Andrew Dick

An interview with Rich Anderson, Managing Director/Senior REIT Analyst, SMBC Nikko Securities America

An interview with Rich Anderson, Managing Director / Senior REIT Analyst, SMBC Nikko Securities America

An interview with Rich Anderson. In this interview, Andrew Dick interviews Rich Anderson, a Senior REIT Analyst with SMBC Nikko Securities America. Andrew sits down with Rich to discuss health care REITs.

To view relevant and current price charts and the history of changes in SMBC Nikko Securities America investment rating(s) and/ or target price(s), click here

Podcast Participants

Andrew Dick

Attorney, Hall Render.

Rich Anderson

Senior REIT Analyst, SMBC Nikko Securities America

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focus law firm in the country. Today we will be speaking with Rich Anderson, a managing director and senior REIT analyst with SMBC Nikko securities. Rich has been covering equity REITs for many years and is a well known name in the business. Over the years, he’s focused on a number of different REIT sectors including healthcare REITs. A number of our listeners are REIT investors who work in the healthcare REIT industry and I thought it’d be interesting to get Rich’s perspective on equity REITs in general, along with healthcare REITs. Rich, thanks for joining me today.

Rich Anderson: Thanks for having me Andrew.

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

Rich Anderson: Okay, I’m from the great state of New Jersey so Jersey boy through and through. Bruce Springsteen fan perhaps. Went to school at the University of Maryland. Not perhaps by the way. Definitely Bruce Springsteen fan. Went to school at the University of Maryland and studied aerospace engineering. Not quite a real estate background, at least from an education perspective, but happy to report to you that standing before you is a rocket scientist. As I always say, you’re welcome.

Rich Anderson: Then for about six years or so, I worked as an aerospace engineer for a government contractor, also in New Jersey, by the way. In South Jersey supporting the FAA Technical Center. Did that for, as I said, six years. In the meantime, was getting my MBA at night at a small school in Jersey called Monmouth University in finance and made the trip to Wall Street. It all makes sense at that point. This is the mid 90s and I worked for an aerospace defense analyst. I figured I had the business degree and the practical experience in aerospace engineering that this would be my career.

Rich Anderson: But at some point early on, I took note of the REIT industry which the REIT model has been around since the early 60s, but as a trading industry really didn’t get started in what we call the modern day era of the REITS until the late 80s, early 90s. The real estate team was physically sitting next to us. I inquired about a job opening and lo and behold, I moved over there in 1996 and started my career covering the REITS and have been doing it ever since. 25 years in now, straight on through as a REIT analyst and here I am with you today as a result of all that.

Andrew Dick: Great. Well Rich, talk about the sectors you’ve covered and what you’re actually covering today?

Rich Anderson: Sure. Over my career, I’ve pretty much covered every asset class that make up the US REIT industry, maybe about 150 different REITS. There are all sorts of walks of life in real estate as you know and all of them behave differently from one another. The fact that I’m a REIT analyst is one thing, but I truly believe we cover many different industries because malls bear very little resemblance to data centers, of course, and so on. My history is quite a wide net in terms of the properties that I’ve covered.

Rich Anderson: Today I cover as you mentioned, the healthcare REIT space, but I also cover the industrial REITS which are known for the Amazon exposure and the logistics of E-commerce and all that that’s going on. The office industry, which is interesting today because of all the work from home and whether or not that’s going to have an impact on things. The multifamily industry, which should benefit from work from home, I guess, if you think of it that way. But I’ve been covering the multifamily sector for quite a long time.

Rich Anderson: Most recently picked up coverage of a relatively new REIT asset class and that’s the gaming sector. There’s three REITS that make up that space that obviously own casinos around the country. Then finally, there’s the one and only Ground lease REIT Safehold. I am one of a few analysts that cover that one. I find it very interesting. It’s, as I said, no other company really does ground lease investing, specifically as Safehold does. It’s been a very interesting story out of the gate coming public in 2017 and really having a breakout year last year as they market their product to the real estate community.

Andrew Dick: Yep, and as we talked about before, SAFE is a very interesting REIT. We monitor it primarily because a number of our hospital clients frequently use ground lease structures when they lease part of their campuses to medical office building owners and investors so yep, very interesting model. Rich, for our listeners that aren’t familiar with what a REIT analysts does and the type of information that they publish, talk about the ratings process, how that works and the different designations. So buy, sell, hold. You said that your company has its own terminology.

Rich Anderson: Right, our terminology, the equivalent of buy, sell, hold would be outperform, underperform and neutral. It’s just a different word same logic. As an analyst, my job is to be as smart as I possibly can about the commercial real estate industry in all its walks of life. What I love about being a REITs analyst is there’s no script. Whatever it takes for you to be smart about the industry you are willing, within reason or you’re allowed to do.

Rich Anderson: That means property tours, that means staying in touch with what’s going on around the country. Whether it’s specific to real estate or the forces that create value in real estate. I always feel like I’m a generalist when I think of the Midwest and manufacturing and technology in the Bay Area and financial services in New York and Boston. These are all the forces of nature that create value in the bottom line bricks and mortar execution of the REIT industry.

Rich Anderson: Staying smart on the space and then drilling down into individual property sectors and then to individual companies. When I’m producing my ratings that I try to keep as balanced as possible, and always testing myself whether a rating change is warranted or what have you, I’m comparing against the S&P 500 because we do have general investors that invest in REITs so that would be perhaps their benchmark. Then I’m comparing an individual REIT against the REIT industry.

Rich Anderson: So just that specific element of the comparison because of the REIT dedicated investor community, really it has to be in that space. There’s a more finer line in terms of thinking about ratings. Then within individual property sectors, what do I think of the management teams relative to their most comparable peers? What do I think about balance sheets? What I think about geographies and for whatever reason, what’s going on around the country how is that affecting this real estate portfolio, whether it’s in the urban core, whether it’s in the suburbs or rural areas? How is, as I mentioned, work from home as an example, how is that going to affect office? How is E-commerce going to affect Industrial? How is COVID-19 going to affect the healthcare industry long term?

Rich Anderson: There’s many, many ways to peel back the onion here. It quite frankly makes my job very interesting because there’s nothing very mechanical about it. You can be very creative in the process and I think you get rewarded for that creativity by applying whatever it is that you think is necessary to be smart and to think about your constituents and who’s reading your research and what matters to them. I try to lump that all together and appeal to the masses as much as I can. Understanding that everybody has a different role from one another that is talking to me or reading my research reports.

Andrew Dick: Rich, two follow up questions. How do you decide which companies and sectors to cover and then who is using your information that you publish?

Rich Anderson: Right. The sectors and the companies that I cover is my decision and where I think I can create value to my end users of my research. Exactly how I come up with those decisions perhaps requires another podcast, but suffice to say I am thinking about where can I make the biggest difference? Where do I have maybe the brightest ideas that I could share that I think are differentiated from my competition that does the same thing that I do? For example, I don’t cover the malls right now. The mall business has been tough. I don’t know exactly how I would create incremental value there where I think I can create value. I know we’re going to talk about health care in that space or multifamily where I’ve been covering it for a very, very long time.

Rich Anderson: That’s the thought process. Kind of a vague answer but the answer nonetheless. My end user is the portfolio managers and anybody for that matter that invests in REITs. That could be the Fidelity’s and Wellington’s of the world. That could be pension funds. That could be insurance companies. That could be endowments. Anybody who is investing money, might ask to read my research and hopefully compensate us for that. That’s how it works. Of course, the companies that I cover are interested in what I’m having to say about them. But that’s the other side of the house.

Rich Anderson: That’s the investment banking side of the house and I have to have as… For legal reasons have to have my blinders on about conflicts of interest and all those things. I really have to be thinking about my end user. If I have a sell rating on a stock and my firm has a relationship with them on the other side of the house I can absolutely not pay any attention to that and of course I don’t. It’s a very important line in the sand that I must never cross. The so called Chinese wall.

Andrew Dick: Very interesting. So Rich, let’s move into the healthcare REIT space. Talk about the different… What I call sub sectors. Healthcare REITs have been around for a long time. There are a number of different REITs that fall under the health care REIT category. How do you break down this sector?

Rich Anderson: The interesting thing about the healthcare REIT space is it is a collection of different asset classes. Whereas most property sectors, at least the way the US REITs are structured are focused in our asset class. You don’t have a whole lot of diversity in the multifamily sector, the office sector or the industrial sector. That’s their corner of the sandbox and they play it well. In the healthcare REIT space, you don’t have that advantage because there’s different types of healthcare real estate.

Rich Anderson: There’s life science, there’s medical office, there’s senior housing, which itself can be broken down between assisted living and senior and independent living. There’s skilled nursing and of course, there’s hospitals, rehab facilities and so on. There’s many, many derivatives of healthcare real estate. What I described earlier about how I go about thinking about asset classes, I do that in a microcosm sort of way when I cover the healthcare REIT space.

Rich Anderson: If I were to pecking order the different asset types within healthcare real estate, I would start with life science. Life science is obviously a solution to the COVID-19 problem. All the tendency of those assets are working around the clock to try to find therapies and work on testing and of course, God willing, a vaccine. There is some great public relations potential there. We all want to see an end to this but there’s also a lot of activity going on within the four walls of a life science facility.

Rich Anderson: That asset class one, one of the larger names in that business, of course is Alexandra real estate which is primarily a pure play life science REIT has outperformed in 2020 substantially. Because of so much activity going on, unlike for example, the malls where people were told to leave and can’t… By the way, can’t go to a mall or can’t go to whatever facility where there’s a lot of crowd gathering. The 180 degree opposite conversation is happening in life science facilities.

Rich Anderson: I would put them as a solution. Then you have medical office which is not quite so much of the solution to the story but is working alongside hospitals and opening up beds to care for people so there’s a lot of activity still in medical office. You are seeing elective surgeries being stopped in this environment. A little bit of a hiccup in terms of the operating business of a medical office facility but nonetheless, still a part of the solution in that sector which has quite a bit of cash flow visibility relative to other property types. Has also outperformed so far in 2020. Both of these have been our calls, by the way, going in speaking about how we think broadly about covering the real estate space.

Rich Anderson: Then the next level is skilled nursing. Skilled nursing obviously a lot of terrible things happening in some assets. Very vulnerable, older folks catching the virus and unfortunately passing away in some cases. You would think as an asset class, would you want to invest in that in this environment? The answer for me is maybe yes. The reason I say that is because skilled nursing like hospitals has access to the various government stimulus programs. They are able to fund themselves and support their themselves financially which in turn is a good thing if you’re the landlord, A.K.A the REIT collecting rent from these operators.

Rich Anderson: In a perverse way, I guess, as a capitalist, this asset class skilled nursing, actually works okay in this environment. Certainly not great for all the reasons we could talk about for quite a long time, but at least you’ll able to meet the rent obligations. Then finally senior housing which will be a great asset class over the long term for maybe reasons we’ll discuss later in this conversation. But for the time being, they too take care of old folks but they don’t have access access to the stimulus programs. It’s mostly a private pay option.

Rich Anderson: So occupancies have been ticking down quite substantially. With that, their ability to pay rent or keep their operations above water in this environment. They do not have the benefit of the stimulus programs that skilled nursing does. In the present tense, I’m somewhat worried about senior housing. Longer term, with demand coming as the aging of the population manifests itself in that business over the next 15 or 20 years. Could be a fantastic opportunity, but for the year now it’s a little bit tougher. A lot tougher.

Andrew Dick: Rich, that was a great overview. I have two follow ups. In terms of other categories, you talked a little bit about hospitals, when we think of REITs that play in that space, there are a number but there’s one that’s really… What I consider more of a pure play hospital REIT. That’s medical properties trust. How are they doing?

Rich Anderson: First of all I want to say they… I don’t cover medical MPW so I want to be a little bit careful about talking too much about MPW. Maybe I could speak generally. I think that perhaps the same rules apply in hospitals as they do in skilled nursing. With the one exception being we are probably over hospitaled, if that’s a word. Over hospitaled in the United States. Perhaps something that might come out of this is a retrenchment of the hospital industry longer term.

Rich Anderson: I am a little worried about that in the sense that you could have some consolidation. You could have some low market share, rural hospitals closing and redirecting patients to another hospital in the area that has better market share, better systems and so on. I guess I’m just a little worried longer term about the hospital more so than I am of the skilled nursing space. The hospital industry is dealing with COVID-19 which is not really a profit center.

Rich Anderson: You might come out of this a little bit weaker in the hospital space than what I might suggest with the skilled nursing space. But nonetheless, for the time being, it is being supported as I suggested with skilled nursing. One other thing I would say, importantly, we have long thought of government regulation for hospitals and skilled nursing is to be a “liability” for those two asset classes, because you have a tough time predicting what Medicare is going to do every year, what the 50 states in terms of Medicaid are going to sign.

Rich Anderson: We’ve had some surprises to the downside in the past that has derailed that business because it so much relies on government reimbursement to run. But now, you would think that the government, state and federal government are unlikely to do anything that is perceived to be taking money away from that industry. The counter to my comment about hospitals long term is the government is probably an asset now, because it is unlikely to take money away from these heroes that have been on the front line doing all this for all of the people that are suffering from this disease. A lot of things to think about. Hospitals and in the healthcare real estate space in general. It’s going to be interesting on the other side of this for sure.

Andrew Dick: Let me bounce around a little bit in some of the different sectors. One, I don’t know that it’s really a sector but at least the way I think of a couple of the big healthcare REITs Ventas, Welltower, Healthpeak. I think of those as the three.

Rich Anderson: Sure.

Andrew Dick: I think of them as diversified healthcare REITs. What are your thoughts about those big players in the industry? We’ve seen some dividend cuts. Some of them have exposure to senior housing, what are your thoughts on how they’re performing today?

Rich Anderson: All three are fantastic organizations. The very fact that they’ve been consolidators and grown to the size that they have become is evidence of the quality of these organizations. Now they have certainly had their difficulties and some headwinds as of late because as you mentioned, they have exposure to senior housing, but taking that matter even a step further, they have exposure to operating senior housing. Very often we talk about triple net leases. In the triple net structure, the operator simply paying a rent to the REIT and it’s very much a passive investment from the REITs perspective.

Rich Anderson: In 2007, laws were passed to allow for the ownership and operations of healthcare real estate, namely senior housing facilities. That was a sea change in terms of how the REITs acted and played in the senior housing space. Now, fast forward to today, Welltower about 45% of its total portfolio is operating senior housing facilities. Not triple net, but literally the operations on their balance sheet. Ventas, about 35% of their portfolio is senior housing operating facility.

Rich Anderson: They’ve taken that law and run with it. They’ve done it because there has been growth over the years. It’s come back to bite them in this environment because they now are feeling the hit directly from occupancy laws in that space. Healthpeak is the third of the big three as you describe them which is what we all describe them as. They have performed relatively better than Ventas and Welltower. I think that’s because their exposure to senior housing operating is significantly lower.

Rich Anderson: They play in senior housing, but they have a fair amount of triple net. They do have senior housing operating less than 20% of the portfolio but they play big in life science. They’re another life science player. They’re benefiting from that and they’re big in medical office. So too is Ventas and Welltower. The lion’s share of the peak story is life science and medical office and that’s why they’ve been a better performer. To that end, my my ratings on those three are outperform for peak and neutral for Welltower and Ventas.

Andrew Dick: Yeah, it’s interesting. I think of those three the same way and I assume the law-

Rich Anderson: That’s right.

Andrew Dick: What we call in the industry the idea type structure where the REITs can be involved in management operation.

Rich Anderson: To be clear not the management. The physical management of the assets has to be run by a third party. What happens is REIT owns all the business but part of their cost structure is to pay a management fee to somebody who’s physically bathing and feeding people because that wouldn’t be considered a real estate activity. They still separate a little bit, there actually structured a lot like hotels where they pay a fee to a flag like a Marriott or Hilton or so on. That’s how the healthcare remodel a set up when they do do a REIT data structure.

Andrew Dick: So they’re getting a piece of the operating income through that structure. The other point you made, which I thought was a good one was about peak. The fact that it has more life sciences assets compared to the other two. It seems to be really working on a number of new development projects in the life sciences space as well which I find exciting. For a while I think it went through a rebranding and now it seems to be really coming into its own and doing well. I tend to agree with you. I like [crosstalk 00:24:28].

Rich Anderson: That’s an interesting company. The management team there has come together over the past five years led by Tom Herzog who I know very well and for a long time. He actually cut his teeth in the REIT space in the multifamily sector but he’s a very smart guy and he’s built a team of very smart people around him. In doing that, restructuring a legacy company into what it is today they’ve really done a fantastic job there.

Andrew Dick: Going back to MOB’s and some of the pure play MOB REITs, I think you cover HTA-

Rich Anderson: That’s right, yeah.

Andrew Dick:  Healthcare Trust of America and then healthcare REIT trust. Is that right, rich? I really like… Both those companies seem to be doing well. Is there any concern that there’s been so much demand for assets that it’s becoming harder to find good product at a good price to make a good return for those players?

Rich Anderson: Yeah it’s always a problem. Particularly in normal times, in low interest rate environment you do have a lot of interest in asset classes and particularly medical office that appeals to a wide spectrum of investors because as I mentioned earlier, it’s such a visible cash flow stream. It’s almost like an annuity and appeals very well to private equity and a lot of different types of potential investors outside of the REIT space. So yes, competition for that asset class has been fierce over the years.

Rich Anderson: We haven’t seen any disruption in terms of cap REITs on medical office facilities, even in this period of time. Now, we’re not seeing a lot of transaction activity but where we have seen it, there hasn’t been a whole lot of disruption in terms of property value. That’s always a good thing if you’re long on the sector which both of those companies are, but if you want to grow it, it becomes challenging. That’s always the difficulty. Now, healthcare REIT and also HTA both have a fair amount of development.

Rich Anderson: The way you get a better return is by taking on the incremental risk of development and you get 150 or 200 basis points return spread over what you’d be able to do as an acquisition. That’s one way to approach growing the portfolio, by going the development route. Of course development comes with its own risks. That’s always a trade off. That’s one way that the two of those companies are managing that issue specifically.

Andrew Dick: Great. One question about life sciences, Alexandria in particular I know recently had a share offering. Raised something like a billion dollars, I believe, which was huge. Then I think Blackstone may have raised a couple billion dollars from one of its life sciences funds. How does a publicly traded REIT like Alexandria… I mean, there’s so much interest in life sciences now and I know they have deep roots in the industry. How do they compete with some of the private equity players in that space?

Rich Anderson: That might be better question for them because I’m sure it’s a doggy dog world out there when it comes to a question like that. Alexandria cost of capital is quite attractive and fantastic balance sheet. I think there’s more than enough to go around. Of course, the best cost to capital perhaps in the planet is Blackstone. It’s a double edged sword when they come into the space. They took BioMed private a few years back and have been managing that portfolio ever since.

Rich Anderson: You’d like to have the stamp of approval of a Blackstone in your space but then you have a pretty sizable competitor as well. I think what Alexandria comes to the table with is reputation. Their portfolio is spectacular in many respects. It comes from mostly their development business and so if you see an Alexandria asset, you almost recognize it before you see the name on the door because they just do such a good job. That reputation precedes them.

Rich Anderson: They have relationships up and down the board throughout the bio pharma industry, they themselves can be characterized as a life science company in many respects. They are not real estate people only. If you meet the management team, you will find scientists and PhDs that are very knowledgeable and interface specifically with their tenants. That’s the differential for Alexandria. They are not just a money machine, they are actually very intellectual when it comes to the underlying business. they host forums with all their tenants.

Rich Anderson: They even have a VC arm where they’re investing into early stage development companies. They run the gamut in the life science business and I think that’s a separating characteristic for Alexandria when it comes to competition.

Andrew Dick: Great. Switching quickly to senior housing, you mentioned earlier, you think the sector will recover over time and may be an attractive investment. A couple of the long term care REITs playing in that space, which ones do you like [crosstalk 00:30:19].

Rich Anderson: Well so I have an outperform rating on SABRA, S-A-B-R-A. That’s about 60% skilled nursing 40% senior housing right now. I’m getting my fix I guess I will say, through SABRA. I get senior housing exposure with Peak even though it’s smaller than the others. I’m still getting it that way. The day may come. Obviously I can’t say when or how that I’ll flip more of aggressive approach into senior housing. Part of the reason for that is fairly simple.

