same time, it can be a real drain on returns. And we’ve seen many groups that have gone from a nicely-yielding investment, where they’re getting reasonable returns to actually having to put money into the real estate in order to be able to buy some of their partners out. Which is not necessarily desirable.

Andrew Dick: All good points. Talk about the algorithm that you and your team has developed called True Course. I was intrigued by that when we talked before. It sounds like it’s a program that helps predict timing of buy-in and buy-out of partners in the real estate company or in the partnership. Maybe just give us an overview of how that works and what it is.

James Winchester: For sure. Really, the genesis of the True Course came from really witnessing what most groups do when they start a new real estate entity or even groups with an existing real estate entity will manufacture an operating agreement, and they will put a certain buy-in and buy-out parameter in there, and they will decide to value their building. And they have these sequence of events that occur for them to get to each of these.

James Winchester: The reality of the situation is typically, for the first three or four years, they can get through and be relatively unscathed. And these buy-ins and buy-outs in the structure that they have in place works. And at some point in time, they reach a roadblock. And one of two things happens, new partners are really turned off by the fact that they’re having to come up with this large sum of capital in order to be buying into the real estate entity or the group’s really struggling to get partners to be able to buy out.

James Winchester: And really, they go through the same process again. Where they will go and look at the operating agreement and adjust it in the best way that they can. And sometimes, groups do a great job in doing that. But we really wanted to look at a process that actually looks at the probability of issues occurring and for groups dependent on the structure that they have in place when these issues are likely to occur based off of the probability of buy-ins and buy-outs occurring and what will be the severity of the issue of these problems occurring.

James Winchester: And typically, we see groups that have a large real estate value, relative to each physician, are going to be the ones that are really prone to this. Because they’re going to see a bigger build up of equity more quickly. And there are some ways, there are some methods that we found by using this program, that can really help groups mitigate these issues and make them occur less frequently.

James Winchester: And I really don’t think it’s an issue that you’re going to completely avoid, but as long as groups understand the different risks that they have, and when those risks are likely to occur, they can really apply some sound financial planning to be able to deal with them and be ready to deal with them when they do occur.

Andrew Dick: So, James, what are a couple of the factors that you look at when you’re inputting the data into that program? Age of some of the owners, value of the building or…? Give me a sense of some of the factors you’re looking at?

James Winchester: Age of the owners is very important. We try and put as much information in as possible. I think there’s something along the lines of 37 different variables that we try and model for. The pace with which the debt is repaid can often be an important one because that can create a trigger event a little bit earlier. We also try and identify what market the group is in. And what that really tells us is, what are the chances of new physician partners joining that market.

James Winchester: If you’re in a growing geographic area, then I think is a little bit easier from the recruiting side. And that generally tends to mitigate some of the issues that you’re going to see on the real estate buy-in and buy-out side because you’ve got more partners coming in than you perhaps do on the way out.

James Winchester: For stagnant or more stagnant markets, it can be more of an issue. Because you may be on the other end of the scale where the size of your practice may be reducing emphasis slightly, and suddenly you’re trying to fund buy-outs when there’s no capital coming into the entity.

Andrew Dick: Interesting. It sounds like it’s a very novel approach to an issue that comes up quite a bit in real estate holding companies involving physicians. One item we’ve alluded to already is, it can be challenging for newer physicians to buy in. You talked about how much, I think roughly, capital a physician may need to bring to the table, whether that’s 20% of the value of the buy-in.

Andrew Dick: Talk about maybe some strategies that younger physicians should think about when they’re trying to buy into a real estate partnership or company. Sometimes it’s easy for them to get loans from a bank to buy in, sometimes it’s not. What are your tips you would give to a younger physician looking at an opportunity like to buy into their real estate entity?

James Winchester: Sometimes, I think younger physicians will become turned off by the value of the buy-in without understanding the true investment of that buy-in. If I enter in with a $500,000, for example, that is really there to provide me a return on investment, which I think needs to be explained first and foremost. Even that being said, I think it’s important for those younger physicians to continue having conversations with the leadership, to see whether there is a structure that really suits that particular group.

James Winchester: And we see a few different models that groups use. And I certainly don’t think it’s a one-size-fits-all. And I certainly don’t think that there’s a perfect answer when it comes to buy-ins and buy-outs. But, there are certainly different methodologies that groups used that can be desirable in certain circumstances. For example, there is a model that’s quite widely used that really bifurcates the ownership with two levels. One would be a voting share, and the other would be an investment share in a class A and class B model, for example. That can be something that is of interest for certain groups.

James Winchester: I think that the downside to that is that it doesn’t necessarily fix anything on the buy-out side. Which can be equally as problematic. Especially if you’ve got some physicians that are investing more heavily, they’re usually going to be the ones that are closer to retirement and therefore going to have a larger amount of buy-out that’s going to be required at the time that they do retire. But it certainly can help with attracting new partners to be able to get in.

James Winchester: We also see certain models that look at vesting the real estate ownership over time and they may have a very minimal requirement for the buy-in to start off with. But the investment really increases as the physician partner contributes more time with the practice paying rents and therefore their ability to be in the real estate. One thing that we certainly see a lot of groups doing is going through cyclical recoup of their investment.

James Winchester: One thing that I think a lot of the time is missed when we’re looking at these real estate investments is, although the real estate investment may have been 80% loan-to-value at the time that it started, when a new physician is buying in, their return on investment is going to likely be reduced as that time goes on, because they’re having to put more capital in for a very similar distribution that they would be receiving.

James Winchester: So a lot of the times we like to say to groups, well, if you have new partners that are coming in and they were investing in this building today and you weren’t occupying this building at the moment, would they come up with 50% of the value of the building to put into it? And the answer usually is no. They’ll probably use more of the bank’s money in order to improve their returns and essentially risk less of their own money.

James Winchester: So sometimes, just framing in that narrative makes groups realize that they need to do something in order to assist these new partners so that they can make it achievable, and they can make the investment desirable.

Andrew Dick: All good points. Let’s let’s switch gears. When you and I have spoken before, we talked about the fact that the healthcare real estate market is really hot right now. A number of investment groups and developers are out there pitching physicians to build new buildings. And the developers, in some cases, will want to own a hundred percent of the ownership interest in the real estate. In some cases, these developers and investors will offer the physicians the right to buy in.

Andrew Dick: I’ve seen a lot of different opportunities being pitched right now. Sometimes, the physicians feel like they need to give the developers and ownership stake in the project. Maybe you could give us an overview of some of the pros and cons of whether or not physicians that partner with the developer. What should they consider, in other words?

James Winchester: Andrew, I think this is a great question. We see it a lot with independent physician groups. I think one of the important things to address, to start off with, is that there is often a difference between development and investment within a medical office building. And they’re often conflated when groups go out and they decide that they want to be involved in new construction. And I think that there are certainly times where it can be beneficial to provide developers a piece of the pie.

James Winchester: But it should be looked upon as really a separate issue from going out and the developer developing the building and more as an equity partner that’s going to provide something throughout the life of the lease when you’re in the building. we see that sometimes groups find it advantageous if the developer is able to share in some of the guarantee risk at the start of the project. And if they are struggling with equity capital shortfalls and they need a contributor, then they may lean upon the developer in order to provide that shortfall and assist in their capital stack.

James Winchester: I would say that more often than not, a long the real estate investment, there becomes conflicts of interest between developers and independent physician groups. Because, simply their objectives are not aligned. And I think that there are some great developers that become good partners with groups. But that’s not always the case.

James Winchester: First and foremost, I think it’s important for groups to identify who’s got control of the asset. And if you’re getting involved with a developer and losing control of that asset, and losing control of the lease that’s in place, that may seem fine at the time that you’re starting the development. But can be something that is not desirable at all, and can leave a group hamstrung once the building is up. And really the developers value diminishes. Because, the value derived from these buildings is really concentrated in that lease that’s in place, because it’s an income-generating asset.

James Winchester: I think that that really leads to a misalignment of the value and compensation as time goes on. We work with many groups that have perhaps got involved with a developer for one of these reasons where they’ve also become an equity partner. But they found that three or four years into the project, they’re looking for ways to be able to exit that developer share or buy that developer out. And they almost always are having to do so at a premium, and they are still able to get some good returns on the building by capitalizing on a hundred percent of that control.

James Winchester: But more often than not, their comment to us was, well, I wish we didn’t give so much of it away at the start. And we’re a little bit more thoughtful as to what this would look like after the construction was completed.

Andrew Dick: Okay, James, let’s let’s talk about the capital markets. That’s really one of the areas that CMAC has a lot of experience in when physicians are going to seek, whether it’s debt or equity financing for a real estate transaction. Talk about what you’re seeing in the markets right now. Is it a good time to seek out capital? Talk about what’s going on in the market.

James Winchester: For sure. My overarching comment was, it’s been a little bit choppy. But it’s starting to settle as everybody understands the implications of COVID a little bit more and banks are able to predict what the next six, 12 months is going to look like. We saw… It was kind of interesting at the onset of COVID. We were seeing, just before it, some very aggressive pricing and spreads. And most of the transactions that we complete, the bank is providing a spread over liable.

James Winchester: And what we saw as COVID here was that banks started to widen their spreads a little bit over liable between the 50 to 70 basis points mark. We were in continuous conversations with the lenders, trying to find out exactly what was going on and why. And they were really explaining to us that some of the indexes from which they were previously pricing on were no longer reflective of their cost of funds. So they were seeing that it was costing them more to be able to borrow the money to provide it for these loans than was reflected in liable, which was usually a pretty good index to be able to measure their costs for providing that capital.

James Winchester: What we’ve seen since is, those spreads have started to come down. I would say that they’re still not at the same levels that they were pre-COVID. And certainly banks have become more selective with the opportunities that they’re going after. We still have a couple of large national banks that are having real difficulty being able to bid on new transactions and some banks that are finding it difficult to bid on new construction projects.

James Winchester: In general, we’re say that we’re seeing most coming back to some level of normality. And because there’s been so much intervention with the fed and rates are so low right now, even though the spreads are a little bit wider than what we saw before COVID, there are still some great opportunities to really capitalize on low fixed interest rates because the underlying market and the index is from which these loans are priced upon are really low and therefore there’s really aggressive rates available.

Andrew Dick: Yeah, it sounds like maybe things are starting to smooth out a little bit, but we have ways to go in terms of the capital markets leveling out. Where do you think the healthcare real estate industry is going in the future? Do you think we’re going to continue to see growth and opportunities? It truly seems like it. But I would welcome your thoughts.