Rich Anderson: If you look at a birth chart in the United States, in 1935 births troughed Right in the midst of the Great Depression. That’s 85 years ago. That’s about the time people go into senior housing facility differently. We are actually at a dearth of demand for senior housing at this very moment in time because of what happened 85 years ago. But then if you also look at that birth chart, from that point forward to call it 1950, or 1955, birth rates hockey sticked up. I guess people got happy. The Great Depression was over with.

Rich Anderson: This doesn’t take a whole lot of analysis to know that over the next 15 to 20 years, you were going to have people entering those years where they start to consider senior housing facilities. Which has a voluntary element to it, particularly in the independent living side where you want to have a little bit more ease of life but you don’t necessarily need a whole lot of care in terms of being fed or all that kind of stuff. Assisted living has more care element to it of course and then memory care unfortunately can play a role in assisted living facility as well.

Rich Anderson: But nonetheless, that demand profile is coming. That question is is it going to be like watching paint dry or is there going to be a real resurgence of activity? That is why I said senior housing probably comes much more interesting in the aftermath of all this because we can plainly see the demand coming.

Andrew Dick: Rich, do you have any concern that some of the independent living facilities, some of those in many states don’t have to be licensed. They’re private pay as you mentioned earlier, which is attractive to many investors but it may be a little easier for competitors to enter the market for those reasons. Any concerns about when you compare that to a hospital or a skilled nursing facility, often those have to have a license, maybe a certificate of need in certain states which are barriers to entry. Is it a double edged sword because you have the private pay which is a good [crosstalk 00:33:13].

Rich Anderson: Well, it has been a problem [inaudible 00:33:16]. Perhaps a silver lining if there could ever be one in this environment is supply getting shut down in the senior housing space, but you’re right. There aren’t barriers to entry. We were worried about… Just to back up for a couple seconds, we were worried about supply in the multifamily industry when it was running at about 2% of existing stock in senior housing and specifically assisted living. It was running five or 6% of the existing stock. That’s real competition from supply.

Rich Anderson: I mentioned earlier a dearth of demand in the present tense was happening at peak levels of supply. Senior housing was really getting it from a couple of different angles. I think, again, the demand comes back but perhaps supply shuts down at least for a period of time. The REITs that traffic in that space will have a little bit of a breather from a competition standpoint. But all bets are off longer term because developers see what we just talked about in terms of demand.

Rich Anderson: You have to be able to balance that and know how supply will work itself into the conversation longer term. Your point is spot on. You don’t have the regulatory environment that skilled nursing has from a supply perspective and hence you’re exposed to supply should that start to turn on again.

Andrew Dick: Rich let’s switch gears. Let’s talk about the healthcare real estate industry in general. It seems like I’ve noticed Nareit put out some reports over the past few weeks on rent collections, generally for the healthcare REIT sector. Rent collections have been pretty strong compared to other property sectors. It seems like the healthcare REITs are performing reasonably well given what’s going on in the world. What are your thoughts [crosstalk 00:35:20]?

Rich Anderson: It depends on the asset class, of course I mentioned the stimulus that’s helping in the skilled nursing space. I think the operators want to stay current in the face of declining occupancy. There is a vested interest to maintain one’s credit and all of that. But there’s also the realistic side of this. If they simply don’t have the money, particularly in the case of a triple net execution, the fortunes of the operator accrue to the REIT. The REIT has to be careful about bullying too much because you can be aggressive and demand rent payments at their current level.

Rich Anderson: If that disrupts the credit of the operator, the REITs, at least in a triple net structure are going to be judged by that. They become a proxy of the health of that operator. You might see rent deferrals depending on how long this situation last. You might see actual rent cuts perhaps in exchange for a lease extension. From a REIT perspective, you don’t want to just blindly cut rents if you can avoid it, you might want something in return for offering that assistance.

Rich Anderson: We’re seeing things like extension of leases or other, what I would call assets as a compromise in that negotiation. But you’re right. To this point, the numbers have born out to be okay. Even though we’ve seen occupancy drifting down so much. There have been two significant… Actually three significant dividend cuts in the healthcare REIT space namely Welltower, Ventas and Sabra have all cut their dividend in this environment perhaps in anticipation of seeing rent come down to some degree.

Andrew Dick: Any predictions from management on whether they’ll increase the dividends once things start to get better?

Rich Anderson: Well I think that will always be the attempt. The REITs have been generally great when it comes to dividend policy and managing their capital and doing it wisely. Generally seeing dividends step up across the REIT industry generally and I think we’ll see more of that. In this time, this is something none of us have lived through perhaps ever. I don’t know how many of your listeners were around in 1918, but maybe.

Rich Anderson: Nonetheless, this is uncharted territories and I think you have to do the right thing and sometimes the right thing is to reset dividends and put yourself in a position to succeed in the future. An interesting quote, and again, not to make light of this, but Rahm Emanuel once said, “Never waste a good crisis.” That is not to be funny at all. What it does mean is maybe this is a time to look at yourself in the mirror as a REIT and fix things that were perhaps a little broken in front of this so that you do emerge from this healthier, and you do have the opportunity as you suggested to grow the dividend and get back to some level of normalcy. This could be a time to reset, rents and reset balance sheets and do things necessary to be a healthier entity longer term.

Andrew Dick: Rich, switching gears what advice would you give for someone looking to get into the real estate or the REIT business? You’ve been doing this for many years? What should folks be reading, who should they be talking to or trade organizations? What advice would you give to someone?

Rich Anderson: If that doesn’t do it for him which should be unbelievably surprising. Just kidding of course. The NARI, The National Association of Real Estate Investment Trust. They have a fantastic website,, and you could get a lot of information about the REIT industry there. REIT 101 type of information about all the language. It can send you in a tailspin a little bit. We don’t talk about EPS in the read industry, we talk about funds from operation or FFL.

Rich Anderson: You have different tax consequences. You don’t pay corporate tax if you pay enough in the way of dividends. There’s a lot to understand about what a REIT is relative to other industries and other C corpse. I think that’s a good starting point. You can really get a lot of knowledge out of NARI REIT. They’re there in part to teach the world about the real estate industry.

Andrew Dick: Rich, where can our listeners learn more about you and your research?

Rich Anderson: I work for SMBC, a very large bank based in Tokyo. Its stands for Sumitomo Mitsui Banking Corporation. Our broker dealer is the Nikko Brand. So SMBC Nikko is my company. I’ve worked for various shops along the way, starting way back PaineWebber, then Citigroup and Bank of Montreal, VISA [inaudible 00:41:06] before this, another Japanese bank and now at SMBC. I imagine I’m an easy find out there on the internet. I’m probably not going to give out my cell phone right now but certainly anyone’s more than willing… I should say I’m happy to field questions and talk to people about the space to the extent there’s time. I’m happy to be an advocate for an industry that’s been my career for the past 25 years.

Andrew Dick: Well Rich, thanks for being on the podcast. I enjoyed the discussion very much. Thanks to our audience as well for listening on your Apple or Android devices. Please subscribe to the podcast and leave feedback for us. We 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 Greg Gheen, President and Co-Founder of Realty Trust Group

An Interview with Greg Gheen, President and Co-Founder of Realty Trust Group

An interview with Greg Gheen. In this interview, Andrew Dick interviews Greg Gheen, the President and Co-Founder of Realty Trust Group. Realty Trust Group is a national healthcare real estate firm that provides advisory, development, operations, transaction and compliance services.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Greg Gheen

President and Co-Founder, Realty Trust Group

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor podcast. My name is Andrew Dick. I’m an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today, we’ll be speaking with Greg Ghee, the president and co-founding member of Realty Trust Group. Greg is a seasoned healthcare real estate professional who started his career working for a hospital system, then decided to start Realty Trust Group, a healthcare real estate consulting firm which is an affiliate company of PYA, a national healthcare consulting and accounting firm.

Andrew Dick: Greg has a great story to tell. I’ve known Greg for a number of years and really admire the company he’s built and he’s a man of integrity, always enjoy catching up with him. We’re going to talk with Greg about the state of healthcare real estate, where he sees opportunities in the future, and a little bit about how he started his business and how he’s grown it to what it is today.

Andrew Dick: Greg, thanks for joining me.

Greg Ghee: Hello, Andrew. Thank you. Good hearing your voice and thank you for the introduction and the very kind words. I would also like to say about you, I appreciate our friendship over the years. I want to thank you for not only the opportunity to join you today and talk a little bit about our company but I also appreciate what you and your firm have done for the healthcare industry over the years and the thought leadership. As you know, Andrew, and what I’d like our audience to know is you’re one of the go-to people that not only myself but other professionals at Realty Trust Group rely on when there’s a question that is really complicated and complex before we call our client back with our opinion, we like to use you as a sounding board. So thank you for your friendship, professional and personal, over the years.

Greg Ghee: Now, as to your first question, I’m a product of where our corporate headquarters is located. I’m in Knoxville, Tennessee. I was actually born at the hospital where I work and I was born here and other than leaving for college, have spent my entire life here in East Tennessee. When I graduated from high school, I worked construction for a couple of years and I was a general laborer and also a brick mason apprentice. After a couple of hard, cold winters in East Tennessee, I decided that the classroom looked pretty inviting and so I went back to school at a community college called Roane State Community College. There, I studied and received my associates in business administration, and then following that, I went to Maryville College and Liberal Arts School, probably 30 minutes away from Knoxville, and got a BA, Bachelor of Arts degree in economics in 1983.

Greg Ghee: My first job out of college, I was a land-use planner working for the State of Tennessee and it was a great experience working in the regulatory side of land development and after spending two years there at the state in that job, I went back to UT-Knoxville and got an MBA in finance and new venture analysis and then my first job out of graduate school was with the local health system here and now, 32 years later, I’m blessed to still be working in healthcare.

Andrew Dick: Greg, it’s a great story. I’ve known you for years but didn’t have all this background information. I found it really interesting that you were a land use planner and then you started to work in the healthcare industry and talk a little bit about that because I think you started in the healthcare real estate business as it was taking off. Today, what we see in the healthcare real estate world is a very mature market. Healthcare real estate, in terms of asset classes, is a mature class, not as mature as some of the others but it’s been around and it’s well recognized but talk about how you stepped into your role working for a health system and helping that health system build out their real estate platform.

Greg Ghee: Okay, and as I think about my real estate career, I’ll rewind a little bit and talk about that, the land use planning job that I mentioned earlier. I had actually written my senior thesis in college at Maryville College on the 1982 World’s Fair and my thesis was what was the impact of the World’s Fair and the government spending in infrastructure to prepare Knoxville to host the world coming here for the World’s Fair, what was the impact of that on the local taxpayer? And that really got me interested in real estate infrastructure of how do communities prepare to welcome people and in that case, the real estate was for the World’s Fair, which the World’s Fair site is still very integral to Knoxville, Tennessee and I was very lucky to have a person in career planning and placement that helped me take that experience from my senior thesis and say you maybe really interested in working as a land-use planner. And so that’s kind of how I got into the land use planning part of it.

Greg Ghee: And when I think about how my land-use planning prepared me to step into the shoes or into the job I had in healthcare when I look back on it, I think about the old adage that that may look good on paper as it relates to a development plan or a regulation but here’s why it doesn’t work in the real world and so, Andrew, that was so impactful on me in my career as it relates to what are the governmental entities and the policy decisions that are being made, how are they being implemented and how does that prepare you for healthcare.

Greg Ghee: When I came out of graduate school, so after land-use planning, two years in graduate school, and then I went to work in healthcare for Fort Sanders. In graduate school, when I came out, I was actually going to be a commercial mortgage originator for a large life company and that was in 1988 and there was quite a bit of real estate in receivership and vaguely do I remember having a candid conversation with my wife about another job offer I had that I ultimately took and that’s how I wound up in healthcare. So, I would like to say that I can take credit for really planning out a very direct linear approach for getting into healthcare but the truth is and the fact of the matter is it was divine intervention. I was blessed that I just liked the people that I interviewed with at Fort Sanders and took that job.

Greg Ghee: And one of the things I’ve thought about as I’ve prepared my notes for today that I want to speak to if there are young professionals thinking about getting into real estate or in our profession, some of the things is one of the first things I want to mention is be flexible in your thinking and always be prepared for an opportunity that you didn’t even really plan for to present itself to you and then follow your heart.

Andrew Dick: That’s good advice, Greg. That’s something I think we’ll talk about a little bit more at the end of our conversation as well because I get a lot of questions from younger folks who are thinking about different career paths and seem to be intrigued by healthcare real estate and I often provide similar advice. So Greg, you get this opportunity to work for Fort Sanders Health, which I think you said is now Covenant Health, talk about that opportunity because you really got in at a time when the health system was growing and you were able to help the health system plan out it’s longterm real estate strategy and execute on that strategy. Talk a little bit about that.

Greg Ghee: I would love to. Went there my first day of work at Fort Sanders, was June 28, 1988. So you can see, Andrew, I remember it. It was a great 10 years there and how I got there was through an opportunity in graduate school, along with two of my friends, Roger McFalls and Mark Fioravanti, and Roger’s the one that actually picked up the engagement and then got Mark and I to help him. Roger and Mark and I put together a business plan on how to execute on real estate operations for a new ambulatory care campus in West Knoxville that was being built by Fort Sanders Health System. The ambulatory care campus was probably two to three miles away from a large hospital that, at the time, was owned by HCA. We ultimately bought that hospital in 1990 or ’91 from them but we were going to compete in our market with ambulatory care services.

Greg Ghee: And so in 1988, Andrew, that was a very risky endeavor and we, Fort Sanders and Covenant Health to this day is still a not for profit with local board leadership and governance and they said this is a good model and let’s pursue it and it really changed our community. But getting back to what we did in graduate school, we prepared a business plan, made a presentation and after the presentation, one of the executives there named Larry DeWine asked me to leave a copy of my resume and long story short, got to interview with Larry and others there. Larry offered me a job as a project manager for the outpatient campus. I accepted it and spent 10 wonderful years working with Larry and a lot of other people there at Fort Sanders and ultimately, it became Covenant Health.

Greg Ghee: That was probably one of the most impactful and productive periods of my career working with Larry and others and that’s also where I met Ed Pershing, who’s co-founder of RTG with other people back in 1998. So let me continue, Andrew, talking a little bit about that because there’s some other things I wanted to mentioned as it relates to that ambulatory care campus. So, I was 15 years there and we not only grew the ambulatory care campus, it was 62 acres and it’s still 62 acres but it’s pretty much well-developed today and we worked not only on an ambulatory care strategy which was complementary to the acute care strategy, but they had a very robust … Fort Sanders had a very robust physician alignment strategy in place as well.

Greg Ghee: So, if you think about my career at the time, I was directly involved with acute care. I worked with the … Excuse me, I was directly involved with the ambulatory care. I had reporting relationships with the acute care, the hospital presidents, worked with strategic planning teams, the finance folks, the attorneys and many others to help grow that network that, today, is one of the more compelling networks in the East Tennessee Region compared to others, but it includes not only the Covenant Hospital locations but the ambulatory and the physicians.

Greg Ghee: One of the things that we did, and I just don’t recall the exact year but one of the things we did is we helped the local orthopedic practice develop a facility for them to relocate and at that time, and this still happens today in certain communities, a lot of medical office buildings are beside the hospital or across the hospital. In Knoxville, in 1990, 90, and those periods were about the same. We helped relocate an orthopedic group that had been on the campus of one of our competitors onto the Fort Sanders West campus and that really changed not only the trajectory of what Fort Sanders and Covenant was able to do but it actually changed our marketplace because other physician practices saw that they were able to work at multiple hospital campuses and multiple hospital sites without being right across the street, if you will, from the hospital, and so that was very impactful and a great learning experience for me.

Andrew Dick: Greg, talk about that transition. So you worked for the health system for a number of years and then ultimately made a transition to starting RTG. How did that happen? How did that transition occur?

Greg Ghee: I had been invited to be a panelist on a national survey that one of the … I guess it was big eight, maybe big six back in the day was putting together and I had colleagues from across the country that were on this panel and I say panel, we provided a very detailed survey as to how we manage real estate and what was interesting is we were one of the few companies that domiciled our real estate operations in the for profit arm of the not for profit health system and I think that was one of the attractions that got the national accounting firm to want to include Fort Sanders in that survey. And so Larry DeWine and I participated in that and me directly and Larry indirectly and met a lot of people across the country and really became enthusiastic if you will about taking some of the things I’ve learned and experienced in doing at other places.

Greg Ghee: And I was being recruited away from someone and decided that I just wanted to stay at home and had an opportunity to stay in Knoxville and help start a company with my colleagues and partners at PYE and so we did that March 1, 1998 is when we stood up Realty Trust Group. What I think about when I think about those early days coming back to your question is really, I guess, what I brought from my experience to the company in addition to the great resources that PYE already had in place and Ed Pershings’ experience but what I brought was really my experience working with physicians and understanding alignment of physicians and how important physicians as stakeholders are in all of your real estate decisions.

Greg Ghee: Secondly, I tried to always have a holistic mindset even today, 22 years after starting Realty Trust Group and 32 years after my first day of being in the business. I try to keep a holistic mindset about the continuum of care. I’ve already mentioned it a couple of times from the community and the ambulatory and physician and now, Andrew, we’ve got urgent care, we’ve got telemedicine. We’ve got a lot of other care models out there and so my holistic mindset has even broadened more. And then the other thing is thinking about the capital that’s available and is necessary as far as growing healthcare real estate.

Greg Ghee: I’ll tell you, I was a little spoiled coming from a large, well-positioned, well-funded, very successful health system and the balance sheet they had and I was a corporate vice president doing things only for Covenant Health and then when I transitioned into the company, Realty Trust Group, and going out and helping physicians do certain things, the first project we ever did was integrated three discrete physician practices into one LLC operating model and then helped them build a surgery center, a single specialty surgery center called Tennessee Valley Eye Center, we probably started that project in late 98 or early 99 but my point there is, what I’ve really learned now with RTG is how important capital is and the different sources of capital that are available for healthcare real estate.

Andrew Dick: Yeah, you’re exactly right and there are companies that are out there just specializing and providing capital to healthcare real estate projects and it’s become a very important part of the development process. Greg, before we talk about what RTG is like today, talk a little bit about the early days when it was really you and co-locating your office with some of the PYE folks. What was that like? I mean it had to be exciting. Talk about the early days a little bit.

Greg Ghee: Yeah, I appreciate it and I’d love to. I’m employee 001 for the company. Today, we have 91 employees across six different offices and so the first day I walked in, I don’t want to leave the impression I was by myself, although I was the first employee at RTG because, as you mentioned, I was co-located in PYE and essentially part of their team and was able to leverage the infrastructure here and to this day, we’re still co-located and do a lot of things together that really helps us leverage some fixed costs and other things. We’re also co-located with PYE in Tampa and Nashville and so that model, from day one, continues to work today 22 years later and 90 employees later, and it’s also really rewarding to be part of a larger enterprise.

Greg Ghee: Andrew, you’re blessed to work with a big law firm, that’s also very great and vibrant if you will to be able to talk to other people that are in different segments of your law firm as well and that’s … I able to draw upon the other folks at PYE. We set up RTG from day one as a real estate company and under standards of practice of real estate and we are a separate company and not … And we are a separate affiliate company and not a subsidiary and I say that because PYE practices under AICPA standards. They do a great job across the board in strategy and attest and taxation and have a huge consulting evaluation practice but RTG is a separate, distinct real estate company.

Greg Ghee: We’ve been able to not only help PYE when they’re assisting their clients where facilities or real estate or location services maybe necessary for PYE to bolt that on if you will to the delivery to their clients but the inverse of that has worked very well. When we’re helping physician clients stand up new medical facilities and many times, we’re a joint venture partner with them, we’re able to bring tax services and we’re able to bring strategic planning services that PYE offers to those clients that are coming to us for real estate.

Greg Ghee: And so, to your question, what was it like in the early days? In the early days, it was … And this is a true statement, it was on the back of a napkin that I had written out a few bullet points as to what the plan of attack and the business plan ought to look like. I have that napkin still in my jewelry box and with the PYE people and now the other people that have joined us and RTG over the last few years, we’re able to still continue to execute on some of the fundamentals that we thought about in 1988.