James Winchester: I think that it has, again, proved its resilience. Certainly, if you look at it and compare it against other real estate assets like retail and hospitality, it certainly stood well above those in terms of its performance over the last few months. I think that it’s really going to be based on the underlying performance of the healthcare industry in general, which most people I think expect to remain pretty strong.

James Winchester: And certainly, in terms of values of these assets, we’re seeing actually capital move towards the space. Which almost is counterintuitive considering that real estate in general has been as competitive over the last few months, but because certain investors and real estate investment trusts are moving away from what are deemed to be more risky investments and moving that capital towards the healthcare space, which is deemed as more of a safe haven, we’ve seen on the buyer and broker side some really aggressive proposals come out in recent weeks.

Andrew Dick: Good to hear. Where do you see the most opportunities for physicians interested in investing in real estate? I know that at CMAC you’re focused on physicians often investing in the real estate associated with their practice. Are there any other opportunities out there that you’re working with groups on? What advice would you have when a physicians interested in investing in real estate?

James Winchester: We see a lot of, specially groups that can create real estate investments that really compliment the underlying practice. And I think those are the ones that we like to recommend for four groups. If it’s something where they may be able to… If they’re an orthopedic group and they’re able to invest in physical therapy on-site, for example, that can be something that’s really advantageous.

James Winchester: When physicians at an investment strays into the into other areas where there is a different risk profile for the investment, I think it really comes down to understanding the balance between risk and returns. You can often get into desirable real estate investments that are going to yield a high return, maybe as high as the medical risks that you’re investing in with the practice. But it’s not likely to carry the same level of risk. And that’s an important thing for a physician investing to be aware of.

Andrew Dick: I think that’s a good point because when your practice is the tenant and a so long as you’re practicing within the space, the risk pro profile should be quite a bit lower for the real estate that your practice is using. So, good advice.

Andrew Dick: James, what would you tell someone who’s trying to get into the healthcare real estate business? What advice would you have for someone who’s new to the industry? How can they learn more and grow in the industry?

James Winchester: I would say, especially for independent physician groups, there’s a great resource called the Congress of Physician-Owned Medical Properties that was started a few years ago, and really was put into place because there are so many groups that really don’t the opportunity to discuss with each other what works and what doesn’t work when it comes to their real estate.

James Winchester: Many of these groups are sitting with assets of 40, 50 million-plus. And it can become extremely important for them to be structured in a way that increases their success in the long run. So I would say that that is certainly one resource that I would tap into if I’m a new physician partner and an executive that’s new in the space for sure.

Andrew Dick: James, as we wrap up here, where can our audience learn more about you and CMAC Partners?

James Winchester: I think, probably, the best places to visit our website, which is We are pretty much always available to speak and answer questions that groups have, and we’re happy to do so. I really like to think of us as a group that wants to help the industry become stronger. And we understand that our role or our success is not going to be anywhere near as good if the industry doesn’t succeed with us.

James Winchester: So if there is any opportunity for us to put groups in touch with industry experts, like Hall Render and yourselves that really specialize in this space and can really offer some value, then I think that we love doing that. So we would be happy for anybody to reach out

Andrew Dick: Great. James, thanks for joining us today. I enjoyed the conversation. 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 Healthcare Real Estate Advisor. To be added to the list, please email me at


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An interview with Alfonzo Leon, Chief Investment Officer for Global Medical REIT

An interview with Alfonzo Leon, Chief Investment Officer for Global Medical REIT

In this interview, Andrew Dick interviews Alfonzo Leo, Chief Investment Officer for Global Medical REIT. Andrew sits down with Alfonzo to discuss health care REITs.

Podcast Participants

Andrew Dick

Attorney with Hall Render

Alfonzo Leon

Chief Investment Officer, Global Medical REIT

Andrew Dick: Hello, and welcome to the Health Care Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we will be speaking with Alfonzo Leon, the chief investment officer of Global Medical REIT, a publicly traded equity REIT that trades on the New York stock exchange under the ticker symbol GMRE. Alfonzo has been a real estate and investment banking professional for a number of years. Prior to joining Global Medical REIT, he worked for an investment banking firm, helping hospitals and healthcare providers on strategic real estate transactions. Alfonzo along with his colleagues have grown Global Medical REIT to a respectable healthcare REIT. And today we are going to talk about his career and his current role at Global Medical REIT. We’re also going to talk about the Global Medical REIT portfolio and healthcare real estate industry in general. Alfonzo. Thanks for joining me.

Alfonzo Leon: Thanks for having me.

Andrew Dick: Alfonzo, before we talk about your role at Global Medical REIT, let’s talk about your background. Give us a little bit of information about where you’re from, where you went to college and what you aspired to be.

Alfonzo Leon: Sure. Great. So I was born in South America. I came to the US for college, went to the University of Virginia, studied to be an architect initially. Right after I graduated from UVA, I lived in Martha’s Vineyard for a year. While I was on the Island, I enrolled in the center for real estate program at MIT and went to that program for a year. Coming out of that program, I started a job with LaSalle Investment Management, out of their Baltimore office. That was a great opportunity for someone that’s in essence, starting their career. I had a chance to work with a lot of acquisition officers across all asset types, office industrial retail, medical office and hotels. I actually sat next to the acquisition portfolio manager for LaSalle, that was starting a medical office fund.

Alfonzo Leon: So I did a good amount of work with the director of that MOB fund over the years. So I did that for about five years. In 2005, I decided to look for other opportunities. I joined a boutique healthcare investment banking firm called Cain Brothers, out of San Francisco. And it was a pretty, a unique opportunity. At the time, this is 2005, medical office was still considered a very niche investment class and there weren’t really that many people that were in the space. I joined a group within Cain Brothers that was dedicated to MOB monetizations on behalf of health systems. That was the core business model. So over the years, Cain had built many relationships with small health systems across the country, health systems with two, three, four hospitals within their network, which were too small for the big wall street banks.

Alfonzo Leon: The founders of Cain, two brothers actually formed the company in the mid ’80s with a goal of servicing these smaller health systems. So when I joined in 2005, Cain Brothers had completed about a handful of monetizations in the past couple of years. And it was that they were in many ways pioneers in the space. The first monetizations happened in 2001, 2002, when Ascension started, engaged Ernst & Young to evaluate their real estate holdings and they were looking for ways to raise cash, to help their credit ratings. So that in essence started the industry that I’ve been in since in essence 2000 when I joined LaSalle, and Cain Brothers was one of the pioneers. So when I joined them, it was a group of about six bankers, never really grew beyond that number.

Alfonzo Leon: But over nine years from 2005, in 2014, I worked on over $2 billion worth of transactions in the healthcare space. So I spent a lot of time over those years working with health systems, working with physician groups and also interacting with a lot of the buyers in the space. So all the public REITs, the private REITs and the private equity companies that have joined over the years. So it gave me a very unique perspective, in a sense, I had a chance to observe and learn from other investors in the space over nine years. I also had a chance to interact with health systems at the board level, where they were actually making decisions on healthcare. Also I had a chance to work directly with physicians and then most importantly, Cain Brothers, since they had a focus on healthcare for nine years, I had the opportunity to hear from other colleagues who were in the home health business, senior housing business, who were in the managed care business.

Alfonzo Leon: And the medical device companies, IT, I mean a pretty wide spectrum. And Cain Brothers also had a pretty active tax exempt bond business. The guy who ran the real estate group within Cain Brothers, he also ran Cain Brothers, their M&A practice for hospitals. So I also had some exposure to that process when a hospital is acquired by another hospital. I had a chance to observe kind of their thinking and what goes into that process. So very unique perspective that I had prior to joining Global Medical REIT.

Andrew Dick: So Alfonzo, it sounds like when we spoke before you were happy working at Cain Brothers, you had a very good experience. You liked the variety of work and generally weren’t looking for new opportunities. So how did you end up making the move, or what prompted you to make the move to Global Medical REIT?

Alfonzo Leon: Sure. And you’re correct. I mean, I had no plans on either looking for opportunities outside Cain Brothers or leaving San Francisco, which it’s not a bad place to live. So really it was a coincidental, I got put in touch with somebody that was, a person who was the former CEO of Global Medical REIT. He was starting the company, looking for the first acquisition. And I struck up a conversation with him and realized that there was an opportunity to join what in essence was a startup REIT. And while it came over nine years, I saw a lot of funds start with zero assets, and within a two, three year span, grow their portfolios significantly. At one point I sat and counted all the funds that I had seen grow to billions over the years and I counted over like 13 funds.

Alfonzo Leon: I’m not sure how often you have that phenomenon in other sectors but it did catch my eye. I saw a lot of groups grow big funds. So when I met Dave, the former CEO, it was intriguing. And it involved moving to Bethesda, Maryland which I also thought was coincidental because I had lived in Bethesda, Maryland during high school for a couple of years and I knew the area very well. Things moved pretty quickly after that first meeting. I found myself moving to Bethesda, Maryland to join Global Medical REIT in August of 2014.

Andrew Dick: And Alfonzo, did you join as the CIO or what was your initial role within the company?

Alfonzo Leon: Sure. So the startup of the company was very unusual. So Global Medical REIT was actually one company of many that were run out of the Bethesda office. So the company that I joined was actually called Inter-American Management, which in short and in essence was the Bethesda, Maryland office for a family office run out of Singapore. One of the things that this family office out of Singapore wanted to do was become a REIT incubator and Global Medical REIT was actually the second REIT that they had started. The first one was a single family home REIT. So I was joining their second REIT. So when I joined it, there was about a dozen people working out of the office, but really the only two people that were working on Global Medical REIT was Dave and myself, which was interesting.

Alfonzo Leon: So that was from August of 14 to I’d say the end of December 15, it was just the two of us. I ended up right around, at some point in 2015, I hired in essence our first support person that dedicated to Global Medical REIT. This person helped me tremendously and he’s still with us, helped me tremendously at that beginning phase. So with Dave, we bought our first two assets and that was in June of 14, just prior to my joining, in September of 14, that was the first one I acquired. We spent a lot of time trying to raise capital within the US, we did a capital raise in Singapore as well. And by July of 15 we got capital from through the Singapore family office, this group gave us 30 million to put together a portfolio that we could take, that put together a $100 million portfolio that we could use to have an IPO to start the company.