Andrew Dick: So, Greg, what type of services were you offering in the early days? Was it consulting type services? Was it development services or all of the above?

Greg Ghee: No, we were offering advisory services and that’s a great question and it’s one of the things that when we talk to new clients, when we’re talking about our company, we’ve grown our services following our clients’ request of us or evaluating what the future maybe in our industry and then running to add those services and compliance is one of those that I’ll talk about a little bit deeper here as I explain what I mean by that.

Greg Ghee: We were engaged very early on to help the health system in an advisory engagement go through due diligence for the acquisition of seven hospitals from HCA that was part of the 1988 divestiture and they sold I forget how many hundreds of hospitals across the country and PYE’s client was picking up several … PYE had several clients but the one that I worked on specifically was in Tennessee and so we helped them with the due diligence which meant going through all of the leases, flagging anything that we saw that might not meet either an FMD or a commercial reasonable standard, flag those, bring them up to the internal legal council, which ultimately went to external legal and then once we helped them with due diligence and the acquisition was closed, to help them stand up a property management company.

Greg Ghee: So, Andrew, day one, we were pretty much advisory. Within a year, we were still an advisory and had gotten into the operations, what we call operations, it’s property management. Within that year as well, we were asked to help those three physician groups come together and so we stood up our project management arm, which probably we only did owners rep/project management for the first four years and probably in the fifth or sixth year of us being around, we were asked to do our first [inaudible 00:23:15] where we were at risk and we built a cancer center for a hospital up in Virginia and owned that and then after a certain period of time, when they were ready to go to the bond market, we allowed them to buy that facility back from us and they aggregated it and took it to the bond market and so first was advisory, then project management.

Greg Ghee: And I want to tell you that part of the advisory did start us into the compliance and over the years, we had worked episodically on client engagements, helping with fair market value, rent studies, maybe giving opinion letters on acquisitions, working for either the board or the executive team before they were ready to either buy or sell either one asset or three or four, primarily, medical office buildings but before they were going to sell a portfolio of assets, is this a fair deal to the organization and so we did that quite a bit and then we did … This was one of the service lines where we really anticipated the emerging trend and the importance of having people that fundamentally understand real estate and Andrew, you know because you know us but 95-98% of our total revenue is healthcare real estate.

Greg Ghee: We have a few clients who we serve through relationships that are non-healthcare but we are a healthcare real estate advisory and services firm and so when we’re doing any of the work in compliance, those people know that we’re not out that morning doing a Walmart or a Target or some other food type of the advisory work. We are healthcare. Everybody in our company is working healthcare throughout the day but we saw PYE rapidly growing their compliance arm as well as it relates to valuation services and some of the other compliance/regulatory and so we decided to invest in our resources, people, processes and technology to significantly stand up a compliance, a real estate compliance arm and today, we’ve worked on some pretty nice projects. Most of those, we keep confidential but we’ve worked on some national level projects in our compliance service line.

Andrew Dick: So, fast forward to today, Greg, talk about how the business has grown, where you’re located and new services that you’re offering.

Greg Ghee: As I sit here today, we’re in Atlanta, Greensboro, Johnson City, Knoxville, Nashville and Tampa. And I say that because we have plans for a couple of other locations and we have some people working with us on a contractual basis that may take us before the end of this year into a couple of other markets. When people look at our footprint, you can tell we’re generally a Southeast company but we are growing our footprint. I think we’ve worked in 32 or maybe 33, it may be 35 states over the years and as I mentioned a moment ago, we have 90 employees and our services lines, our three primary service lines are as they were back in 89, advisory development, which is our capital projects and then operations, which is our property management and then the other two service lines that we have are transactions and the compliance and the reason I mention three primary versus the other two is the transactions is a function of what we’re doing in our operations and compliance is essentially a function of what we’re doing in our advisory work.

Greg Ghee: When you ask about our company today and maybe what makes us a little different than others, I have my own opinion and others, our clients have their opinions about us but what I hear when I’m asking our clients at the end of an engagement or a project why they selected us, one of the things that comes to mind to them quickly and it is repeated is the RTG difference. The first characteristic is we are healthcare. We are healthcare real estate day in and day out. A lot of people really appreciate the relationship, the affiliate relationship that we have with PYE because they know that we have additional resources to call upon if we need those and we also understand how to operate as a professional services firm, which PYE is as well.

Greg Ghee: And we also tend to do most of our work as objective advisors. We go over budgets and we go over fees and we go over scope of work with our clients on the front end and if there are any contingency or condition related aspects or tasks to that, we separate our work, our deliverable and our opinions from that additional work, and so many of our hospital clients appreciate the way that we do that but that also honors any relationships that they may have locally. So they want a healthcare advisor with a national footprint and national experience to bring them an objective, independent business plan or plan of action and if they need us to help them execute, we can do that or if they want to use something local to help them execute, we can certainly do that and that’s always been part of our value proposition to our clients and also part of our delivery platform.

Greg Ghee: Then the second thing, Andrew, is our clients tell us just the breadth of our services platform, they don’t have to go get someone else if they want to manage a project. If we’ve helped them with a site location and they want to put an urgent care center or something else there, their internal resources are stretched, they need some help, through a separate engagement, we can help them with the construction and the project management on that and they don’t have to go get another firm and get them up the learning curve and everything is still under a very discrete engagement with them with the confidentiality and everything in place. So, I’ll tell you the second is just the breadth of our services platform.

Andrew Dick: So, Greg, tell me about typical clients. You’ve talked about physician groups, hospital systems, what’s the breakdown in terms of amount of work or revenue in terms of those different categories?

Greg Ghee: That obviously changes from quarter to quarter, although it stays within a bandwidth, a pretty close bandwidth. So, as I mentioned, around 95% of our work is healthcare and I would say 60% of that today and it could be 60-65% of our work today is through health systems and then 30-35% is physician groups and then there’ll be 5%, could be 3-7%, there’ll be a percentage there where we may be working with a banking client and that may either be an RTG relationship or it could be a client of PYE that has said we need some help from a real estate professional group on a new branch location, and so we do a lot of work with banks but it’s interesting how closely aligned, when you’re thinking about locating a bank branch or locating an urgent care center or primary care group, how important the real estate part of that is but that’s generally it. About two thirds hospitals/health systems, one third physician groups.

Andrew Dick: So, Greg, let’s switch gears a little bit and talk about the industry of healthcare real estate, because you’ve been working in the industry for a number of years, have grown RTG doing work all over the country, where do you see the industry going in the future, what type of trends are you seeing?

Greg Ghee: We are as busy today as we have ever been and in a moment, you and I may be able to talk a little bit about COVID, because that’s certainly an area right now in history that’s different for me and you and everybody else in this business but if we had had this conversation in January of this year or February, I would tell you generally about the same thing that I’m telling you right now, that we’re very busy and I don’t mean necessarily the volume of work as much as I mean the pace it’s playing.

Greg Ghee: What I mean by that is we are doing a lot of work today and we’ve done a lot of work over our last 22 years and Andrew, this may be the same for you, so I’d kind of like to ask you this question when I finish but it seems that our clients, the pace of play and how competitive it is, not only in the hospital sector and whether you’re working for profit or not for profit but even with physicians and venture capital coming in, the pace of play, how quickly they want to not only understand the plan and execute on the plan and know what the plan is and get the physicians aligned, that really is about as busy as it’s ever been in my career.

Greg Ghee: As it relates to the healthcare real estate, I think we’re a direct function of the healthcare industry per se. Is that everyone is just incredibly busy, even before COVID-19 came to us and I think, again, that’s a function of intense competition, real competition, the first to market, to get their flag into a market subset, to make sure they’re aligned with the doctors, that the physicians want to grow. They need to have a place to perform their procedures, to get their diagnostic tests taken care of. So they’re also trying to take care of the doctors because they’re trying to grow as well and then I also think it’s a function of macroeconomic, I guess, demographics, if you will, of just the aging population and the necessary volumes that are happening and I’ll tell you, this is anecdotally although I could probably present some empirical evidence to you, as you know, we’re really transitioning from the acute care hospital environment to the ambulatory environment.

Greg Ghee: Most of our clients have already cross over the 50/50 threshold where they are mostly … I shouldn’t say most. They’re probably either 50/50 or 49 inpatient and 51 outpatient as far as their revenues and so that has also really quickened the pace as it relates to that and their facilities or building new facilities but the pace of play, is that how you see it, Andrew, with your clients?

Andrew Dick: Absolutely. I think it’s interesting the way you described it as pace of play. The transactions just seem to be moving faster and faster, more compressed timeframes. We worked on a [inaudible 00:35:46] back transaction on the West Coast last month, helped a client close on four outpatient facilities and the timeline was I think three and a half weeks and there was a lot to do and I’ll tell you, Greg, it can be really exciting but also very stressful as well. So, pace of play is a good way to describe it as things just keep moving faster and the industry’s evolving and you really have to be on your game when you jump into some of these opportunities. So I think you’re right.

Andrew Dick: Greg, you mentioned COVID. Because we’re recording this really in the midst of COVID, a number of states have opened. Some still have stay-at-home orders. Some have opened and are now slowly rolling back their reopening plans. How has COVID impacted your work and what you’re seeing in the industry?

Greg Ghee: Yeah, it’s a very different time, Andrew, as a person and as a professional. A few things come to mind right off the bat. Fundamentally, I think it’s brought a lot of well-deserved attention to the profession of property management and I’ll say this not only about our people and it’s more than just the people in our property management service line because our construction management people and a lot of people in our advisory service line are supporting others, so it’s really about our company but I want to speak specifically to the people that are on the front line in our property management and I’ll also broaden that comment because we work with a lot of different companies out there and we also have clients that are real estate investment trusts and they have property managers internal in their organization and other property management firms, so I want to extend my compliment and my respect to everyone in the property management arena, not just RTG.

Greg Ghee: But it’s been very inspiring to see how integrated and essential our property management team, our people have been and continue to be to our hospital clients and other building owners during this time. I mean they are literally on the front line and so you think about an MOB that’s on a hospital campus, could be connected to the hospital campus or it’s off-campus but those doctors and those patients, it’s critical and we’ve been considered, as you know, an essential service and so every day that they’re open, we’re open. We’re there to make sure they’re open. We’re there to help with the traffic. We’re there to help police the security. We’re there to help make sure that the housekeeping and the additional sanitary conditions and cleaning and all of that is in place. We’re there to answer the phone in the middle of the night when things are not going well.

Greg Ghee: So, again, it’s not only the RTG team but everyone in this business. COVID, I think, is also really focused on the importance of technology. We’re doing this podcast today, you and I talked earlier about how many team meetings we have and Zoom meetings. Technology, communication protocols and really broad-based communication, how do we communicate directly with a risk manager or an infection control expert at the hospital or at our REIT client, how do we communicate with them directly and then how do we communicate out to the public and how do we communicate out to the other tenants in our building and you all may, as a law firm, also see it and I keep up with your great advice coming out on COVID-19 and the impact on real estate. We follow you guys and appreciate you sending out that thought leadership as well.

Greg Ghee: And so I think it’s not only drawing attention to what we do in the real estate/property management business, but I think it’s also drawing attention to skills and I said technology a moment ago but the people skills and Andrew, you touched on it a minute ago when you mentioned the timeframe. There’s no way to measure, although I think when we get past COVID-19 and we all look back, what percentage increase of our daily stress quotient that we’ve all put up with and some days, I am certain, I’m a believer that it has been beyond the 100%, many days maybe but it’s really been something to watch and we try to be supportive of everyone in our company and I know you guys are doing the same thing there with your company but the other thing there is I think that will also enhance our people skill training and we use a term, our emotional intelligence, how you’re taking care of yourself before you can help take care of other people and making sure that you’re thinking about that as you think about what you do from the time you wake up to the time you finish at the end.

Greg Ghee: And then the last thing that I’ll mention, Andrew, I know it’s evolving but I think it will impact the design of buildings in the future, whether that’s in materials and there’s people smarter than me that’ll be doing this but we work with a lot of great healthcare architectural firms across the country and I’m sure they’re looking at that but they’re also looking at how you enter and leave buildings. We talk about smart buildings all the time. We’ve talked about telemedicine. So I’m certain that it’s going to have a big impact on really facilitated design moving forward.

Andrew Dick: Yeah, those are all really good points and I was writing some notes down as you were talking. I think COVID’s going to have a significant impact on the push for healthcare systems to expand their outpatient network or their ambulatory network. I think you mentioned that earlier, Greg. That was really already happening but I think it’s going to accelerate the pace of more outpatient development, off-campus development. Just a couple days ago, one of the major healthcare REITs published an independent survey of consumers where they asked consumers where would you prefer to have healthcare and outpatient facilities was where most of the consumers indicated they’d prefer to be treated, primarily because there’s some fear associated with going to hospitals today as we live through COVID, but I think you’re right, it’s going to change facility design. I think it’s going to change or accelerate, I should say, how some health systems implement their ambulatory strategy. So all really good points.

Andrew Dick: Greg, as we wrap up here, I’ve got a couple more questions for you. Where do you see the opportunities for the industry, for healthcare real estate professionals, give us a couple of thoughts there.

Greg Ghee: Well, I’m extremely bullish on the healthcare real estate industry. You could probably have guessed that but I love it as much today as I loved it 32 years ago and through divine intervention, I was able to go to work for Fort Sanders and as a young person or whatever age person, if they’re transitioning into the healthcare real estate, I think there are opportunities across the continuum. I mentioned our service lines and our service lines tend to follow where the work is if you will but the one thing I would mention as they think about managing their professional career is to really develop an understanding of the patient experience.

Greg Ghee: While you and I are talking about ambulatory or acute care and then telemedicine, some virtual medicine, whatever term we want to use, that’s still a patient experience and so if you want to understand the destination or what you’re trying to accomplish, really seek to understand what the user is doing and we’re all, at a certain time in our life, users of healthcare. It’s important to pay attention when you go to your doctor’s appointment and how you go through that process but I would say to really figure out a way to understand the patient experience and look at the different facilities, if you will, my oldest daughter who lives in Washington D.C., she’s been in Knoxville for the last two and half months because of this pandemic but she’s based in D.C. working with one of the big public accounting firms, she accesses her provider through a smartphone and then does FaceTime and I just get a kick out of that. I think that’s just a mindblower.

Greg Ghee: We don’t do much of that here in East Tennessee but I can see it coming quicker and again, pace of play, I think change will be even more rapid than it has been but no need to call and schedule that. She just does it online and it picks up the phone and there you have it. So the reason I segued from the patient experience, the individual has to …

Greg Ghee: You need to think about what it is for them, what it’s like in the parking facility, where do they drop off their family member or themselves, how do they come in, how do they access the building but then also, what’s the impact of technology going to be on that end user and then as most things in life, you triangulate, so it’s end user, technology, destination to the facility and so I would just say as far as the opportunities in the industry, jump in anywhere you see it as far as construction all the way into management. I’m a big believer in first being an advisor, first be a consultant so you really have a broad based opportunity to do a lot of different things. So, I’m a big believer in the advisory side of the business but always keep in mind who you’re serving, the patient.

Andrew Dick: That’s good advice. Greg, we talked a little bit earlier on about what advice you’d give to someone who wants to get into the healthcare real estate industry. You talked about being flexible. What other advice would you have for someone who’s interested in starting a career in the healthcare real estate industry?

Greg Ghee: It’d be great if you had a mentor or someone that … professional real that you can ask about what it’s like to be in the healthcare real estate arena in our business. If not, there are different professional organizations where you can develop a network. I’m a member of CCIM. I’m also part of [inaudible 00:47:46] and lastly, Counselors of Real Estate and we have networks with people who can talk about different areas in real estate. You could also volunteer at local … I do a lot with our local United Way but you could also volunteer at one of the hospitals or something just to get a little bit of experience so to speak or a little bit of time with them but last thing I do, I read quite a bit, Andrew, and I’ll mention just a few of these off the top of my head.

Greg Ghee: One of the thought leaders in our business is the Advisory Board, that’s a subscription but you may be able to find some of their stuff online but the Advisory Board. Modern Healthcare is something out there that people could get and look at. Healthcare Design, but I would say kind of if a person is thinking about getting into, try to come into it through their real estate professional network one way or the other, through a professional relationship.

Andrew Dick: That’s good advice. Greg, really appreciate you taking the time to chat with me today. I’ve enjoyed it. I too have enjoyed our friendship and getting to know you over the years. Where can our audience learn more about you and RTG?

Greg Ghee: Yeah, thank you, Andrew. Thanks again for the opportunity and good seeing you and be safe and pass that along to your other colleagues that I know and talk with up there. I’ve talked with you most of the time but in answer to your question, over the last couple of years, we’ve really made significant investments in our website and there’s a lot of information on our website. Our marketing manager’s name is Angie Surface and she does a great job of keeping up with our resources there. My email address is on the website, If you don’t see any information on our website, you can either hit Angie on a link or hit me on a link and we’ll get back to you.

Greg Ghee: And really do appreciate the opportunity to talk to you, Andrew, today.

Andrew Dick: Great. Likewise, Greg. 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 if you have ideas for future podcasts. We’d love to hear from you and like to hear those ideas. 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 Shawn Janus, Colliers National Director of Healthcare

An Interview with Shawn Janus, Colliers National Director of Healthcare

An interview with Shawn Janus at the Colliers Indianapolis office. In this interview, Andrew Dick interviews Shawn Janus, the newly appointed National Director of Healthcare. Colliers is an international real estate firm that provides real estate brokerage, property management, transaction management and strategic advisory services.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Shawn Janus

National Director of Healthcare for Colliers.

-Transcript Coming Soon-

Andrew Dick:  Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render the largest health care-focused law firm in the country. Today, I am in Indianapolis at the Colliers office and I am going to interview Shawn Janus, who is the newly appointed national director of health care at Colliers. Shawn is an industry veteran and we thought it would be interesting to sit down with Shawn to hear his story and his vision for the Colliers health care platform. We’ll also talk about the state of health care real estate and where Shawn sees opportunities in the future. Shawn, thanks for joining me.

Shawn Janus:  Thank you. Andrew. Good to be here.

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

Shawn Janus:  What I aspired to be. That’s interesting. So actually I grew up, I’m Chicago bred, born and raised in the Chicago area. I actually grew up in the far southwestern, excuse me, far south suburbs of Chicago, a town called Chicago Heights, very blue-collar. The Ford Stamping Plant was down there through all rail cars. So it was again, very, very blue-collar area that I grew up in, but I loved it down there and it sets the foundation of who I became today. So that’s where I’m originally from.

Andrew Dick: And after you went to college, Shawn, what was your first job? What did you end up doing?

Shawn Janus:  Well, essentially, actually college was a complicated journey for me to some extent. So I played football in college. I think, Andrew, we talked about this a little bit when we last saw each other, but so I was recruited to play college football and I was overwhelmed by the process my parents didn’t go to college. They didn’t really have a perspective. My high school football coach was a first time football coach. Actually, it was a great experience and it was a long way of getting to where I work. Your question is more specifically, but I actually signed my national letter of intent to play at Iowa State. Got enthralled with the big eight and Earle Bruce went on to coach at Ohio State, was the head coach there. Actually broke my letter of intent, never matriculated there and the reason being I continued to be recruited by the Ivy leagues at the time.

Shawn Janus:  So I actually matriculated to Yale for my freshman year. But just found that I didn’t really fit into the Yale culture if you will. Again, being blue collar, some of the values that I had grown up with a little bit different than what was on the East coast. So I ended up transferring to University of Illinois. Absolutely loved it, played football there and I always had an interest in accounting, like the fact that there were answers, specific answers. When you’re young in your career made some sense. So I became an accounting major. I got my CPA coming out of school and that led to my work experience. I actually interviewed for jobs coming out of school and took a job with, which was then, this is my age, Peat Marwick and Mitchell and now KPMG and just so happened that I got thrown on the JMB audit account.

Shawn Janus:  JMB for those who don’t know is one, was one of the largest syndicators in the world at that point in time. So I spent nine months of the year, nine and a half months of the year on the JMB audit, really got to understand real estate and really had an affinity for it. I really enjoyed the business and liked what it did. Interestingly, in the summer months when we weren’t on the JMB account, I happened to get thrown into health care. So it came full circle later in my career. I didn’t actually focus on health care at that point, but started with the DuPage hospital, way back when it said DuPage hospital. So that’s how I got into the business if you will.