Alfonzo Leon: So with the money we got in July of 2015, we quickly put it to work. And by March of 16, we built a $100 million portfolio and that between March of 16 and June of 16, we ran pretty hard towards an IPO. We put together a team. We got the legal team as well. We did our road show in June and we completed it in the month of June. So things moved pretty quickly, after we got that first a $30 million SLUG and we’re able to put together a portfolio quickly as well.

Andrew Dick: So Alfonzo, do you remember what the first few assets you acquired were, what type of healthcare assets they were?

Alfonzo Leon: Sure. So the first one we acquired was a LTACH in Omaha, Nebraska, 21.7 million. The second asset we bought was a surgery center in Asheville, North Carolina, that was 2.4 million. The third asset we bought was ophthalmology clinic with a surgery center in Pittsburgh. That was about 11 million. The fourth asset we bought was actually a portfolio of six MOBs in Germantown, Tennessee. And it was a sale lease back with a gastro group, that the largest one in the area, that was 20 million. In February of 2016, we completed the acquisition of a surgical hospital in Dallas. That was 18 million. And then in March and concurrent with getting financing, CMBS financing on the entire portfolio, which was in that sense kind of a triple back flip because we were rolling in the portfolio we bought in December from the gastro group and the surgical hospital in Dallas, plus closing on a surgery center in Detroit 4.5 million and closing on a medical office building in Melbourne, Florida for 14.5 million. So that was a very tricky thing to do and one that I swore I’d never tried to do again.

Andrew Dick: I bet it was exciting though. I mean, starting as you described it, a REIT startup that had to be a lot of fun.

Alfonzo Leon: It was fun in the sense that it felt like you were going down a roller coaster with no breaks.

Andrew Dick: Well, tell us about the portfolio today, when you and I spoke before you’ve got a wide range of healthcare assets. In my mind, Global Medical REIT is a diversified healthcare REIT. You’re not a pure play. You’re not focused just on MOBs or hospitals. Do I have that right and talk about kind of the breakdown of the portfolio.

Alfonzo Leon: Sure. So from the very beginning our goal was to build a portfolio of purpose built healthcare facilities. We used a strong healthcare systems and physician groups with leading market share in secondary and tertiary markets with the goal of producing reliable, rental revenue with rent bumps and a diversified footprint and with the goal of having this portfolio be triple net or absolute triple net. So just recently we announced we reached a billion dollars in assets, with about 80 million of annual base rent or triple net rent or NOI if you want to call it that.

Alfonzo Leon: So over 115 buildings with over 100 tenants with an average rental increase of 2% over three square feet of space and with an occupancy of 99.7% and current NOI divided by purchase price, a cap rate of 8%. And with a weighted average lease term across the portfolio of about 8.4 years. So that’s our portfolio currently. In terms of the asset types we buy, I mean, primarily it’s medical office buildings, the bulk of it is medical office buildings but we also buy inpatient buildings. So we’ve got the balance of the portfolio is a mix of inpatient with other asset types.

Andrew Dick: Got it. So talk about your role. You’re now the chief investment officer. What does that entail? What are you doing on a day to day basis? And then take us into what is the ideal opportunity you look for when analyzing assets that come across your desk?

Alfonzo Leon: Sure. So one of the things that I enjoy the most about my current role is that no day is the same. I mean, every day has been very, very different. And even when I think about what I’ve worked on a quarter by quarter basis, it’s evolved quite a bit. Largely due to the fact that the company has been growing as much as it has and at different sizes, there were different challenges and different things that I had to focus my energies to address or to manage. I mean, we went from two people working for Global Medical REIT to today we’ve got 20 people. So it’s been quite a ride and quite a process and that every quarter there was a different set of challenges that we had to overcome. In the early years, it was capital raising and I spent a mind numbing amount of hours working on PowerPoints and making pitches to a wide range of investors.

Alfonzo Leon: And then there was the phase that I remember where we were trying to close on that $100 million portfolio. And then finishing that we moved into conducting the IPO. Then once we got that done and we raised $150 million, we switched into ramping up our acquisition strategy. So that was the second half of 2016. Then in 2017, it was a lot of things happened one of which was, we started, our credit facility with 75 million capacity, with an accordion feature as well. Continued executing our acquisition strategy, 2017 was also a year where we had a turnover of our CEO. That’s when Jeff, our current CEO stepped into the role. We also changed our CFO and we also changed our general counsel. So it was quite a bit for a new REIT, new company. And 2017 was a bit of a blur, I mean, there was a lot happening that year, but we ended up on a high note.

Alfonzo Leon: We raised money in June of 17, about 35 million. And in December, we raised additional funds, 75 million of preferred equity. Just in time for 2018, which was when rates started increasing, the FED started jacking up rates, which really changed the REIT landscape for the year. Fortunately we came into the year with a lot of capital and in 2018, we supplemented that capital, with acquiring buildings, with operating partnership units. So we did about $36 million of deals in that fashion. And 2018 was really sort of, for us, it was a year of us showing to our investors that our business model is working and that we can continue growing this company. 2019 was a great year all around. We hit a lot of milestones. The biggest of which was in, right around Thanksgiving, we got to add it to the Morgan Stanley index, which really increased our volume and our share prices started going from an average of nine, 10 up to 11, 12 and 13.