Andrew Dick: So fast forward, Shawn, at one point you worked with Todd Lillibridge when he was starting his business and building up his MOB portfolio. Talk a little bit about that.

Shawn Janus:  Yeah, so interestingly, so I was actually in investment banking. At the- around that time with Continental Bank in Chicago and like a lot of big, big investment banks, commercial banks, we have training sessions, et cetera. We’re in this big auditorium theater and the gal giving the presentation announces herself as Lynn Lillibridge. So I went up to her afterward and said, “Wait, any relationship to Todd? Well, I had gone to school with Todd little bridge, we were fraternity brothers.” Turns out that was her husband and she goes, “Oh my God, how do you know Todd?” So Todd actually put me onto his advisory board, you know, during his formative years. This was when he was still a little virgin company I believe. And he was really doing property management consulting. He actually tried to bring me onboard a couple of times. But my background had been really on the deal side of the business, capital markets acquisition and development.

Shawn Janus:  So when, we would get together two, three times a year, they usually come to Chicago, just meet for coffee or breakfast, stayed in touch. And then when he made the strategic decision to hire Lehman brothers when they were still around to begin the roadshow to raise the capital, the first to bring that capital solution to health care institutions. So he again approached me and said, “Hey, you say you love the business, you love real estate, you love health care. I need someone now on the deal side, we don’t have that capability in house.” So I was one of the initial five senior executives who formed and ran the first Lillibridge REIT if you will. So initially I was in charge of acquisition and development and the consulting practice. After a couple of years, we brought someone in who are specifically focused on the consulting side. So that I could focus on acquisition and development because that’s really where the meat of the organization was going.

Andrew Dick: So that had to be a pretty dynamic time to be in health care real estate. Todd’s a pretty dynamic guy, built a very successful business. It sounds like you were along for the ride and were you there when Lillibridge spun out and sold some of its assets to Ventas?

Shawn Janus:  So actually, so I was there through the iteration of the first two REITs, the first REIT, which was Lillibridge Health Trust, actually ends up being sold to CalSTRS. We were- Lillibridge was owned at that point in time by Prudential AEW and JP Morgan Chase along with managements. Those are the four entities we owned. The REIT itself, that was sold to CalSTRS. They wanted to buy the entire entity for tax reasons and other things and then Prudential wanted to stay in the business as did obviously the management folks.

Shawn Janus:  We bought back the management company and the development platform and then we raised capital through Prudential and formed a venture at the property level with Heitman for some of their funds. Yeah, so I was there really through the- and then we formed the second REIT, which was Health Care Lillibridge or a Lillibridge Health Care Real Estate Trust was the name of the second one. So I was there through the first two iterations and then actually got recruited away to join JLL right at the time or right before actually the Ventas transaction. So I was right there at the cusp of when that change occurred.

Andrew Dick: Okay, very interesting. So talk about that transition to JLL, big national firm. What were you doing for JLL?

Shawn Janus:  So JLL had made the … I’ve known that folks going back to those South Partner’s days, which is the predecessor entity to JLL. Jones Lang Wootton and they merged and they had several iterations, but I’d known the LaSalle partners guys having been in commercial real estate in Chicago for ages. Earl Webb, one of the gentlemen there actually is now, he ran capital markets in the Americas for JLL at the time. He is now the CEO of the Americas for Avison Young actually, no one leaves the industry we just move the pieces around a little bit, but I had known Earl for awhile.

Shawn Janus:  We got to talk, I think it was a barbecue if I’m not mistaken. And he had mentioned, they’re looking at, expanding their businesses and they either do it with bringing new products and services to existing clientele or they go into a new industry and they had focused on health care as a industry that which is becoming much more institutionalized, which they’d go- there was a lot of synergy to do that. Their research group internally had come up with some waive papers that made sense for that. So he would bounce things off me then with the, over the course of time in terms of how they should approach the business, what was driving the industry and they ended up getting that approved and to start a health care platform effectively.

Shawn Janus:  They actually hired a guy who came out of a different background. Initially, it didn’t work out and after a short period of time, Earl approached me and said, “Hey, would you be interested? You helped write this business plan if you will anyway,” so that’s when I joined JLL. So I really went there to basically put the entire strategy, the organization together and then to drive a growth platform for JLL across the service industry for health care real estate.

Andrew Dick: Okay. And after JLL you’ve also worked for some other prominent health care real estate firms, specific medical buildings, and then I think is it more recently Catus?

Shawn Janus:  Correct.

Andrew Dick: So talk a little bit about those opportunities and then we’ll jump into what’s going on here at Colliers.

Shawn Janus:  Yeah, so interesting. So my- Pacific Medical buildings, which is based out of San Diego, probably the preeminent health care real estate development company in California and the Western region of the country at that time and still today when we were at Lillibridge and going back, that’s my first interaction with them. One of the things that- I made the decision that we needed to rather than just grow organically on the development side of the business, we were doing, we did when I was there in excess of $1 billion of acquisition transactions through the course of several REITs. But the development side was growing rap- more and more rapidly as it went forward and so growing it organically, it was just tough to keep up with the demand in the industry. So we made the strategic decision to buy a developer, actually hired John Winer, another icon in the industry.

Shawn Janus:  John was with the NY at the time. One of the partners there, they identified, I think it was like 98 distinct entities, development entities across the country and either John, Todd or myself talked to every one of those. My first choice was to buy Pacific Medical buildings. We had approached them. They were maybe smart enough not to move forward with us at the time. We got to know those guys well. Entering the California is always, always tough. There’s a lot of different regulations there as well, but culturally, everything just fit with them. That didn’t work out. We ended up end of the day buying Mediplex Medical Building Corporation, MMBC out of Plano, Texas, outside of Dallas. But long story short, when I was with JLL, one of the things I saw an opportunity was to really bring some solutions into the ambulatory environment, which really was on the development side as well.

Shawn Janus:  So approached Mark Toothacre who is the, still the CEO out at Pacific Medical Buildings. We’ve known each other and stayed in touch all those years and just so happened, timing being everything. They were at a point where they were strategically looking at diversifying geographically and they were struggling with, well we don’t want to take on a bunch of overhead to start offices in other areas of the country. So ended up, we put together a venture of JLL and PMB whereby they had the expertise, the 40-year track record, the pretty pictures, the capital, all those things. JLL had an army of folks I had set up health care offices in most of the major and mid-major cities around the country. So JLL became the intake valve, if you will, from a business development perspective. And then also the execution arm.

Shawn Janus:  So we would get our service fees. We were a service organization, they would get more products, putting it to work and then building their portfolio. So we would do that, we would do the zoning and we would do the project management, we would do the leasing, so all those local type activities. Then they would bring the capital, the oversight and everything else. So that’s how I ended up getting involved with PMB and then eventually ended up joining PMB directly and effectively with the same function. So based in Chicago and was really taking their footprint, trying to expand it from the Rockies to East coast, if you will.

Andrew Dick: Very interesting. So your last stop was at Caddis. Tell us briefly about what you were doing there.

Shawn Janus:  Caddis, is very similar actually. I know Jud Jacobs, who is one of- the development partner at Caddis, he’s an old Trammell Crow guy. I actually worked at Trammell Crow in my commercial days and not that I knew Jud back then, but we’d known each other in the industry for quite some time. Similarly, they were actually looking to expand their platform geographically. They were growing in a much bigger way. They haven’t been around for 40 years. And so it’s a newer firm relative to the industry if you will, was an intriguing opportunity really to do the same thing.

Shawn Janus:  So effectively I was responsible for expanding their platform in the midwest in business development perspective and then for executive leadership for any and all projects in the midwest and that was- there are  acquisitions, there was development, they were involved in the senior housing arena through their hardest platform had not been as involved in the senior side of the business. But it was a great learning curve for me to actually bring that into my quiver in another area, if you will.

Andrew Dick: And how did the opportunity with Colliers present itself?

Shawn Janus:  Yeah, that’s interesting. So as we all do, as we get later in our career, obviously business development and relationships are always important. But particularly, once you’ve been in your career for quite some time. One of the things that I make a point of doing is reaching out to people in the industry and trying to stay in touch with them. A guy by the name of Ted McKenna in Chicago. I’d known Ted for, I don’t know how long, known Ted forever. So we would periodically try to get together just to catch up on what was going on. Just so happened we had arranged to have coffee up in the Northern suburbs of Chicago. We were sitting down and it just so happened that that week it was announced that Mary Beth Kuzmanovich, who was my predecessor here at Colliers, I’ve known Mary Beth for 12 years.

Shawn Janus:  Going back to when she was at Carolina’s Health Care that she had left the Colliers organization and had joined the Lillibridge organization in the small world category, which I’d get into that story. But anyway, we were just talking and catching up. I had mentioned an- what was going on with Mary Beth, and we were talking about the strikes they’ve made over the last four years. And then all of a sudden he stopped and looked at me and said, “Well I know you like your job and what you’re doing, but well you’d be perfect for this, any interest in potentially, thinking about joining the Colliers team?”

Shawn Janus:  So I said, “Well, love to hear more about it. It was right before BOMA. So he actually set up a meeting at BOMA with the internal executives who were running their search process. So that was in the April timeframe. And then over the course of, I guess I started there in September. So over the course of time I’ve got more and more intrigue in the opportunities and with Colliers it was about potential of the health care platform and really the value add that I could bring to the organization and made the decision to join the Colliers team.

Andrew Dick: And so what attracted you to the Colliers platform? When I think of Colliers, I think of an international brokers firm. They have a great health care group I’ve worked with personally over the years and always had good experiences. So what really drew you into the Colliers opportunity?

Shawn Janus:  A couple different things. One, obviously I had, I had built an organization very similar to JLL in terms of starting from scratch, if you will, and kind of building a health care capability. I mean they had some, even at JLL had some capabilities, but really moved that forward in a big way. That has always intrigued me. I really, I love real estate and enjoy the health care component of that. One of other things is I do enjoy the entrepreneurial nature of growing an organization. This was the, Colliers was a bit different in that Mary Beth had been here four plus years, so she had some had done some of the foundational elements in terms of putting their arms around the true health care platform. So those things really intrigued me. But I would tell you the thing that of put it over the top is just the culture of the organization.

Shawn Janus:  That’s very, very important to me has been since I mean going back to my soliloquy about choosing colleges and finding the right fit, if you will. So that’s always been important to me. So as I got to know the folks at the Colliers team across the country and their leadership, their vision, where they were going and just the comfort level in terms of how I could be a part of that team. So it was those things, it was the potential of the platform where they were and where we could take it, the entrepreneurial nature and just that culture.

Andrew Dick: So as the newly appointed national director, what are some of your goals and objectives?

Shawn Janus:  So it’s interesting. At Colliers, it’s set up a little bit differently than we had it at JLL. But, so my role is to really support, give vision, a strategy and drive the growth of the platform. Colliers is regionally based organization. So the health care folks in the organization are based through their regional presidents, if you will. So I look at my job and kind of, I put it in the four buckets, if you will. One of those, as we talked about, is always business development. Having been in the industry for 20 years specifically in health care, I’m talking about, have relationships across the country. So I can not only introduce Colliers into those relationships, ideally at least make those introductions, but can also be involved in pitches to help all those various teams as they try to win business.

Shawn Janus:  The second would be just in recruiting. I think that’s the second bucket. So helping the regions bring in the right type of individuals. Number one, help recruit them, understanding the nuances of the health care environment. They understand the Colliers platform obviously better than I do at this point in time, but identifying those types of candidates as having been in the industry for so long. The third would be just the tools that they use. So arming all those, all the brokers and the property managers and the consultants all across the country on the health care side, do they have the right tools? How can we organizationally support them to be successful, if you will. And then the last would be, and probably one of the most important is branding. In any organization obviously you need to be branded in terms of recognition and how you’re perceived in the industry.

Shawn Janus:  I would give kudos to Mary Beth Kuzmanovich because when I- I didn’t really know much about Colliers Heathcare in the business at a time I’d call it 15 years and I’d never really come across Colliers Health Care at any big way. But when they did make that decision to try to have a leader come forward with that Mary Beth’s leadership, she really did put them on the map a little bit and we began that entire process. But that’s a living, breathing organization- organism, if you will. So that whole branding concept would be my coming forth year.

Andrew Dick: So Shawn, when I think of working with a firm like Colliers, there’s often a couple of different service lines that I think about. There’s the brokerage, there’s the property management, sometimes there’s transaction management and then sometimes there’s investment sales. Are you going to be focusing on all of those within the health care platform or is there one that’s going to take priority over the other?

Shawn Janus:  So the easy answer to that Andrew, is actually we would focus on, we’ll focus on all of those and building all of those out. I think we- my vision is to be the best in classed health care, real estate service provider in the country. Obviously there’s great competition with some of the other larger firms we compete with every day. We’re friendly competitors with them, but I think we have the, the underpinnings and the foundation to be able to do that. Having said that, I mean Colliers is that entrepreneurial nature is, has been historically a broker led organization and much to your point. So I think we will first work through the brokerage side of the business on how can we better grow that piece of the business. But then also the other pieces you mentioned, the strategic consulting.

Shawn Janus:  I think that’s a big piece of what this industry needs and from a real estate perspective we can obviously bring that in a big way. You mentioned property management. I think project management is another area, project program management. So I think being able to bring that solution, like a lot of the big firms, you have the brokerage side of the house and you also have the corporate solutions side of the house. So also just marrying how those two work together. I’ve had experience with that. Obviously JLL had the same two type of platforms. So really looking to bring all those services to the industry.

Andrew Dick: So looking forward, where do you see the health care industry going? We hear a lot about the retailization of health care and the push for ambulatory care. I mean that’s been going on for years. But where do you think the industry is going?

Shawn Janus:  Yeah. I wish that crystal ball was clear. I would tell you. So essentially I always tell people that one of the things that’s intriguing about this industry is that it is constantly changing. And a big piece of that obviously is the fact that it’s so reliant on what the government is doing, through reimbursements, Medicare, Medicaid, all of those payees, if you will, into the health care system drive that. And that changes when we have elections and we’re obviously in that cycle right now. So irrespective of where you are on the political spectrum, it’s going to bring change at some point in time. And when you have that type of change, it creates challenges in the industry. But whenever you have challenges, there’s an opportunity to provide solutions. So I think that really allows an organization who can be nimble, who is strategic in their thinking, truly help their clients look at those things.

Shawn Janus:  You mentioned a couple of things and I think those are, those are probably first and foremost cost and convenience right now are probably two of the larger issues which have been driving health care decisions. The health care revenue model for hospitals and health systems has been under immense pressure. There’s been shifts in the payer mix as we talked about a little bit. Going from the private to the public. We’ve seen that, that affects reimbursements in a big way for hospitals. The case mix shift, that there’s a shift that’s going on there as well, which has implications.

Shawn Janus:  And then to your last point that you mentioned in terms of the convenience and the retailization, that shift of site of care, we’ve gone from this 20 years ago, this inpatient model to a much more diversified outpatient centric and ambulatory centers and whether that be larger MOBs, whether that be urgent care clinics, whether that be freestanding EDs, micro hospitals the buzz word in the industry, which should, depending on which states you’re in there’s quite a bit driving that as well. So, but I think those are two things that are really at this point in time right now we have the election coming up and then you have this issue relative to costs which everyone is dealing with and then the convenience factor which is really being driven by the consumer.

Andrew Dick: Shawn, in the past there was always the discussion about on-campus versus off campus medical office buildings. At one point investors really focused on the on campus assets. A couple of years ago there was a number of investors shifted their focus to looking at the off campus assets and then there’s always a discussion about cap rates spreads between on campus and off campus. What do you think- what’s your opinion, on campus, off campus assets? Where do you see investors going? Talk about some trends. I get that question all the time. I see a lot of activity on both fronts. I still see on campus buildings being constructed, we still are working on a lot of off-campus projects.

Shawn Janus:  Yeah, it’s, it’s interesting. So that … distinguishing between the on campus and the off campus has, as as you mentioned, has been, I would say a point of contention, but the differentiator if you will in terms of distinguishing how investors look at the market. When I first got into the business, it was as you said, just it was really wanted to be on campus. Then it was wanting it near campus and then that wasn’t quite off campus yet. But, it was across the street it would- but it was still around the major hospital. That has changed drastically. I don’t think the drivers of why investors are looking at that- not asset class, but that locational difference why they’re looking at that as a better investment opportunity is the fact that previously in the off campus location was the doc in the box.

Shawn Janus:  It had- it was a true medical office building, 40,000 square foot, two floors, 20,000 square foot floor plates and it really was the doctor’s office, if you will. We still refer to them as medical office building. It’s probably a misnomer. It’s just a general term that’s used now. They really are ambulatory care centers, so the driving factor for investors has been that higher and higher acuity delivery of care is now happening in those locations. It’s ambulatory surgery centers, it’s imaging centers. Now we’re moving into a whole wellness component which is, which is new to our industry, fairly new to our industry as well. So I think some of those factors are really what has driven investors to look at it and say, “What are we really underwriting?” Yeah, it’s real estate, but really underwriting the hospital, the provider, physician group, whatever it might be and what’s the driver for their business? It’s really the procedural side of things and where those occur in the fact that those higher acuities are now at a different location, it just made it easier for them to underwrite that.

Andrew Dick: Where do you see the most opportunities today in the health care real estate industry? I often get that question. I’m curious about, you’ve been in the business for many years. Where are the opportunities and I think you could say opportunities for Colliers or you could say opportunities for really anyone developing health care, real estate assets.

Shawn Janus:  It’s interesting, I answer that question similarly to the question when you asked why did I come to Colliers? The reason I did come here is because I do think there’s so many opportunities in the industry currently. And I think part of that is what I talked about. There’s so much change happening, it’s happening faster, just given technology and what’s going on in the industry and consumers are much more involved in their health care.

Shawn Janus:  So I think given all of that, hospitals and health systems and physician groups, through merger and acquisition activities, everything else that’s occurring, they become overwhelmed to some extent and pretty easily. And one of the things that I think the opportunity is, is to really bring them that trusted advisor. Some people think that’s an overused term, but I actually do believe that. I think if you can bring a specific expertise, again, we’re real estate experts in health care, but for us to be good at what we do, we will need to understand health care, what’s driving their industry, what’s keeping them up at night.

Shawn Janus:  And we always say that real estate will never be on the top issue for hospital or health system executives, but it never used to even be on the top 10 now what’s on the top 10 and it keeps going up and up and up into maybe number five on the list you make. It’ll probably never get higher than that. To use- just got to use an example because something else more relative to the health care. But I think the recognition of the importance of health care and how help app- excuse me, points of real estate and how real estate can from a tactical perspective, help them achieve what they’re trying to do from a mission critical and strategic perspective. So I think those opportunities to really have a seat at the table and really be that trusted advisor and offer that full breadth of services that they might need.

Andrew Dick: Shawn, during your tenure in the industry, what’s the biggest change that you’ve experienced working with health care providers?

Shawn Janus:  That’s a difficult question only because if so many things you could pick and choose from if I guess, just to pick one of those, and we talked about what happened, about elections and the affordable care act. I’m getting my tenure now, so that was a big transformational change in our industry. Even going back to the institutionalization of the class, when I first got into it, it really wasn’t an institutional asset class. It was the angel investors who would look at it and now it’s an accepted, their reach and their billions of dollars in REITs out there, et cetera. The shift to the ambulatory sector and what’s going on there. If I had to say one in that, most people wouldn’t think that would be the main one. But maybe it’s just because the recency of it is really this, this current shift in the delivery of care.

Shawn Janus:  And it’s driven by some of the other things. Obviously we just, that I just mentioned. But it’s really that shift to that ambulatory environment where you went from, as we were talking about early, this on-campus inpatient centric environment to really being responsive to consumers and delivering care in ambulatory settings. And that’s driven obviously in a couple of different ways. The fact, that technology, from the wearables to, how people … you go into your doctor’s office if you’re like me or anyone else. Now if you’re going in that you feel like you’re the expert, you’re- you’ve Googled stuff and you’re going to tell your doctor what you have and so the pressure on physicians and them is much greater as well.