Alfonzo Leon: So that was a very, very big milestone. In 2019, we did a lot of acquisitions, very, very busy year. And in many ways we were kind of hitting our stride and came into 2020 with a lot of wind in our sails, with a very big pipeline. And when we did our earnings call in February… Sorry, our year end quarterly call with investors at the beginning of March, sorry. After our call, our stock actually went up to almost 16. So it was in large part due to the fact that 2019 we really hit our stride, hit a lot of milestones, had very good pipeline, very good deals. A lot of things came together for us in 2019. So when I think quarter by quarter, I mean, what I’ve had to focus on has changed dramatically. So to reiterate like no week is the same, every day is pretty different. In terms of my responsibility, what I think my primary role within the company is to make sure that I generate as many opportunities to invest capital as I can. In many ways I want to have more opportunities to invest than capital at all times.

Alfonzo Leon: So my team of three acquisition people, we spend a lot of time trying to get ahead of our capital raising efforts so that we can, not just be more selective, but we can… whenever there’s an opportunity to raise capital, we’re never short on pipeline, given the fact that capital raises, to have a successful capital raise, you have to have a pipeline. So what I view my principal role within this company is to make sure that we’re generating the maximum amount of opportunities for the company to grow.

Andrew Dick: And Alfonzo. So when you’re looking at opportunities, what is your sweet spot? What is the return you’re looking for, asset types? Give us just a quick overview of your approach.

Alfonzo Leon: Sure. So our strategy really hasn’t changed since IPO. We focus on buying high quality real estate and desirable secondary tertiary markets, least profitable healthcare providers that are leaders in their respective fields. We focus primarily on acquiring medical office and outpatient treatment facilities in the five to 15 million range and opportunistically acquire inpatient facilities, typically in a 20 to 40 million range. To go back to our composition of our portfolio, I have a breakdown here for you. So 57% of our portfolio is MOB of which 20% of that has surgery centers. 24% of our portfolio is inpatient rehab hospitals. 8.5% of our portfolio is surgical hospitals.

Alfonzo Leon: We have 3% of our portfolio is LTACH. 3% of our portfolio is acute care hospital. 3% of our portfolio is administrative space. And 1.2% of our portfolio is freestanding ERs. Geographically across the country, we have 20% of our portfolio in Texas, 10% of our portfolio in Ohio, 8% in Pennsylvania, 8% in Arizona, 7% in Oklahoma, 7% in Florida, and then the numbers spread out across many other States after that.

Andrew Dick: Very interesting and it sounds like a pretty diverse portfolio. Let’s switch gears. When we spoke before you talked about the fact that Global Medical REIT was at one point managed externally. And recently you and your executive team made the decision to internalize the management function. Give us just a brief overview of how that process worked and what the strategy that’s involved there.

Alfonzo Leon: Sure. So when I joined the company it was… I joined Inter-American Management. So most of the REITs in the universe are internally managed REITs. There are a few and I don’t know if it’s less than five or right around 5% or more, of the REITs in the universe that are externally managed. And really what that means is the employees who run the company are not employed by the REIT but by the manager. So the agreement we had with the manager was the manager provided all the human resources in exchange for a 1.5% fee. Historically, there’s institutional investors do not like externally managed REITs very much. At the heart of that is concerns around governance. There’s also been some bad actors in the REIT space that have not always had the best interest of shareholders in mind when they were running their business.

Alfonzo Leon: So we at the very beginning we set it up to be externally managed really because in outside of the US and in Singapore and Japan, for example, the REITs over there are externally managed. So it was set up from the very beginning to be externally managed for that reason, given the source of funds, the initial source of funds. When we were doing our IPO process, it became pretty clear to us that having the external manager model was going to make it harder for us to access institutional investors. So what we did at the beginning was set a milestone when the board of independence would start the internalization process. So we looked at a lot of case studies that our bankers and our lawyers provided, and we settled on a $500 million market cap threshold upon which when we get to that point, we would ask the independent board would start the process of internalizing the manager.

Alfonzo Leon: So in December of 2019, we raised about 80, $85 million of equity at $13 a share. That got us over the $500 million market cap threshold. So by the end of the year, the board started engaging their consultants, the manager engaged their consultants and attorneys, and the process kicked off in earnest [inaudible 00:26:44] in Q1 of this year. So pretty much for the first half of the year the board, a committee of the board that of GMRE negotiated with the manager Inter-American Management. I mean, really what they were negotiating is the breakup fee. Ours at the very beginning was set very formulaically. It was just three times the 12 month average fee. That number was competed to be about 18.2 million. We had a press release on that at the beginning of July when the process was concluded. And these, the best way to think of it is, this is in essence an M&A transaction.

Alfonzo Leon: If you read through the filings, Global Medical REIT in essence acquired Inter-American Management and Inter-American Management became a subsidiary of Global Medical REIT and all the employees, including myself moved, are now employees of Global Medical REIT. So at high level, it seems like a straightforward process, but nonetheless it is an M&A transaction, and there is a lot of back and forth that happens in normal course of business. In our circumstance, the fact that we had COVID and a lot of market volatility also extended the process longer than it probably should have run by maybe a month or two. But ultimately we got it done and announced that at the beginning of this month.

Andrew Dick: Very exciting. I know that that’s a big milestone. Talk about the leadership’s team, the vision that you and your colleagues have over the next three to five years for the organization. Are there any financial milestones or what are you looking to accomplish over that period of time?