Shawn Janus:  But I think all of those things have really driven the need to provide, not a different care, but a different sensitivity relative to the consumer. And what that is, so that whole ambulatory piece, irrespective if you had to affordable care act and some of these seismic shifts, but I think that is a systemic change to our business. They’ll foundationally be there. The affordable care act will it stay? Will it be repealed? Will it be tweaked? Those things are going to be changed, but I think this particular shift as it relates to controlling costs, convenience of care, that’s going to be a foundational elements it’s going to continue.

Andrew Dick: Shawn, you have a built a great reputation in the industry. There are a lot of young folks getting into the business, whether on the brokerage side, the development side. What advice would you have for someone who’s starting out in the health care real estate business?

Shawn Janus:  Well, I’ll tell you, it’s a great business to be in. Not to be repetitive, but it’s very dynamic. There is constant change in these challenges, creating opportunities. So if you’re someone who wants to provide real value to your clients, to your constituency, it’s a great place to not only learn but to make a career out of … health care is not going away. Whether it’s technology or big data or some of the other things that are now transforming our industry, there’s always going to be something that that creates those opportunities, if you will. The other thing I would tell young people though, and I go back to when I was talking about my recruiting efforts a little bit and then even how I got into into this crazy business is I think it’s really important to pursue your passion.

Shawn Janus:  So if you have a passion for something, I absolutely love real estate. When I got exposed to it and back in my Peat Marwick days and got thrown happenstance into real estate and I really had a love for real estate. The one thing I always thought was missing, and here I’m a south side blue collar Catholic boy growing up wanting to give something back and it always felt like there’s, it sounds trite. I realized that in terms of something else I could bring to the industry.

Shawn Janus:  Then when I had gotten a little bit more involved in health care and start thinking back to that first job when I had some health care experience as well, it was a way to say, “Hey, it’s not just bricks and mortar but we’re bringing a solution that helps people.” So for me that was the passion. It’s marrying the real estate side of things I love to do with the health care side, which more altruistically is in my background. So that’s just me personally. But I think importantly if you can have a passion and health care real estate is a great venue and a foundational place to build a career that can really make something.

Andrew Dick: Shawn, I’ve really enjoyed our conversation and getting to know you over the past few days. Where can our audience learn more about you and the Colliers Health Care platform?

Shawn Janus:  You can obviously go to our website, but I would encourage anyone who would like to learn more just to reach out to me directly, and I’m very approachable and my email is  Feel free to reach out to me with questions, thoughts, et cetera, and we’d be happy to respond to those.

Andrew Dick: Thanks again, Shawn. Thanks to our audience for listening to the podcast on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the Health Care Real Estate Advisor to be added to the list. Please email me at

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Using Data Analytics for Site Selection with Bill Stinneford

Using Data Analytics for Site Selection with Bill Stinneford

An interview with Bill Stinneford from Buxton.  In this episode, Andrew Dick interviews Bill Stinneford, a Senior Vice President with Buxton. Buxton is a data analytics company based in Fort Worth, Texas.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Bill Stinneford

Senior Vice President with Buxton.

Andrew Dick:  Hello and welcome to the Healthcare Real Estate podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice.

Today we’ll be talking about how hospitals and healthcare systems can use data analytics for site selection purposes. Buxton is a data company that helps a broad range of industry groups from retailers to healthcare providers make smart decisions when selecting the right location to do business. Today, we will be talking with Bill Stinneford, senior vice president with Buxton, about how healthcare providers can benefit from the use of customer data when developing an ambulatory network. Bill, thanks for joining me today.

Bill Stinneford: Thanks for having me.

Andrew Dick: Bill, before we talk about Buxton’s healthcare expertise, let’s talk about your background. You’re a Texas native with an interesting background in business and journalism. Tell us about your career experience before you joined Buxton.

Bill Stinneford: Yeah, well I studied business and English at college, and I got out of Texas A&M, and I was a financial analyst for a year, and I wasn’t really ready to grow up, and I’d always been a big sports fan and so I actually went back to graduate school to study journalism, and with the focus of really getting into sports, and ended up working with ESPN for about four years. So really, I got to be on the radio in Dallas Fort Worth and hosted pre- and post-game Mavericks shows. The Dallas Mavericks shows are still on the station, and were able to cover Super Bowls and spring training and training camps and just a fantastic education to study sports and study journalism, and did that for a long time. Hosted the afternoon show here in Dallas Fort Worth, and it was a blast, but you know, eventually, I didn’t want to … I guess I didn’t want to do that for the rest of my life, as fun as it was in the moment, and was ready to get back into quote-unquote “business.” So that led me to make a change.

Andrew Dick: So how did you make the transition from your broadcasting career to Buxton?

Bill Stinneford: Well, it was interesting. When I was going through graduate school, I was putting away through graduate school and so I had an internship at the ABC radio station here in town, and that internship was a great experience, but that was a free internship. I had to make a little money, obviously. Going to school, doing the free internship doing morning drives. So through friends, I had heard of this company called Buxton, which I didn’t know about at the time. I got an internship in the marketing department that paid me a little bit while I went to school, and I fell in love with this company. About that time that I was at ESPN, Moneyball had come out, by Michael Lewis and that became a sort of the rage and obviously they made a movie about it.

I remember reading that when it first came out, cover to cover, and I just loved that story. I think it’s important for data analytics today because I think that story gets bastardized at times about what it really was. I think sometimes people said, you know, that that was about the story about baseball and the Oakland As and being a very successful organization with one of the lowest payrolls in major league baseball, and doing it consistently over a long period of time. But with that story, what some people said was, “Oh, they just had a bunch of stats guys made decisions and you didn’t need scouts or baseball expertise.”

It was really, what the story was saying, was you do need expertise. You do need great scouts and gut, but you also need science and data as part of your decision-making process. When you can marry those two together, you can make much better decisions. Decisions that will produce the best return on investment for ballplayers. You’re investing millions of dollars into a ballplayer that you sign as a free agent or you draft, you want to go off more than just eyeballs.

So I loved that story, and in a way, that’s what Buxton was really doing for businesses, and what we do for businesses. It was really providing the science and the data to compliment the already strong decision-making processes of a company, to help them make better real estate decisions and better customer decisions. That always stuck with me, that fascinated me. That was fascinating to me while I was an intern for them, and then got into ESPN and did that, threw myself into that for four years. But again, I studied business in college and I was always wanting to kind of think about getting back into that world.

Buxton had always stayed in touch with me, and it came to the point in my career with broadcasting where you either need to kind of move markets, or really throw yourself into the next stage and I really didn’t want to move, and I didn’t want to do those types of things and I found a great home in Buxton. That was 14 years ago now, over 14 years ago. I have not looked back, and it’s been a tremendous professional decision, and to see how we’ve grown and advanced and helped companies with those investment decisions over time. So that’s kind of how I transitioned into Buxton.

Andrew Dick: So Bill, tell us a little bit about what you started off doing at Buxton and then what you’re doing today.

Bill Stinneford: Yeah, so I started out in our retail vertical, and Buxton is a consumer analytics company helping build predictive solutions that help people make great investment decisions, be there for new locations or relocations, market optimizations, targeted marketing, helping understand how their consumers behave beyond just demographics. So there’s a couple of different verticals that we have, but our historical vertical where we started was retail. So I started in our retail vertical in sort of a business development role, calling on majority retailers and restaurants throughout, when I first started, the southwestern portion of the United States, and helping in that. Quickly rose in our retail vertical, and then oversaw that and then also over the years took over our growing healthcare vertical and so now sort of oversee all client development, both making sure that our existing client relationships are strong and fruitful as well as helping coordinate our marketing message and our sales efforts to continue to bring new clients into Buxton.

Andrew Dick: That’s a great summary and Bill, how did Buxton get into the healthcare space? Because the audience listening to this podcast, they’re real estate investors, they’re hospital and healthcare executives looking to make smart decisions when they open up a new clinic location or a new hospital, and they’ll say, “Gosh, we’ve heard of Buxton, but primarily in the retail space.” But in reality, Buxton has done quite a bit of work in the healthcare space. Tell us about Buxton’s healthcare expertise and how Buxton moved from the retail vertical into the healthcare vertical.

Bill Stinneford: Yeah, so we still have a very strong retail vertical, but yeah. We’ve been around 25 years as a company, and we started in retail but yeah, over the years we’ve grown into a restaurant, we’ve grown into city government, private equity, and as you mentioned, healthcare. Basically, any type of business, if you have a customer or a patient or a consumer, and you want to find people that look just like that and grow your business with real estate or marketing or get more out of your existing investments, we can certainly help with that.

Our core verticals are those that I just mentioned but you know, we work with Marriott and we work with Fidelity Investments and insurance companies. So yeah, basically we can apply these types of approaches to all those different types of businesses, but specifically with healthcare, which is our fastest-growing vertical and pretty soon will end up being our largest overall vertical. It’s pretty close already. It is exciting to see, and it started probably 12, 13 years ago now. One of our retail clients actually sat on the board of Florida Hospital and they were looking to roll out their Centra Care line, their urgent care line. They were like, “Hey, this is kind of like retail, this type of healthcare business, and I think that you guys can help us with that.”

At the time, we said, “Well you know, we don’t know anything about healthcare, but we’ll try.” And it worked, and in fact, they’re still a client to this day. It’s been a really successful obviously rollout, Centra Care, over the years. They still use it for that. But we’ve branched into other different service lines for them and we realized, hey, there’s something here with where healthcare is going.

Then over the last sort of five, six years as there’s been a huge growth in ambulatory facilities or outpatient facilities, that’s really been the biggest boon to our healthcare business because the things that make an outpatient or an ambulatory location successful are somewhat different and in many cases very different than what makes an inpatient healthcare facility successful. In many cases, in an inpatient standpoint, it is still a bit of: if you build it, they will come. But in outpatient, there are so many choices and there’s so much competition that the difference between success or failure of an outpatient facility maybe a quarter of a mile apart from where you pick, right? So the things that make successful ambulatory location strategies work today are still a combination of some traditional healthcare metrics. You know, certain outpatient and inpatient utilization data, insurance data, competition provider data. Those types of things.

But just as much, if not more, it is an understanding of the consumer and not just based on demographics, but how they live their lives, how they spend their money, how they behave as consumers. Their attitudes toward different things, and also retail metrics. Things like co-tenancy or area draw, visibility. Sometimes people don’t realize that a lot of times your most successful marketing vehicle in a healthcare situation or a retail situation is your facility itself. You know? And how visible are you, and are you located near things that people are driving by all the time on their way to work, on their way home, when they run errands on the weekends. That impression frequency can build up and allow people to understand you’re there. Certainly for things like urgent care that’s vital, but what we’re seeing is even in things like orthopedics and sports medicine, things that were predominantly referral-based, while there’s still a huge component of that more and more you’re seeing healthcare companies go straight to the consumer to advertise their specialty services and location strategy is extremely important in that being successful.

That was just as much to do with understanding consumers and retail metrics as it does healthcare metrics, so when you can combine all those and bring them together, which we’ve done, because now we know a lot about healthcare, it allows our clients to have … or just companies in general that employ these strategies, to have a significant leg up on the ever-growing competition.

Andrew Dick: So Bill, if a healthcare provider came to you and said, “We’re thinking of rolling out an ambulatory care network or outpatient clinic network,” depending on what you call it, what could Buxton provide to that healthcare provider in terms of finding the right location? What type of metrics would you look at, what type of services would you offer?

Bill Stinneford: Yeah, well what we would do, I mean every case is a little bit different. We would want to build a customized solution for each one of those specific clients and what they’re trying to achieve, but you would build a forecasting solution, that is a combination of understanding the ideal patient/consumer profile for that particular service, and also the payer mix that you would like to optimize: is it all-payer, is it, commercial payer? You know, what are you trying to go achieve? Then what are the competitive variables? What are the positive correlating factors that need to be there? Then the traditional utilization data and provider data, and understand what makes successful locations successful and what makes ones that don’t succeed in an outpatient environment for that particular service unsuccessful? And build that solution that then allows the client to be able to forecast any intersection across their service areas or the whole country if they wanted, you know?

They can use the models to say: find me all the locations that will do greater than X in performance and will cannibalize my existing locations by more than a specific percentage that they set. So you help understand how many locations you can support in a market, where those locations should be optimally, how to evaluate your existing portfolio for that if you offer that service line. Which ones are not doing well but they’re underperforming their potential, which ones are not doing well but frankly they’re doing as well as they could be doing and they’re in the wrong spots, or that trade area has changed over time so they need to be consolidated or relocated and then they can use the solution to do that.

So those are a lot of the output that we provide, and we actually provide that into a very easy to use but powerful mapping and analytics platform that they can access on their phones or their tablets or their laptops, wherever they have an internet connection and visualize all the things that we’re talking about: where is their competition, where are their patients coming from, where are their potential patients coming from? Where are those recommended points? If there’s availability that pops up that you want to investigate, you can click a button and get a forecast on that potential site in about two minutes. Store files, run just regular utilization reports, insurance reports, demographic, behavioral reports. All those different types of things at their fingertips, but most imply from a real estate strategy standpoint, understand where their home runs will be and how to avoid expensiveness as well.

Andrew Dick: So Bill, we talked about a new outpatient clinical strategy. What about a health system that has an existing network that wants to analyze how that existing network is performing? Is that something that Buxton could help with?

Bill Stinneford: Yeah, you know, absolutely. I think one of the things that when you build those forecasting solutions and you’re studying their data, what makes them… For instance, you do this a lot with primary care, where they have many, many locations within a market if you’re a system. It’s identifying what’s the DNA of your best locations in suburban markets in your service areas? What are the things that are always present in those trade areas that are sort of present in the okay locations trade areas, that are hardly ever-present in the poor performing trade areas? You know, what are those factors?

Then that model that is built can again forecast future performance like we just talked about. But you can also take it and score the existing locations and compare actual performance to forecast performance. This becomes very valuable for our health system clients because it helps break down what I sort of like to call is the log jam of opinion that can develop.

So for instance, if leadership of the system comes in to evaluate the primary care facilities and their performance and they look at the low performing locations, the question that the CEO asks, she may say, “Why do we have these low performing locations?” Typically, what you’ll have is people pointing fingers at each other in the boardroom, you know? The people that picked the sites will blame the operators and the physicians within the site. The physicians and the operators of the site will blame whoever picked the site. Then eventually, everybody will get around to blaming marketing. They can all agree on that; it’s marketing’s fault.

But you know, in reality, sometimes is it the location that was a miss. Should have never been selected. Or, just as frequently, it was a great location for 20 years for primary care but that trade area has changed over time significantly and that’s not necessarily the most optimal spot for those services today. But the analytics, in an unbiased way, is informing to say, you know what? No matter what you do, no matter how many physicians you put in, no matter how often you change out the front office, no matter how much money you dump in from a marketing standpoint or a huge remodel, you’re wasting dollars. The analytics are showing that for that particular service line if you want it to produce at a certain level, the trade area potential is no longer there. So let’s use the models to understand how to best consolidate that site and where should that be transferred to, or, where should you best locate that site?

But that’s very different than another location that you may have that’s doing the same actual volume, which is below par, but when we look at that with the model the forecasts are saying it should be doing 40% better because this site looks like 10 other sites you have in these types of markets that they have the same type of potential patients in the same volumes, they have the same level of competition, the same area draw factors, the same utilization and insurance metrics. All these things are the same as all these other locations that all do 40% better but this one’s not: why?

Sometimes that can be that it does need to be remodeled or it needs to be moved just a little bit down the street to a more visible area because that piece of the street is no longer where people are drawn. Or it could be that you need to add physicians. A lot of times we see that. The wait times in those facilities end up being longer and it’s tougher to get an appointment because you don’t have the proper staff, or the front office isn’t … You know, the front office help is not as nice as they need to be. Or maybe we do need to do more marketing. But you know that that trade area should be performing better than it is.

That opens up a lot of possibilities because now what you’re doing is not only finding the best places to invest in new locations to the degree that you’re opening up locations for primary care or urgent care or specialty, but you’re also improving the performance of the existing portfolio of investments by knowing which ones to not invest in any more, and then which ones have potential and you should invest in. The overall return on investment on all of your real estate becomes that much better. There’s just a lot of waste in healthcare today because people are making decisions based on opinion, and people that make decisions based on data for the actual healthcare of their business, sometimes they’re not making the best decisions based on data for where they invest dollars.

Andrew Dick: That was a great summary, and it seems to me, Bill, that there are a lot of different companies that claim to offer site selection. A number of our healthcare clients get pitched all the time, but Buxton seems to have maybe the more comprehensive platform for this service. What do you think makes Buxton unique when compared to its competitors?

Bill Stinneford: Well you know, it’s interesting. I think we take a very different approach than the traditional players, I guess, in healthcare, with regard to these types of decisions. I think that that comes from our consumer analytics and retail site selection background. There’s a lot of good companies, but I think one of the things that I tend to see that people are still relying on or offering as a way to select sites is more macro-level traditional healthcare data. So certainly outpatient and inpatient utilization data, but at a county level or a city level. The output may say you have a need for three additional orthopedic surgeons within this market. Okay, great. Where? That’s a big county. That’s a big geography. Again, as we talked about in an outpatient environment, the difference between a successful location or an expensive miss might be only a half a mile down the road, one spot versus another.

So if you’re talking about macro level, county-level data that shows demand for a particular service, great. Where are you going to service that? Because especially as you have so much more competition, both system competition as well as, you know, private companies that are focusing on a specialty or two, many of them, backed by private equity that can choose where they operate, choose the type of payer, the type of patient that they want to go after. They’re employing a lot of these quote-unquote “consumer research strategies” and if you make it much more convenient, if somebody is in need of a service and you make it much more convenient, if your primary care doctor is telling you to go 40 minutes across town but there’s a specialist that you drive by all the time and you’re seeing their billboards and their advertisements on TV and those types of things, well, can I just check them out? And so it’s really important to understand where to be at an intersection level, at a micro-level.

That’s where we grew up and where we still excel today with retail and restaurant, and weaving in a lot of that traditional healthcare data and weaving in over a decade now of really strong ambulatory site selection healthcare experience with our consumer analytic experience and our retail experience really allows us to produce a unique solution that again can help our healthcare clients have a tool that the people that they’re competing against might not have to help them be successful in a very evolving healthcare environment.

Andrew Dick: Bill, let’s switch gears at this point and talk about ICSC or the International Council of Shopping Centers. They host an annual event called Recon. This year was significant from my perspective because there was quite a bit of effort and showcasing health and wellness programs and how retailers can collaborate with healthcare providers. Why do you think there was such a strong push this year to talk about health and wellness at ICSC Recon?

Bill Stinneford: Well, there’s a number of different reasons and I’ll try to knock out a few of them. I mean, first off, I was really excited that ICSC did that because it is such a strong push from a “retail center” standpoint, quote-unquote, obviously, it’s no secret that there are certain retail concepts that are struggling. Some are going out of business. There are vacancies in a lot of these centers. Now, I don’t think that retail is dying. I think that retail is evolving just like healthcare is evolving, but one of the things that you’ll see thriving right now are things like fitness facilities, gyms, restaurants. Things that are focused on a healthy type of environment. Urgent care, different healthcare specialties. So from an ICSC, an International Council of Shopping Centers perspective, to focus on a sector that can help fill vacancies and help create great foot traffic and those types of things, obviously that’s a no brainer.

But I also think you’re seeing the demand on that side, but I think also you’re seeing the demand on the healthcare and the health and wellness side of understanding that healthcare cannot exist in the old traditional way. That it has to be out in the neighborhoods, and it’s not just … You know this is something that we talk about all the time with our clients, with the health system. People need to think about their health system as a brand, and some people within those systems may be thinking about that as a brand, but not enough.

I think sometimes health systems think that people in the market, just regular Joe America, understand the difference between health system A and health system B in a market, but for the most part, they really don’t. So how do you distinguish your brand and how do you make people want to stay with you in sort of a cradle to grave relationship? Not just, “Hey, come to us. We’ll treat you when you’re sick.” But, “Come to us. We’ll keep you from getting sick. We’ll keep you healthy.” That’s really I think the future of healthcare and no amount of healthcare legislation or type of healthcare legislation is going to help us as a country if we don’t start getting healthier and start making better decisions.

Part of that is education. Part of that is taking that education and those types of offerings and types of ways to stay healthy, both with food and with education and with fitness, into the communities. Into neighborhoods. And that’s a retail strategy, right? So the things that will help people be successful in healthcare, offering these types of services, not just health and wellness but healthcare, you’re going to have to be out in the neighborhoods, and to do that you’re going to have to understand a real estate strategy beyond the old, if you build it, they will come.

In our presentations, we talk about how healthcare is evolving. Clearly there are regulatory hurdles and uncertainty with regard to healthcare regulation and certainly, Buxton can’t help with any of that. But the other things that are making healthcare evolve are the evolving consumer, and how people make decisions and choices about the healthcare services that they provide. Their smartphones and where they go and look at things as they go shopping for other things, you know? That you have an evolving consumer and the type of expectation that they have, but also you have, as we talked about earlier, an extremely competitive environment. Extremely competitive.

There is so much money being spent in healthcare, and any time you have that much money being spent and some of the traditional players by taking a traditional healthcare approach are investing those dollars inefficiently and leave themselves open to competitors, you’re going to have a bunch of people jump into that market. Any time there’s a bunch of money to be had and there’s a perceived inefficiency in the market, you’re going to have a lot of players jumping into that space and so you’ve got that. Private equity is in it in a huge way. You’ve got, obviously, you’re looking at the growth of CVS and Walgreens and Walmart and you know, just what is going on with all of that. You’ve got a lot of different players in the space and what are they doing? They’re understanding consumers. They’re understanding a retail strategy. They’re going into neighborhoods and being more convenient and more visible to provide these offerings.

If you’re sitting out there on the free land that the church gave you behind an industrial park that no one can see, you can’t see in from the highway and those types of things, you’re going to get slaughtered. So that’s part of why it’s important to not only have these conversations like you and I are having but why ICSC and retail are getting involved as well.

You know, sorry to keep blabbing here but the last piece on this is in our presentations we talk about Blockbuster. Blockbuster, I think there’s one Blockbuster still in business in Bend, Oregon. Right? But if you and I were having this conversation 13, 14 years ago and I told you Blockbuster would be completely out of business in 2019, you’d have told me I was crazy. But that happened. It wasn’t that Blockbuster didn’t have a lot of really smart people and did a lot of really smart things, but A, they didn’t pay enough attention, or enough people didn’t pay enough attention or pay enough respect to how the consumer was evolving and how they wanted to make choices, and they also didn’t pay attention or give enough respect to the new competitors in the market. “They can’t do what we do,” and that type of thing.

They’re completely out of business. That’s mind-blowing when you think about how big they were and how many smart people that they had, and they did a lot of things right. But it doesn’t take that many bad decisions, or that much not paying attention or giving enough respect to your competitors to let it bite you in the rear, so to speak.

So think about today. You’ve got CVS, right? What is CVS, there are 9000 CVS locations, most of them in the United States. There are 1100 plus MinuteClinic locations. They’re starting to offer other types of services. Obviously Aetna, with the affiliation there. You know, I mean there’s all kinds of innovation that can come from that, and they’re in every neighborhood in the United States. They can be the ones. They’re not there yet, but they could absolutely be the ones that have the ongoing conversation with the people in their trade areas and develop cradle to grave type relationships with those types of people across a variety of different healthcare services and wellness.

That is pretty interesting but should be pretty scary to a lot of traditional players in the space. But what is CVS but a retailer who understands consumers? All of these things are sort of blending together into this world, and so I was glad to see ICSC jump on that. So sorry if I’m talking too long about that, but that’s just near and dear to my heart and I’ve just seen that evolution over the last few years.

Andrew Dick: No, I appreciate the conversation, Bill, and in fact, the one reason I wanted you to talk about ICSC is that I know that Buxton has had a presence within the organization for some time, and that’s really where some of Buxton’s roots started, in the retail space. I also enjoyed our conversation offline about CVS and Walgreens and what those organizations are doing, because they have a powerful footprint. They have a network that’s hard to compete with, and I know they’ve partnered with some of the local healthcare providers to staff their clinics, but you’re right in that CVS and Walgreens are looking to expand healthcare operations and local healthcare providers should be watching what they’re doing, and be concerned in some cases because of the network that they have.

Bill Stinneford: Yeah, you know, and … Yeah, sorry, Andrew. I was just going to say real quick on that, but there are strategies to take if you are those systems to make sure that you don’t get swallowed up by that. You know, but it is taking a neighborhood by neighborhood approach and not a one size fits all approach to your marketing or to the services that you offer. It’s really catering your offerings in each of the neighborhoods that you serve to the population of that neighborhood and their needs and their desires and the services that they may need, and how to educate that population to have better outcomes over time, and think, you know, there’s no one size fits all approach to that.

The way that you achieve those localized, local store marketing if you will, neighborhood customization of your offerings, is to use data and analytics and understand people as consumers, not just demographics in those neighborhoods and understand their behaviors and their attitudes and how often do they exercise or not exercise, how are they eating, poorly or well? How are they aging? What are the different types of things? You could have two houses that demographically are the same, but how they live their lives, how active one is versus another, you know, one could be 65 and hikes three times a week and eats well and is always very active, and the other living right across the street that’s 65 that has the same net worth is a couch potato. You know, one guy needs an orthopedic surgeon, the other guy needs a cardiologist.

If I’m just looking at them demographically, I’m not going to be able to tell the difference, so implementing consumer-level data, understanding people’s attitudes and behaviors in combination with other things, can help people forecast what will be needed and how to change outcomes not on a market level basis, but on a location by location or a trade area by trade area basis. Not every CVS trade area is the same, but they’re using data and analytics to optimize their offerings and their messaging in those local communities to be as successful as possible, and that is possible for healthcare companies outside of those big guys, but you’ve got to implement some of the things we’ve been talking about today.

Andrew Dick: Great point, and I enjoyed that part of our discussion. Bill, switching gears, I know that Buxton recently developed a strategic relationship with CoStar, which is a huge player in the real estate space. What does that strategic relationship look like, and how will it benefit your clients?

Bill Stinneford: Yeah, we’re really excited about the relationship. It is a game-changer in real estate investment. For those that don’t know, CoStar is a very large data and research and analytics company in their own right, and publicly traded and they have amazing information on real estate. What’s available in the markets for sale, for lease, of what type of real estate, what are the asking rents, what’s the asks price for land, what are things being leased for around it, what’s the tenant mix, who are the tenants in particular facilities? It’s just, I’m not even doing it justice, the vast amounts of wonderful data market comps. The vast amount of data and research that goes into their offering. So for the first time, what we’re able to do is combine our two offerings in one platform for the benefit of our clients.

If you think about some of the things we talked about earlier, the output of a healthcare system comes to us and says, “Hey, we want to really grow primary care, urgent care, orthopedics and cardiology in an outpatient setting.” We would build those forecasting models based on combining their data with our data and methodologies and then forecast: here’s how many locations you’re going to have for each of those service lines in the market and here’s where they layout. The best analytical intersections for you. You now have that inventory of top potential locations that meet all the criteria that your successful locations already have for those services. Well now with CoStar, the one thing we weren’t able to provide was: okay, that’s great. These are the best analytical intersections for me. Is there anything available that meets my ideal location both in terms of size and quality but also economics.

Now, they can actually turn on the Buxton recommended potential traders. You can turn on then CoStar and say, “Okay. What’s available that meets my economic criteria, my size criteria, my use criteria, that fall within those recommended trade areas?” So actually see all of that in one platform, see who to contact there or who to put your people in contact with to get these very precious sites in the most ideal trade areas as quickly as possible without having to wait on brokers or other things that may take a while, or only see some of the sites that may be available. This gives you access to all of the sites with all of the information that you have to get to sites … Again, we’re talking about a very competitive market. To get to those sites in the best-recommended trade areas analytically faster than your competition, it is really a game-changer in our world.

Andrew Dick: So Bill, when we were talking offline it sounds like your clients could also use this, the CoStar feature as well, to the extent that they were looking at a leasing arrangement with a referral source and the Stark law or the anti-kickback law may apply. You could quickly pull comps from that area and make an educated decision based on what is fair market value in that area. Is that right?

Bill Stinneford: That’s exactly right. I mean, CoStar does a tremendous job pulling that data in every market across the United States at regular intervals so that it’s clearly available on the platform. So you have to utilize data to prove that you are asking fair market value for real estate. You can easily pull that report in a few seconds and so it’s just tremendously valuable, yes, for Stark law compliance and anti-kickback.

Andrew Dick: Right. Bill, as we wrap up, I want to ask you just a couple of questions. Over the next five years, how do you think the Buxton business model will change?

Bill Stinneford: It’s interesting. Over 25 years, our business model, what we do has not really changed, which is combining our clients’ data with our data and methodologies and technologies to produce answers, right? We love data. We’ll always love data. We spend millions of dollars a year on data to help answer a lot of these questions, but data in and of itself is worthless. There’s a lot of people that are data-rich and insight poor, to use the cliché. But what we really bring to the table and have always brought to the table is the ability to find the patterns in the chaos. To know what to do with all of that data combined, and experience to create answers. These are the things that you need to be successful and here are all the places that you do not that have it. Here are all the places that you are that don’t have it anymore. Right? Whatever that ends up being.

Now, where we’ve changed and evolved and grown is how our clients interact with those answers. So we talked about our technology platform that enables our clients to push buttons easily and get the answers that they need to make these decisions, so I think you’ll continue to see our technology evolve. You’re seeing all kinds of things with artificial intelligence and machine learning. Those are buzzwords out there, and we certainly implement those things into our solutions, but you always have to question with that, when you hear those sexy buzzwords, you still need a lot of sample set. A lot of data points, to be able to come up with valuable insights in that. But we’re experimenting with that. Data visualization, mobile data to be able to follow people’s traffic patterns and shopping behaviors. There are all kinds of interesting technologies and new data sources that we’ll continue to investigate and implement and develop ourselves to continue to make our answers better and the way in which our clients interact with them better.

But, you know, the fundamental question of what Buxton does, helping people understand who their consumers are and where’s everybody else that looks just like them that aren’t utilizing them right now, and where are the best places to invest their dollars for real estate, that’s always going to be who we are. In healthcare, that will only continue to grow. I think you’re continuing to see the advancement and the acceptance of these types of strategies and the need to understand people, patients as consumers. The need to think about things not purely as retail but more like retail than they have in the past. So I think you’ll continue to see us invest heavily in our healthcare vertical, in data technology and people to continue to produce the best solutions for our clients to help them navigate a very competitive and evolving time.

Andrew Dick: Great. Bill, where can our audience learn more about you and Buxton’s healthcare practice?

Bill Stinneford: Yeah, you know, the best place, we have a lot of great content, is to go to our website. That’s just You can contact me directly as well. It’s Bill Stinneford and my email is Or you go to our leadership page and you’ll see our leadership and our email addresses on the website as well, but there’s a healthcare section on there. Lots of great content and videos, and for people at any stage to learn more about the things that we’re talking about today and why they’re so important.

Andrew Dick: Bill, thanks for joining the podcast. I really enjoyed our discussion. Thanks to our audience for listening as well, on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. If you have any ideas for future topics or guests, please reach out to me. My email address is We also publish a newsletter called the Healthcare Real Estate Advisor. To be added to the list, please reach out to me at the same email address. Thank you!

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Creating HealCo, A Technology Platform to Manage Medical Office Timesharing with Kirat Kharode

Creating HealCo, a Technology Platform to Manage Medical Office Timesharing with Kirat Kharode

An interview with Kirat Kharode that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this interview, Andrew Dick interviews Kirat Kharode, Founder and CEO of Healtor. Healtor is a technology platform that is designed to create a marketplace for health care providers to better utilize timeshare space and to manage timeshare arrangements in a compliant manner.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Kirat Kharode

Founder and CEO of Healtor.

Andrew Dick:  Hello and welcome to the Health Care Real Estate Advisor Podcast. I’m Andrew Dick. I’m an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we are broadcasting from the Health Care Real Estate Legal Summit in Scottsdale, Arizona. My guest today is Kirat Kharode, the founder and CEO of Healtor. We’re going to talk about his career and how he ended up founding a tech startup company. Kirat, Thanks for joining me.

Kirat Kharode:  Thanks so much for having me, Andrew.

Andrew Dick: Before we jump into your business, talk a little bit about your background. You have a unique story to tell, and tell us a little bit about.

Kirat Kharode: Sure. I started my career in hospital administration. I went to a grad school at Johns Hopkins School of Public Health. Started my career at the VA hospital in Pittsburgh. I had the opportunity to work with the transplant program there and separate the transplant program to be the first independent in-house liver and kidney transplant program based out of a VA hospital in the country, and that was my administrative residency. Kind of opened my eyes to compliance world regulatory issues and fostered my interest in going to law school.

Kirat Kharode: But coming out of grad school I didn’t really have a whole lot of funds, didn’t want to pay for law school. I was fortunate enough to find an opportunity where a health system, the University of Pennsylvania, paid for me to go to law school at night across town in Philadelphia while I was working at Penn.

Kirat Kharode: After that, I continued in hospital administration, did law school while I was working. Completed law school. Learned a lot about compliance. Regulatory health law was my particular focus, and it helped me understand a lot of the nuances as I was going through different business development and operations roles, to understand the complexities and also have intelligent conversations with the general counsel in the facility so that we could have some healthy discussions about what was appropriate and what wasn’t appropriate in the risk spectrum.

Kirat Kharode: I stayed in hospital administration for almost 20 years, working in all kinds of different organizations, both nonprofit, for profit publicly traded, for profit privately owned. It just opened me up to a gamut of sort of issues, both from a strategic perspective as well as an operation perspective that really kind of set the stage for the creation of Healtor.

Andrew Dick: You have this health care administration background. You have a law degree. At what point did you say, “Gosh, I want to start a technology company.” I mean, that’s a pretty big transition.

Kirat Kharode: Sure, sure. Well, you know, I think the theme throughout my career, regardless of the setting that I was in, was really focused on making convenient ambulatory care settings for patients. With the physician shortage that exists nationally, to me, it’s very important to foster that medical office ecosystem because I think the medical offices are really the unheralded hero to me in the whole health system. Everything that you do from the most complex of procedures to the very basic. The birth of a child doesn’t happen in a medical office, but certainly the first conversations do.

Kirat Kharode: The NRC actually just put out research that 80% of decisions that patients make are based on convenience of the provider location. To me, medical office locations was always extremely critical.

Kirat Kharode: As a hospital administrator, I feel today too, that there almost should be term limits on how long you stay in hospital administration before you’re forced to do something that really changes the world because, as an administrator you see all kinds of issues that you know that, hey, if somebody had a solution like this, this would solve a problem. I think that too often hospital executives stay in positions. They move from one facility to the other. They come up with these realizations, and it just kind of goes out the window.

Kirat Kharode: I really wanted to focus on this because I see it as an important issue, especially as we move to more of a value-based world. As more services are done outside of the hospital facility, I think it’s critical to have a technology where it makes it easier for doctors and hospitals to access and create timeshare spaces and places where patients want them to be.

Andrew Dick: Let’s stop there. Hospital administration, you find a pain point with how hospitals are managing, owning the real estate. When did the light bulb go on and you say, “Here’s a problem. I need to find a solution.” Talk a little bit about that. What was that moment like and talk about the pain point that you’re trying to solve for.

Kirat Kharode: Sure. To boil it down to just one or two might be a little difficult. I think there’s a whole … There’s a whole subset of problems that kind of compound the issue of medical office timesharing.

Kirat Kharode: First is just basically that right now, like 50 years ago, if a physician wanted to look for a medical office space in a new community, and they didn’t want to spend an inordinate amount for capital cost and leasing out the facility for 10 years, there’s really a few options that exist besides calling around to every building in town to try to find space.

Kirat Kharode: On the front end, there’s that problem that exists. On the back end is the bigger issue of whether hospitals are … When they enter arrangements with physicians if they remain compliant with stark and anti-kickback statutes.

Kirat Kharode: And both of those issues kind of came up in various points of my career a number of times as both we were trying to place physicians out into communities that we didn’t have a presence, hub and spoke type of strategy as well as issues where we have timeshares with physicians and we’re trying to manage it as best we can. But there’s just a whole host of compounding issues that take place and make it a little bit complicated to manage that process for both the administrators as well as the physicians, which leads to lapses in payments, and potentially down the road could lead to [inaudible 00:06:55].

Kirat Kharode: So, I can’t pinpoint a moment in time necessarily that I came to the realization. I think it was over the course of a few years that I realized that this was really something that needed to be addressed and was extremely important.

Andrew Dick: So, getting those specialist out in the community, trying to document those arrangements, trying to ensure that they’re fair market value, and you’re really focused on the timeshare space, is that correct?

Kirat Kharode: That’s correct. Yep.

Andrew Dick: And so, for our listeners, a timeshare space being a physician can go use some clinical space for a half a day, a day, a couple of days throughout the month, but there’s no longterm commitment. It’s just buying blocks of time. Is that what-

Kirat Kharode: That’s right. I mean if it’s a hospital leasing to the physician, there’s the commercial it has to be set in at dance in terms of the rate, and it has to be a year long in terms of the lease, depending on who the owners are and the relationships, those factors change a little bit have a different … They can lease it at different amounts of time than hospitals can when they have a referral arrangement with the physician.

Kirat Kharode: So, it’s certainly a very small amount of time, or it could be two, three days, but right now there’s no technology platform. If you wanted to buy a building, you could find that online. You could buy a medical office building. You could lease a 10,000 square foot space that’s completely shell and build it out yourself. You could find those opportunities. But if you wanted to look for a second generation space per se, one day a week or two days a week, that’s going to be really hard unless you’re picking up the phone and calling around at this point.

Andrew Dick: So, timeshare space is the area you’re working in, and you recognized really maybe two pain points. One is there’s not a way to connect landlord and tenant who wants to enter into these type of timeshare arrangements, at least not efficiently. And then there’s that compliance issue. Stark, kickback, if it’s two providers who want to enter into these arrangements. There’s often not a lot of money exchanging hands, but the risk is a quite great if they get it wrong.

Kirat Kharode: That’s correct.

Andrew Dick: Right? And you witnessed that as a hospital administrator, healthcare professional.

Kirat Kharode: That’s correct.

Andrew Dick: So, talk about Healtor and how does it solve for those problems?

Kirat Kharode: So, we essentially solve for six different issues, and those are pain points that we’ve learned through, not just my own experience, but countless conversations with hospital executives, medical office owners, physicians, and as we’ve developed the product, and we’re still very early stage, but as we’ve developed the product, we now have 70 customers around the country. We have three health systems in the pipeline as well for our compliance product. So, we’ve had the opportunity to talk with many executives, and I think it’s extremely important as we grow that we keep that alignment and discussions with the customer very close to what we’re trying to build.

Kirat Kharode: Those six pain points that we’ve encountered are a lack of accountability on who owns the timeshare. So, in a health system, there’s multiple different angles by which a timeshare becomes active. For example, business development may bring the doctor in. They court the doctor for a couple of years, then they hand off the arrangement to maybe a practice administrator who has a space that’s there for employee doctors. The actual leasing goes to the accounts receivable department and finance who’s tracking payments.

Kirat Kharode: There’s all these different hands kind of involved in that process, and when there’s a breakdown, there’s really few people that are accountable in terms of who’s actually responsible for that. So, that’s the first one.

Kirat Kharode: That triggers things like payment lapses, which is the second issue that we’ve heard quite a bit. So, physician either forgets to pay or now they’ve been there for a year, and Dr. Jones has decided that it’s time that he stopped paying because he’s doing a lot for the hospital, and as an administrator I’ve heard that quite a bit as well.

Kirat Kharode: The third is the lack of communication that exists between tenants and the physicians who are valuable parts of this ecosystem, and hospitals often look at medical offices as being an incubator to build a broader relationship with the doctor within the inpatient facility. And yet the lack of communication about the space issues that exist themselves, if something’s broken or not fixed, that could also ruin strategically the relationship with the doctor.