Alfonzo Leon: Sure. So simplistically, I mean, we plan to continue growing and building a diversified portfolio. Every company needs to play to their strength. We’ve built a real estate investment platform to find execute deals in our niche. So our plan is to continue leveraging our experience and knowledge of healthcare real estate to identify deals with good risk adjusted returns at cap rates that allow us to invest our capital creatively. Every stage of growth comes with unique challenges. I consider our internalization that we announced at the beginning of this month as a book and to our startup phase. So the way I see it, we are now a $600 million market cap company in a growth phase, in a market sector with very good fundamentals. So in short, I mean, our strategy is to continue executing our business plan that we’ve had since IPO and continue growing this and continue matching capital raised with opportunities within healthcare real estate.

Andrew Dick: So Alfonzo as you’re executing on this strategy, how has COVID impacted your operations, your facilities, and some of the tenants you’re working with routinely? Give us a snapshot of how the last four or five months of have went for Global Medical REIT in terms of rent collections. And what are you seeing and hearing as you’re working with tenants?

Alfonzo Leon: Sure. So the last several months has been one that we’ve all lived through and it’s been very intense. When I think of the last several months and I compare it with the financial crisis of 2008, in a sense that you had housing. like in 2008, if you think about it, you had a housing bubble, combined with a credit crisis, and both are subject matters that are very relevant to what I do. This time around you had a healthcare crisis and a capital market crisis and the impact on real estate has also across many sectors has also been very dramatic. So in many ways the last several months I’ve been reading obsessively and trying to learn as much as I can about the impact COVID is having across many aspects of what I do for my job and what I do for my career.

Alfonzo Leon: And it’s definitely, I have to believe kind of a once in a lifetime kind of event. It’s been very dramatic. Having said that, we’ve reported our numbers in terms of collections and in terms of occupancy. And in the next week, we’re also going to report our Q2 earnings. And if you compare what we reported thus far with our peers, I mean, our portfolio has performed in line with other medical office portfolios. The month of April was very intense. There was a lot of uncertainty about how this was going to evolve. I mean, if you didn’t read the news for half a day, you were behind the curve in terms of staying current with the news. There was just a lot of new things that we all had to get accustomed to quickly. In discussions with our tenants, we spent a lot of time talking to them.

Alfonzo Leon: I spent a lot of time talking with other companies in our space, a lot of people that I know in the space. I walked away with a few kind of I guess a picture things. I mean for starters, the one thing that I think is clear to everybody is that healthcare is essential. It is an industry that needs to be defended. It’s an industry that is critically important to the country and not just the country, but to the economy. I mean, without a robust functioning healthcare system, you compromise many other aspects of the economy in the country. The other thing that I took away from the last several months, healthcare operators are very resourceful. You’re looking at a group of people that are very smart, very hardworking, that are very mission driven, that are not afraid of to work around the clock, have access to a lot of specialists and consultants that can help them.

Alfonzo Leon: Also as a group, they are very good at managing bureaucracy and paperwork when you think of healthcare reimbursements and if you think about in your own personal life having to deal with insurance companies, it’s tedious, but the healthcare operators are incredibly good at running and managing all that bureaucracy. So I would say in terms of characterizing kind of what I’ve seen, I mean, it’s just a resilient group of professionals in a healthcare space that have adapted quickly. They got a lot of support and help from the federal level and from CMS and from various other sources. So where we are today in terms of where we were even a month ago, I mean, it seems like healthcare providers have found ways to make it work. I mean, by no means, are we out of the woods on this one?

Alfonzo Leon: I mean, I think everyone’s acknowledged and are braced for the fact that this is going to be a long, long process measured. I think folks are thinking, we’re going to be living with this well until the end of the year and very likely through most of 2021. But it’s been remarkable to see just how hard the healthcare professionals have been working, not just in taking care of people, but also in running their business. So my hat goes off to them. I mean, it’s been remarkable to watch.

Andrew Dick: Agreed. I think the industry has fared pretty well given all of the challenges and in most parts of the country, electric [inaudible 00:35:49] procedures are continuing. And some of the providers that had to shut down are open back up, which is good to hear. In terms of opportunities, where do you see opportunities for healthcare REITs or for Global Medical REIT in particular, as we work through the crisis?

Alfonzo Leon: Sure. So within healthcare real estate specifically, among the many things that I’ve been thinking of lately. I mean, it’s pretty well known that there’s been a shift from inpatient to outpatient. I mean, that hasn’t changed if anything, it [inaudible 00:36:28] probably, you’re looking at a scenario where things have accelerated up a little bit. Telemedicine also something that I’ve heard people talk about for a very, very long time. We had an amazing opportunity to see that implemented in an aggressive way. And on the other side of that, I mean, it’s not totally clear how much of an impact that’s going to have on the space. I mean, I had folks in the telemedicine space say it this way, it’s not a replacement to healthcare real estate, but a compliment.

Alfonzo Leon: And as I pulled together, everything I’ve heard on that front, I mean, it definitely seems that rings true. I think actually it’s made some things more efficient. In terms of how healthcare gets delivered or how it evolves over the coming years. I mean, I think there is a lot to be said for convenience. And when you think of large medical office buildings with multiple stories, five, 10 story buildings with elevators versus a single story facility that is a lot more convenient than more single use focus, there’s pros and cons to both, most of what we have is that the latter. It’s a single story or two story facilities that are more… the focus of care within those facilities is more single purpose than multipurpose like you would find on an on campus building.