Kirat Kharode: The fourth one that we’ve heard quite a bit is a space creep. So, physician has space, and they decide they’re paying for two exam rooms. They decide that, yeah, take a third because nobody’s there. That’s obviously not okay either. We’ve also encountered a lot of organizational history gap that exists when there’s mergers and acquisitions and people who have an Excel spreadsheet somewhere are no longer a part of the organization, and now many hospitals are combining it to one and centralizing their real estate function and have no way to sort of track what’s going on in these new facilities that they’ve acquired.

Kirat Kharode: And then finally, it’s really the core issue of the front end piece, which is underutilized medical spaces not being optimized by the hospital. And often, employed medical groups that are affiliated with hospitals either through a captive PC or another arrangement often have specialists that they have out in the communities and they’re willing to take a loss on those employed specialists, but a big part of that overhead is where their offices are located. And when a physician is out during surgery or they’re rounding at the hospital, in days when those offices are not used, those lack of optimization creates overhead challenges for the medical group.

Andrew Dick: So, I’m hearing … You hit on a number of points that I’m very familiar with. One, the compliance issue but also the timeshare arrangements historically haven’t gotten the attention they deserve. The whole health system administrators will say, “Yeah, a couple of hundred dollars a month even if we don’t collect or we mess this up. It’s not a big deal.” When, in reality, is a very big deal.

Andrew Dick: And then, you’ve also talked about efficiency of timeshare spaces. So historically if a hospital has some timeshare space, you’re right, maybe they rent out a couple blocks of time throughout the month, and the rest it’s just sitting idle, right? Not generating any revenue, not helping further the health system’s mission, and that’s what you’re hitting on, right?

Kirat Kharode: Absolutely.

Andrew Dick: You’re hoping to make that space more efficient. And how do you do that?

Kirat Kharode: Right. So we have three basic products within our technology that we’re building right now. Healtor market is the front end piece of it and relates to onboarding. Healtor recon is our compliance engine. And the third piece is Healtor MD, and that’s more of our management function. Each of those plays a different role.

Kirat Kharode: The front end marketplace is like an Airbnb for medical offices if you will. And, as we’re building this … We’ve started … I wanted to point out we’ve started … As a non technology person, I’ve now surrounded myself with a lot of resources of really experienced technical people. But my goal from the beginning was really to be very basic and prove out the concept and really figure out our product market fit in terms of what we’re doing so that we’re not spending a whole lot of money and resources to build the technology that’s fancy and really doesn’t serve anybody’s purpose.

Kirat Kharode: So, what we’ve done is really create a basic front end splash website right now to prove out the concept around Healtor market. Right now we have 70 customers. We’ve already started generating revenue, which is really exciting. The Healtor … The recon piece of it, which is a compliance engine is where we’re working with health systems to figure out ways to take their best practices from across the country, and the health systems that we’re working with all have these pain points and so they’re really willing to work together in terms of building a product and improving our product from what I believe is the ideal to really what the customer believes is crucial in terms of making the compliance product effective.

Kirat Kharode: And the third piece of it, Healtor MD, is going to be further down in our technical development but really deals with how are we going to manage that space creep issue effectively and use technologies appropriately, whether it be machine learning, whether it be some sort of distributed ledger, a combination of those including IOT, things that we can use to basically take our technology and make it easier to manage the utilization of these spaces and do it in a compliant manner. So, those are the three basic areas that we’re, we’re working on.

Andrew Dick: So the marketplace idea is pretty interesting. So Airbnb gets a lot of attention, but this product will allow a physician, for example, to potentially find unused or available timeshare space. Is that the right way to look at it?

Kirat Kharode: Absolutely. So, available timeshare spaces and areas where they’re looking. We also give the control … I mean a lot of the control in that process is obviously with the physician that has a space, the landlord, so to speak. So, the physician landlord really has to make the decision about who they want to welcome into the space.

Kirat Kharode: And so, in these conversations that we’re having, and it depends on area. There’s some specialties that really aren’t welcome from a competitive perspective or from a perception perspective, and we honor those requests as we’re developing our protocol to make those arrangements.

Kirat Kharode: So, it’s not completely … It’s not exactly like Airbnb in that there are certain restrictions of who’s coming into the space that we allow, but we are creating that mechanisms to be able to bring physicians into communities and into spaces and blocks of times in these timesharing increments that they’re looking to come into.

Andrew Dick: What would that look like? You log … You get online, and you’d log into Healtor, and depending on what market you’re in, at some point, I know you’re company is relatively new, but as you grow out in certain areas around the country, someone could either list I guess or find available timeshare space. Is that right?

Kirat Kharode: Yeah. Ultimately that’s what’s going to happen. I suspect that this summer we’re going to be doing some private launches in particular regions of the country that we’ve already realized are pretty hot areas from the 70 customers that have signed up so far. And those are areas where we’re really going to fine tune the product itself and make sure that it’s delivering and the quality’s high before we kind of roll it out to five or six markets and so forth and so on.

Kirat Kharode: So, we’re really excited about some of the partnerships that we’re creating, some of the things that we’ll be announcing very soon about alignments we’ve made with really prominent members of the real estate community. Really a who’s who of BOMA [inaudible 00:18:25] if you will in terms of who’s helping us and is already on our board.

Kirat Kharode: And so we are envisioning a scenario where it’s an alignment both with brokers, with physician liaisons and hospital executives as well as the general marketing to the community of physicians at large that are looking for spaces and have spaces.

Andrew Dick: So let’s talk about the second component, the recon component, compliance. It’s a big deal in the timeshare world. What will the Healtor platform offer a healthcare provider in terms of compliance?

Kirat Kharode: Well, it’s really the management and the ability to account for, on a monthly basis, the transactions that are happening and any changes that might create a trigger. For example, if a physician stops paying in the middle of their lease, that sort of compliance alert and that chain of command at a very basic level will be a function that we’ll have a through the Healtor recon platform, but the compliance engine is being built to track those payments on a monthly basis.

Kirat Kharode: We’re also looking forward to building APIs with different data sources around the fair market value specifically so that if there are changes, so that these quote-unquote … Some of these in a discussion I was having the other day, there’s a physician who had a space, had a lease that was an evergreen for 20 year, and now they’re paying significantly and have for many years been paying significantly under fair market value. With Healtor recon that won’t be possible because we’d have caught that at the beginning. And I think that’s an important piece to highlight because in my experience and the experiences that I’ve heard from hospital executives, it’s one thing if you approach a physician who hasn’t paid a month in and say, “Hey doc, you’ve forgotten to pay. Something must’ve gone wrong with the setup.”

Kirat Kharode: It’s a very different conversation 18 months later when the person hasn’t been paid, and now they’ve incurred thousands of dollars in fees and penalties that they now owe the hospital, and they’ve also been bringing a ton of admissions, and they’re now the rock star of the hospital. And so, that immediate communication component is going to be a big part of recon as well.

Andrew Dick: Yeah. Because those noncompliant arrangements can really create tough conversations between providers and jeopardize those relationships.

Kirat Kharode: Right. And it’s also who … Going back to the point earlier about accountability. If there’s a clerk in finance who realizes that there’s been a non-payment, they might try to escalate it through the channels that they have, but they get buried with work. They’re trying to reach out to a business development person who, really what they’ve been spending two years trying to recruit those physicians. Do they really want to be shaking that person down now for a lack of payment along with kind of just the culture that often is created. As you pointed out earlier about, is $200 is really a big deal here and there? If you really think about the downstream revenue, which even though many hospitals don’t want to talk about really, that’s really what it’s all about is the downstream revenue that these physicians are bringing to the hospital, which is millions of dollars in some cases, and are they really going to irritate the physician about $200 here or there? It’s something that’s difficult to have when you don’t address it right away and proactively.

Andrew Dick: So, the way I envision this platform working almost like a … Not only do you have this Airbnb type component where you can shop for space or list space, you’ve got this compliance component that helps you manage the space. So, almost like a property management type platform. Is that a way to think about it?

Kirat Kharode: Yeah. In some ways it’s a bit of a property management platform, but really it addresses this particular pain point around timeshares and these arrangements that exist. So, we’re not trying to do everything to everyone. We’re really trying to address this … Property management, as you know Andrew, is such a wide span, a spectrum of things that get covered. And what we’re really trying to do is provide a specific value set around this pain point that everybody seems to have. And everybody seems to hate medical office timeshares, but the phrase that keeps coming up to me is necessary evil. Medical office timeshares are something that every hospital needs. Ever hospital wants to have, but it’s just a pain to manage. And that’s really the specific property management issue that we’re trying to tackle.

Andrew Dick: So, the third benefit, which sounds like will be developed maybe a little bit later on, this Healtor MD, that will help you manage the space. Give us a little bit more information about what that might do when you build that out.

Kirat Kharode: Yeah. I think that with Healtor MD, there certainly is going to be an integration beyond just the online technology but into more of a hardware integration. So for example, the monitoring of the spaces itself, and for the folks that really are … The health systems that really are on the Uber end of being compliant. these are the folks that we’re talking to about, what can we do about space to (a), from the get-go, create a 3D visual of the space, of what it looks like, what it looks like today, what’s in there, having a potentially [inaudible 00:23:54] some of the equipment that’s in there, looking at the activation and the doors as a key component of who’s entering the space, when they entered, how long they were there and tracking that utilization.

Kirat Kharode: And it also ultimately, if things go according to plan, will also be an automatic indicator that would prompt us to alert the medical office owner that they have under utilized space. If they have blocks and weeks and weeks ago by without a room or two rooms or a part of the space or all the space not being utilized on a particular day of the week. And so then it basically will fuel the Healtor market and get us more activity on that end too.

Kirat Kharode: So, Healtor MD is really going to be one of the things that we will build out over time once we really have the first two components built out. But I’m really excited about it. I think there’s a lot of the application that will come, and depending on the needs of our customers, we’ll adapt and we’ll speed up the development timeline to address those needs sooner rather than later if we have to.

Andrew Dick: Well this is fascinating. I think there is definitely a need for a product like this. Talk about you founded the company not so long ago have made quite a bit of progress in a short amount of time. Talk about that from the point when you founded the company. How long ago was that?

Kirat Kharode: Yeah, so we started the company in January of this year, so not too long ago. I’ve obviously been thinking about it a lot longer than that, but we became a C-Corp in January and started at that point, but since that time, we have, even though we’re a small team, a set of developers, there’s a few people that are helping me out. We have annual goals, and we have a quarterly goals that we track weekly in terms of the progress. And in the first six months, one of the things I really wanted to do is make relationships with the industry. There’s a lot of stuff, even having done this for almost 20 years, there’s a lot of things that I don’t know, and I’m learning things every day. And so really getting closer to the customers, whether they be the physicians, the hospital executives, the property management companies, the brokers, and really understanding what these pain points were from a macro perspective so that I’m that making assumptions about what the product should be or should ultimately look like.

Kirat Kharode:  And so, I’ve really been thrilled. I’ve met a ton of people. I’ve had hundreds of conversations about medical office timeshares. I joke around. I’m like the Bubba Gump shrimp guy for medical office timeshares because I’m always going around talking about medical office timeshares. But it’s really been fascinating, and everyone has a different perspective, and everyone … The common sentiment is that these are pain to deal with, but if we have a solution that comes in and can fix this, it’d be extremely valuable to a lot of people.

Kirat Kharode: And one of the very interesting things … I was so focused on the United States, and last week I was contacted by one person in Canada and one person from Australia. And so, as we are looking at our addressable market, it’s a lot larger than I initially expected this would be.

Kirat Kharode: So, I think there’s a lot of applications that we are probably not even thinking about when we look at the global market just yet. But we have to walk before we can run, and that’s exactly what we’re doing right now.

Kirat Kharode: So, the first six months have been really busy and active, and we value the key KPIs around revenue as being our North star in terms of how we’re developing the company and what metrics we’re looking at to grow. And so, we wanted to get to having revenue, ideally even before the technology was completely rolled out, which I’m thrilled that we’ve done. The traction from having customers join as quickly as they’ve been joining and the health system’s interests and just the tremendous amount of interest and activity as will be reflected in our announcement of our advisory board very soon, which really reflects a whole a spectrum of thought leaders in the healthcare real estate world.

Andrew Dick: So as we wrap up here, talk a little bit about your vision over the next five years and what does Healtor look like five years from now?

Kirat Kharode: Yeah, I think five years from now, five to seven years from now, there’s going to be … Ideally it’ll be …. In the medical office world, It’ll be a household name, if you will. Everyone will know that this is the gold standard to turn to as it relates to medical office marketplace and compliance.

Kirat Kharode: Marketplaces aren’t easy to develop. There’s just so many different factors in there, and there’s a lot of things that could trip up our success, but I think if we stay grounded and we really stay close to what the customers need and really keep fine tuning the product market fit, then I think that we’ll get to a place, in five years, where it’s very possible that we are, not only in medical office a household name for medical offices in the United States, but around the world.

Andrew Dick: How can our listeners find you and Healtor if they’re interested in the product?

Kirat Kharode: Sure. I think the easiest way is probably just email me. My email is Kirat, Please feel free to email me and share your thoughts, or any questions I can answer, I’m happy to do that.

Andrew Dick: And so if providers want to try the product out or be involved developing the product, they can just reach out to you.

Kirat Kharode: Absolutely, yep. Right now we have a very basic splash website right now where we’re lead-generating through a contact form, and I’m having discussions even through our chat rooms sometimes where I’ll take the helm and be answering chat questions from folks who interact through our website, and the questions range in spectrum from compliance issues to what they’re actually looking for in terms of space.

Kirat Kharode: And so, if they want to reach out to me they can certainly reach out through our website, We have a contact form on there. Again, it’s a very basic site, but it’s up and running, and my email would be the best way.

Andrew Dick: Terrific.

Andrew Dick: Kirat, thanks so much for being on the podcast. I want to thank our audience for listening as well. 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, Andrew Dick at


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Creating a Brokerage Firm Exclusively for Health Care Providers with Colin Carr

Creating a Brokerage Firm Exclusively for Health Care Providers with Colin Carr

An interview with Colin Carr from the Carr Healthcare Realty: In this episode, Andrew Dick interviews Colin Carr, the founder and CEO of Carr Healthcare Realty. Carr Healthcare Realty provides real estate brokerage services to health care providers.

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities.

Colin Carr

Colin Carr is the founder and Chief Executive Officer of CARR, and invests his time and expertise into the professional lives of his staff and agents, systems and processes, and ultimately the representation of the thousands of clients that CARR has the privilege to represent on an annual basis. Colin has been involved in commercial real estate since 2000 and has personally completed over 1,000 transactions. He is a licensed real estate broker in ten states. 

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. Please remember the views expressed in this podcast are those of the participants only, and do not constitute legal advice. Today, we will be talking with Colin Carr. He is the CEO and Founder of Carr Healthcare Realty. Carr Healthcare Realty is one of the largest brokerage firms dedicated to representing healthcare providers when leasing space or buying buildings for their business. Colin, before we jump into your business, talk a bit about yourself, where you’re from, and how you ended up where you’re at today?

Colin Carr: Absolutely. First of all, I appreciate having the chance to talk with you and excited to share. I grew up in northern Michigan, upper Lower Peninsula, a little resort town called Charlevoix. It’s in the Traverse City area. Lived there until I was 18. Moved to East Lansing when I was 18, and I jumped into the workforce right away. I was considering going to Michigan State or another university, and I got fascinated with business. Specifically, I got fascinated with real estate and I jumped right in. I started managing apartment complexes when I was 19 years old, and met a gentleman that owned about 13 different complexes in the Greater Lansing area. I started working for him, just apprenticing with him, and was fascinated with real estate. I worked for him for just under two years, and moved to Colorado when I was 20. Picked up managing apartments again in Colorado. I met another individual investor that I started doing a bunch of work for. Did that for several years, and then I got my broker’s license when I was 23. That’s what got me into actually brokering commercial transactions.

Andrew Dick: So, were you out on your own or were you at a national firm at that point?

Colin Carr: I started at a boutique firm when I first got my license. The firm that I worked with was just basically two other people. Their focus was exclusively retail. It was for large national retailers. Wendy’s, Walmart, Blockbuster, large, notable retail tenants. Worked for him for a couple of years, got a great experience, great opportunity to understand the market, but I had a desire soon into commercial real estate to also work on office and industrial transactions. I made a switch at that point to a large, national firm that had an office and industrial focus.

Andrew Dick: Okay. You work at the national firm for a while. What type of transaction are you working on there? Office, industrial, representing landlords and tenants?

Colin Carr: Yeah. At the first shop, it was almost exclusively retail, landlord and tenant side. During that time, I also started just getting really proactive with cold calling. As a young broker, you can wait for the business to come in, you can put your sign in front of a building and wait for the phone to ring, or you can go out there and try to find deals. I got proactive early on and I literally started cold calling every day. I got excited about doing office and industrial transactions, and so when I switched to the large firm, I had a focus on industrial primarily. That expanded into office, it eventually expanded into medical office as well. I got a taste of some land, some investment realty as well. Within a couple years, i had pretty good exposure within a fairly broad segment of real estate.

Andrew Dick: When we talked before, Colin, you told me a scenario where, when you were at the larger firm, you’re working with landlords and negotiating, for example, with I think it was a plastic surgeon. You quickly learned that when tenants aren’t represented, specifically physicians or other healthcare providers, they tend to get taken advantage of. Talk a bit about that scenario?

Colin Carr: Absolutely. When you first get involved in commercial real estate, at least for me, if a deal moved I would chase it. I would go after anything I possibly could. I was going after any aspect of commercial real estate. After about five or six years, I settled in to where I was more focused on my business model, and I got more focused on healthcare. At the time, I was doing a lot of landlord work for owners of medical office buildings, and also several as well, that own medical office buildings. I was also doing a lot of tenant-buyer work, as well. I found myself in a considerable number of transactions where I was working for the landlord, and the tenant did not have any representation, and I found out real quickly how exposed those tenants were. I also had times where I was the agent of the tenant and they wanted to go look at properties where I also represented the landlord, and I found myself involved in a conflict of interest in a number of transactions.

Colin Carr: To your point, I had one transaction specifically where I was working for, it was one of the largest medical REITs in the country. They had two really nice office buildings in one of Denver’s top suburbs. We were approaching a renewal for a plastic surgeon. The last couple deals we had done in the building were around the $24 per square foot range, and the asset manager out of Scottsdale asked me if the plastic surgeon had a broker. My response was no. He asked me if he knew the market. My response was no. Then he asked me, “Do you think the tenant’s willing to move?” My response was no. His response was, “Let’s go back to him at $29 a square foot.”  My thought was that seems like a pretty steep increase. I get the idea of making the most of every opportunity, but my thoughts were that was a little over the top. My next questions were, are we going to give him any free rent? “Did he ask for any?” No. “Then, the answer is no.” Are we going give him a tenant allowance? “Did he ask for it?” No. “Okay, the answer is no.” So, I was looking at the transaction we had done a few weeks ago with an ENT who was represented at $24 a square foot, with a $40 per square foot tenant improvement allowance, with several months of free rent. Then, I looked at this transaction where the plastic surgeon had no representation, and it was a proposed lease for $29 a square foot, with no TI, no free rent. There was other concepts there, as far as not, and other aspects where the deal was going to be extremely unfavorable for that tenant. When I pushed back against the asset manager a bit … Again, I was working for him, but it just still felt a little egregious, his response was, “Get it done.” He just hung up the phone. I just had a wake up moment there where I realized, look, it’s great to make as much money as you possibly can on a transaction, but it would be a lot more fair if that tenant had representation that could protect them. It would hopefully, at that point, be a more fairly negotiated opportunity for both sides.

Colin Carr: I had a couple transactions similar to that where I realized that the tenants were substantially exposed and they were very intelligent people, they were good clinically, they were good medically. I think that most of them, their intentions were good, but they were outmatched very quickly going up against large, sophisticated landlords and listing brokers that knew what they were doing, and they didn’t have a clue what they were doing. Yeah, long story short, over a couple month period of time I watched a handful of tenants get taken advantage of, in my personal opinion, or … let me say this. Negotiate very unfavorable terms, or just get stuck with the terms because they didn’t know how to negotiate. I made a decision at that time to create a business model that was focused exclusively on representing tenants and buyers in the healthcare space. We launched that in February 2009.