Alfonzo Leon: I think, there’s going to be, continue to be opportunities and a space as it has in the past. My experience in healthcare for the past 20 years is things don’t change radically year to year. I mean, it’s more of a gradual evolution. I can’t remember any time in the past where I think I’ve seen things evolve rapidly. I mean, it’s more of a gradual change. When I think of healthcare systems and how they think about delivery of care and how they think about their real estate, they also… it’s more of a gradual move and it’s more incremental instead of sort of a change. But all that, to say that I don’t see the healthcare real estate landscape changing dramatically over the next few years. I think a lot of the trends that have been in place for the past couple of decades are just going to continue, maybe accelerate slightly. But what it means for investors, I mean, I think there’s still plenty of opportunities in the space.

Alfonzo Leon: One thing that’s really worked in favor of investors in healthcare is the amount of supply that’s coming to market. And I compare that with where it was 10 years ago, or 20 years ago. 20 years ago, the volumes were fractions of what they are today. And when I thought about the question of why the supply has gone up so much, no perfect answer. I think it has to do with the fact that investors have come in and provided liquidity and you’ve seen cap rates go down and it made it more attractive to sell, and it’s been sort of a circular dynamic that’s evolved over the years. And every year I do get the sense that there’s more inventory, higher quality inventory and more investors.

Alfonzo Leon: So it kind of feeds itself, but when I think of the volume today versus even five years ago, I mean, it’s very robust. One of the things that’s been surprising over the past four months is April, May was slower than average, but by June and July the market pretty much snapped back the pre COVID levels. I mean, it’s been very active. There’s a lot of deal flow. The quality of the deals coming to market are pretty good. As I think of the next a few years and into the future, I mean, I don’t see that dynamic changing dramatically.

Andrew Dick: That’s good to hear, especially for those of us that work in the industry. Alfonzo talk about advice that you would give to someone who’s getting into the healthcare real estate industry. I asked most of our guests, what would you tell someone who’s just getting into the business, what should they read or who should they talk to, or what advice would you give them?

Alfonzo Leon: Sure. So one of the things that attracted me to the industry is the fact that you’ve got real estate, which I liked. And then you’ve got this overlay of healthcare industry on top of that, that makes it a lot more complicated than other asset classes. Prior to me joining into space and dedicating myself to healthcare in 2005, I had done a lot of apartment investments with LaSalle. And when I compare just those two on its own, like apartments versus healthcare, it doesn’t take that long to get your head wrapped around multifamily investments. Whereas with healthcare, I felt like even after two years of dedicating myself to the space and trying as hard as I could, reading everything I could about the space, I still felt like I was a beginner.

Alfonzo Leon: It takes a long time to really get a sense for the industry and the dynamics and the investors and the systems. I mean, there’s just a very, very large knowledge base, which is attractive to me. So I would start by saying that this is an industry with a very high knowledge barrier to entry, which is taxing at the beginning. And a lot of folks that I see started in the space, they are… it works against them, as they’re trying to figure out the industry and trying to figure out who’s who and why things are good, or why things are bad. But once you get on the other side of it, once you’ve got enough knowledge that you sound credible and sound like you know what you’re talking about, it helps because there is a barrier to entry. I would also say that the sector is not very large when you look at the BOMA, MOB conference and you’ve got a 1000 attendees.

Alfonzo Leon: I mean, you’ve got the lion’s share of people that are in the space and have committed their careers to the space. And within that group, I mean on the investment side, I mean the way I think of it, there’s about 100 people on the investment side. So it’s not a very large industry. And when I compare the MOB, healthcare real estate investment crowd with like the apartment investment crowd, or like the senior housing investment crowd that I’ve also had a chance to experience. I mean the one thing, the way I would characterize it is, it’s on average, you’ve got a very institutional mindset. You’ve got a lot of the people in the space are very smart. They’re very good people, very friendly. So I would say, this is an industry that’s, I would characterize as one with a lot of very smart people, hardworking people, very ethical people and good people to work with.

Alfonzo Leon: So one that I enjoy very much, and I guess last thing I would say for anyone that wants to join the space is I would focus especially at the very early start of your career into space is trying to find a good mentor. In my career, I feel very fortunate that I’ve had very good mentors, and so I can’t stress that enough. I think it makes a world of a difference. And I would say, I would pick a better mentor in spite of, the type of job you might have because I think longterm you get more dividends.

Andrew Dick: Good advice. Alfonzo, I’ve enjoyed our conversation and I’m getting to know you. Where can our audience learn more about you and Global Medical REIT?

Alfonzo Leon: I would encourage folks to check out our website. We’ve got a pretty good investor decks that are also posted on that website. I think, I would just highlight the fact that we’re a new REIT. We did our IPO in June of 16. We’ve grown pretty fast but we love what we do. Our group in Bethesda is very united. We’ve got a very strong esprit de corps and very much a lot of the folks that are with us have been with us since the beginning. So it’s been an exciting journey, one that has been very rewarding for me career wise and one that I hope to continue watching grow over the years.

Andrew Dick: Terrific. 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 Healthcare Real Estate Advisor. To be added to the list please either email me at A-D-I-C-K, 

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