Andrew Dick: Which is pretty unique. That model is, unlike some of the other national firms that are chasing the landlords, the REITs. You recognize that, one, you wanted to only be on the tenant side, or the buyer side, and focus on healthcare. There’s also something else you and I have talked about, which is the fact that your team is willing to work really hard for physicians, and dentists, and veterinarians who maybe aren’t going to lease 10 thousand square feet, they’re going to do smaller deals. That’s really in your sweet spot, right Colin?

Colin Carr:It is, yeah. Again, a lot of commercial brokers want to chase big listings, or if they are on the tenant or buyer side, they want the larger deals. That’s just a focus and specific style of doing business. Our model was, if it’s healthcare, we want to do it. The vast majority of healthcare transactions that happen are in the several thousand square foot range. We’ll go down to 1500 square foot chiropractors or endodontists, but our sweet spot is the two to five thousand square foot range. Out of that comes a lot of additional transactions, and we’re doing large deals. We do 20, 40, 50 thousand square foot deals on a regular basis now, but we treat the 2000 square foot tenant the same way that most brokers would treat a 40 thousand square foot tenant. Because of that, that’s opened up a lot of opportunities for us.

Andrew Dick: So, at what point did you decide to go out on your own? When was that, when did you form Carr Healthcare Realty?

Colin Carr: So, over a handful of months I realized that the tenants and buyers in healthcare were not getting the focus and attention they deserved. Again, there was a large focus on the landlord side of healthcare, there was a large focus on the large institutional or large group practices, but there was virtually no focus whatsoever on the smaller, individual users. Over about a six month period of time I put together a business model. I approached the group that I was working with at the time, laid out what I believed was a viable business model, and their response was they didn’t think it had the same merit that I did. They recommended that I go start my own company. So, I did just that. That was February 2009. Within a couple months, we added our first person, within a couple months after that we added our next person. We grew to a handful of brokers in Colorado. We did that for the first five years. Handful of brokers in Colorado. We did that for the first five years, just kept just building our platform, getting more comfortable with the transactions, getting more experience, figuring out better ways to help our clients. And then after about five years of doing hundreds of transactions throughout Colorado, we decided to expand outside of Colorado and go national.

Andrew Dick: And so today, about how many brokers or agents do you have, and how many offices?

Colin Carr: So we are licensed in just under 40 states now, and we have a agents and brokers in about 35 of them. And so we have just under 100 people total right now, coast to coast.

Andrew Dick: And what type of clients are you working with? So we’ve talked about physicians, dentist … But there’s a long list of health care providers, right, that you’re working with?

Colin Carr: Absolutely. So we do dental, medical, veterinary, optometry, vision, physical therapy, chiropractic … We also do a lot of senior housing as well, and so really anything that’s healthcare-related. We’ll do fitness facilities. We’ll do health and wellness centers, med spas, but our bread and butter are the medical, dental, veterinary, vision concepts. And if it’s health or wellness related, though, we’re happy to help, and like having those opportunities.

Andrew Dick: So, Collin, when we’ve talked before, you said, “Look, we’re typically representing buyers and tenants.” What happens if one of your clients says, “I’ve got a building, Collin. I want to sell. Will you list the property?”

Colin Carr: Absolutely. It happens a lot because we specialize in finding facilities that meet our clients’ needs. And sometimes those are individual buildings. Other times those are multi-tenant or investment properties that our clients purchase. So we help our clients buy buildings. Often times we’ll help them … We’ll bring other tenants to the building as well too. But we don’t do any landlord or seller work. So if a client has a vacant space and they want it leased, we’ll refer a listing broker to them. If they have a building, they want it sold, we’ll refer a broker to sell the property. And the idea there is, yes, we’re passing on some fees, but the importance is that we’re staying focused and staying true to our core values, which are no conflicts of interest. So we refer a listing broker who comes in and sells the property or sells the asset, or finds a tenant for the space.

Andrew Dick: Talk about, for maybe health care providers that aren’t in the real estate world like we are, who’s typically going to pay your fee?

Colin Carr: So commercial real estate is very similar to residential real estate, in that the landlord or seller is paying the commission. Landlords and sellers set aside a portion of the commission, both for their agent on the listing side, but also on the tenant or buyer side to attract quality tenants. And so just like if you’re buying a house, the seller of the house typically has a commission set aside for the buyer’s agent. It’s the same in commercial real estate.

Andrew Dick: Okay. Talk a little bit about the growth of the company. How do you explain it? It’s pretty remarkable within a short period of time that you have offices across the country. You have nearly 100 employees. What do you think has been the secret sauce there?

Colin Carr: There’s a couple things. One, just our business model. Our business model is predicated upon we help people that help people. Our focus is trying to help healthcare providers and physicians to find the best locations, and negotiate terms and economics that are equitable and fair to them. We’re not interested in trying to take out landlords. It’s not adversarial against landlords. It’s just trying to protect the doctors. Unfortunately, commercial real estate, it’s a market lease rate’s the most that someone’s willing to pay. And so when it comes to a healthcare provider that’s not educated in the commercial real estate market, that’s probably not prone to, or would not welcome, the conflict and confrontation that’s inherent in a high dollar negotiation, they typically get taken advantage of and get folded in a negotiation very easily. And so our business model is predicated on protecting them, helping them find the best locations, helping them understand the market, helping them understand how the process works, and then ultimately saving them a substantial amount of time and money, and then also providing them a very tangible peace of mind, knowing they didn’t get taken advantage of, knowing they didn’t miss a good opportunity in the market, and that their location is where they’re supposed to be. And so that model or that idea resonates with a lot of people that have joined us, feeling that they’re actually having an impact and an influence on the clients that they’re working with. So I would say just the overall model, our overall business plan of helping healthcare providers maximize their profitability through real estate, that’s exciting. But I think most importantly, as far as how we’ve had the growth, is from our culture: how we treat our staff and our employees, how we treat our brokers, what our focus is. We’ve created an environment and a culture that is very, very healthy. It’s counterintuitive rom how a lot of companies run, and it’s a breath of fresh air for the majority of the people that are here.

Andrew Dick: Talk about that briefly. You said that your brokers and agents only work certain hours, and you try to preserve the time with family and friends. Talk just a little bit about that.

Colin Carr: Absolutely. So we have a set of core values that are very important to us that we don’t stray from whatsoever. And it starts with just an atmosphere of integrity, and just creating an atmosphere in our culture where people know who people are. You don’t have a work person, and then a family person, and then a friend person. It’s the same people everywhere you go. So people operate with integrity. People operate with a spirit of excellence. We’re not trying to push people to get out of balance with lifestyle, with family. We’re all about working hard, but we have a very specific life/work balance. And we encourage our team and our staff, “Don’t work the evenings. Don’t work the weekends. Work it hard during the day, but you’ve got to preserve that time with your family.” And so certainly there’s times when you get pushed to go back and do some extra hours here and there. But overall, we encourage our team to rest, to take vacations, to enjoy the time. And we work really hard, but just like a professional athlete, they work really hard when they work, but you have to rest. You can’t lift weights seven days a week. You can’t play a season that lasts the entire year. You’ve got to work hard when you work hard, and then you’ve got to rest intentionally. And the more rested you are, the harder you come back and work. And so we protect our team’s time. We don’t have a lot of bureaucracy and red tape like a lot of large companies do. And there’s a spirit of integrity, and there’s a culture where people trust the people that are here. They trust the people that are making decisions that they’re trying to build a company in an environment that’s as healthy as possible. And we’re also not building something because we have to pay out shareholders, or we have to meet Wall Street demands. And we’re also not building something so we can sell it real quickly. And there’s a lot of companies right now that have a good idea, or they have a good product or service, but in the spirit of trying to build something quickly to sell it, or trying to satisfy outside investors or Wall Street, they don’t put their people first. They put the profits first. And so we run a company that’s very intentional and with a very intentional culture. And it’s certainly not going to be a fit for everyone, but it’s been attractive to a lot of people that are with us.

Andrew Dick: Well, talk a little bit about the typical agent or broker profile. When we’ve talked before, it’s not as if some of these folks are bouncing from a national brokerage firm to Carr. That may happen, but these folks are often … This is their first foray into real estate. Talk about that.

Colin Carr: Absolutely. So our model’s unique. I’d never seen anyone doing what we’re doing right now. We’re the only commercial real estate firm that has a national presence that has a focus of tenants and buyers only in the healthcare space. So with that unique idea also came a unique approach to how we would build a team. And there’s great brokers at a lot of different firms. We decided to take a different route, which was not trying to find brokers and convince them to leave one firm and come to our firm. Our model instead was, “Let’s find people that have been very successful in other areas of business or other areas of life, and then let’s teach them a very specific way of doing commercial real estate. And then let’s show them how to be focused in healthcare. And so we have intentionally … We have a handful of people that used to be with commercial real estate firms, that you probably could count them all on one hand, but 95% of the people that are here have been successful in other areas. We have former CPAs, former teachers, former attorneys. We have people that have been in other sales roles, other advisor or service roles. We have a handful of people that have owned companies, and we’ve had people that have owned technology companies, healthcare related companies, construction companies.

Colin Carr: We’ve found people that have been successful in other areas of life that are good people, that have a tremendous work ethic, that are very intelligent, that are very savvy and street smart. And then we’ve given them the platform of how to be really good at commercial real estate and how to be really good at healthcare. And then we’ve built a platform where we have several people on staff that all they do is train, and support, and advise. And that’s incredibly unique. I don’t know of any commercial real estate firm in the country that has several people on staff full-time that all they do is answer questions. And so even if we open a new market, no matter what market we’re in or how long that person has been with us, they’re partnering with a senior broker or a managing broker that’s overseeing every transaction that’s involved in every aspect of the deal, who’s been involved in hundreds and hundreds of healthcare transactions. In every aspect of the deal who’s been involved in hundreds and hundreds of healthcare transactions. And so we have a platform and a training system that’s unprecedented that I’ve never seen in any form of commercial real estate.

Andrew Dick: So it’s interesting when we’ve talked before, you said one of the reasons you like starting with someone who hasn’t worked in the commercial real estate industry is because it’s a clean slate.

Colin Carr: Absolutely.

Andrew Dick: You can train them with your values and with your best practices. Talk just a little bit about that.

Colin Carr: Absolutely. Well, as in any industry, there’s really good, and there’s bad examples. There’s great attorneys and there’s bad attorneys. There’s really good real estate brokers and there’s really bad real estate brokers. Real estate’s no exception to that. So we had a desire not to have to undo habits, whether they’re good habits or bad habits. But the reality is the vast majority of commercial real estate brokers are landlord or seller focused. I’ve seen stats that are as low as less than 1% of commercial real estate brokers only do the tenant or buyer side exclusively. I mean that’s extremely niche. So and then to go inside that even further and say, I’m only going to be on the healthcare side of that as well. So only tenant buyers is already a niche. And then getting inside just the healthcare, I mean that’s pretty rare. So we just had the desire to start from scratch and not have to undo the landlord approach or the seller approach. And again, I mean we respect landlords, we respect sellers, but we’re not looking for the next listing. We’re not using the tenants as a chance to set up a lunch with the landlord as soon as that deal is done and ask them if they’re happy with their broker, if they have any other assets that we could list or that we could manage or that we could sell. So our focus is helping our clients get the best terms possible, protecting them. And there’s some conflict that’s inherent with the high dollar negotiation. If your focus as a broker is, I want the landlord to like me so that in the future I have a shot at listing their property or their portfolio, you’re probably not going to get your tenant the best terms possible, you’re probably going to go a little softer or you’re going to compromise a negotiation. And so our model is built on respect. It’s built on trust, it’s built on being an expert. But our focus is helping our clients and protecting them. So not having to retrain that with the broker or have them fall back on getting listings, we just wanted a clean slate to paint from, and it’s worked really well for us.

Andrew Dick: So Collin, now that you’re the CEO of a pretty large operation, how has your role changed? I mean not too long ago you were out chasing deals yourself. You may still do that from time to time, but how has your role changed? What are you doing with your time?

Colin Carr: So first of all, people ask me all the time, are you glad not to be doing deals? And my answer’s no. I love doing deals. I’ve done over a thousand transactions personally, closed transactions, which means I’ve been involved in literally several thousand negotiations. I love doing deals. I love working for clients. I never got tired of it. And I think that’s a testament to why we’ve been successful as well, as us going national or us or me personally having a shift in my day to day wasn’t because we were burned out or because we were looking for the next thing. It was because we loved what we did and we love what we do. So I still help with transactions. I might talk to, I talk to brokers all the time. I’m touching dozens of deals all the time with our team. But the majority of my time is spent training our brokers and training our team, and in growing our brand. I’ve worked with a lot of large groups on a national basis. I do a lot of marketing, I do a lot of brand identification and that I’ve gotten a very healthy education in all the aspects of the company that you would expect if you’re growing national.

Andrew Dick: So looking forward, what type of service lines or industries are you looking at to grow or exploring right now?

Colin Carr: First and foremost, we’re going to stay true to the healthcare tenant buyer only. We’re now in, we’ve got brokers in 35 states. We’re just in our infancy, believe it or not. I mean we can take that wider and deeper and continue to keep on getting better and more proficient in that area. So healthcare tenant buyer rep is going to remain our focus and we are going to keep growing that the best we possibly can. We are doing a lot of senior housing work right now and so we’re going to create a separate division that is just dedicated to the senior housing vertical. There’s a lot of specialization inside that as well with memory care, with skilled nursing facilities. And there’s a lot of things in there that are very specific that go beyond the type of transactions that we do for a physician or for a dentist.

Colin Carr: And so that’s going to be a separate division for us. And then we also are creating another division that is going to be similar to the tenant buyer in healthcare, but it’ll be tenant buyer in commercial. So it’ll be the same focus of, a lot of smaller spaces. 2,000, 5,000, 8,000 square foot spaces for corporations, for commercial professionals. CPAs, attorneys, financial advisors, architects, engineers. And we’re already doing a lot of those transactions. We go and we represent a dentist and she’ll say, “My husband owns an engineering firm, would you help him with his office?” Or we go and do a veterinarian deal and they say, “My wife’s an architect, can you help her with her office?” And so we’re doing a lot of those transactions right now for the same reason, which is, people appreciate the idea of having someone protect their interest beyond their side. And they realize there’s a lot on the line with a commercial real estate negotiation. And when they recognize that someone’s out there that would specialize just on their side of the transaction and help protect them, that’s very desirable for them.

Andrew Dick: So last question. Looking forward, where do you see the company in five years? Are you going to be 200 agents and brokers? 300? I know I’m putting you on the spot.

Colin Carr: Yeah, I think, I mean we’re almost north of 100 right now and will be very soon. We’re very intentional with how we’re growing it. We’re not just trying to add people. If we want to add people, we could literally be at 500 right now. I mean, we’re trying to manage the growth. We’re trying to find the right people. We want people that want to be here for 20 years. And so we’re very intentional with how we hire, with how we train. But yeah, the short answer is I think we’ll probably have, 250, 300 agents. I think we’ll have three or four divisions that we’re focused on. And again, just the commitment and desire to help protect our clients, help them maximize every transaction, help save them dozens of hours of their valuable time. We’re not growing just to grow. I’ve said this for a long time. People say, “Are you growing this to sell it? What’s the next step?” I’m doing this because I love what I’m doing and I believe in what I’m doing. And you could put a tremendously large check in my account tomorrow and it wouldn’t change what I’m doing. It wouldn’t change the house I live in, it wouldn’t change the car I drive. It wouldn’t change the amount of vacation I take. I’ve got a very good balance in my life and I’m doing this because I believe it’s what I’m supposed to do. And I believe that I have the most impact and influence that I can possibly have in the area and the lane that I’m running in. And so you keep doing the best we possibly can to help our clients and add value. And when we do that, there’s a lot of fulfillment and satisfaction that comes from it.

Andrew Dick: Great. Collin, thanks for joining us today on the podcast. Where can folks learn more about you and your company?

Colin Carr: Absolutely. So our website is And from there you have a chance to jump into whether it’s senior housing, healthcare, commercial, you can jump into your specific vertical, but that’s a great place to learn about us. And it’s got links to all of our social sites. We’ve got dozens of videos, we have a tremendous FAQ section, a lot of glossary stuff. So if someone’s interested in finding out more about us, they can learn from there. And then we’re big on just putting your money where your mouth is. Again, a lot of commercial real estate brokers, a lot of residential brokers. We’ll go out there and work hard to get a listing and put a sign in front and the phone then rings from there. We hang our hat on every transaction that we do. So we pride ourselves on taking tremendous care of our clients and then that’s how we grow our business. So we have hundreds of testimonials on our website from 1,000 square feet up to 50,000 square foot tenants. From individual location groups to have … from individual locations to groups that have literally a hundred locations. And we can provide hundreds or even thousands of references and testimonials from people that we’ve worked with recently. So our website’s a great place to get more information.

Andrew Dick: Great. 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 Adviser. To be added to the list, please email me at

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Developing a World Class Medical District in Chicago with Dr. Suzet McKinney

Developing a World Class Medical District in Chicago with Dr. Suzet McKinney

An interview with Dr. Suzet McKinney that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this interview, Andrew Dick interviews Dr. Suzet McKinney, CEO and Executive Director of the Illinois Medical District. The Illinois Medical District is a 560 acre medical and research parcel located in Chicago that is home to medical research facilities, labs, universities, a biotech business incubator and more than 40 healthcare-related facilities.

Host: Andrew Dick
Guest: Dr. Suzet McKinney

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities. 

Dr. Suzet McKinney

Dr. Suzet M. McKinney currently serves as CEO/Executive Director of the Illinois Medical District. The Illinois Medical District (IMD), a 24/7/365 environment that includes 560 acres of medical research facilities, labs, a biotech business incubator, universities, raw land development areas, 4 hospitals and more than 40 health care related facilities, is one of the largest urban medical districts in the United States. 

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 are broadcasting from The Healthcare Real Estate Legal Summit in Scottsdale, Arizona. My guest today is Dr. Suzet McKinney, the CEO and executive director of the Illinois Medical District. Dr. McKinney is one of our keynote speakers at the summit and I thought this would be a good opportunity to take some time to learn more about her career in the Illinois Medical District. Dr. McKinney, thanks for joining me today.

Suzet McKinney: Thank you for having me.

Andrew Dick: So before we jump into the conversation, I thought it might be helpful to give some basic information about the Illinois Medical District or IMD for short. The IMD is located on the West side of Chicago. It is about a 560-acre area of land that is home to medical research facilities, labs, universities, a biotech business incubator, and more than 40 healthcare related facilities. The IMD is one of the largest urban medical districts in the United States. Dr. McKinney, before we jump into what you’re doing at the IMD, tell us a little bit about your background, you have a pretty impressive resume, and how you ended up at the IMD.

Suzet McKinney: Sure. Well, once again, Andrew, thank you so much for having me today. So in terms of my background, I am a public health practitioner by training. I am both masters and doctoral level trained in public health. And my area of expertise in public health is bioterrorism and disaster emergency and response. And so I have spent the vast majority of my career working in that specific area of public health as well as teaching at the University of Illinois at Chicago School of Public Health. And I have a faculty appointment at the Harvard T.H. Chan School of Public Health. I was with the city of Chicago’s Department of Public Health for a number of years, nearly 14 years. And I served as the deputy commissioner of the Bureau of Public Health Preparedness and Emergency Response there. And I loved that role. It was quite possibly, I think my dream job. And really exhilarating and rewarding to know that my responsibility was to mobilize the team that was responsible for preparing the residents of the city of Chicago for large scale emergencies and disasters.

Suzet McKinney: But I have to say in 2014, we were responding to the Ebola response and I’m not sure if your listeners are aware of this, but during the Ebola outbreak in West Africa in 2014 and 2015, the US Department of Homeland Security and the US State Department rerouted all travel from West Africa into the United States through only five cities and Chicago was one of those cities. So that really brought the Ebola response to our front door. And I think we probably spent about a day or two just really under a lot of stress and anxiety trying to figure out our response. And after those initial days, we mobilized and I just said to myself, “This is what we’ve trained for,” even though that was a condition or a disease I should say, that we always imagined was existing in some far away location and that we didn’t have to worry about it in the United States.

Suzet McKinney: Needless to say, we launched our response. It was a successful response, although it lasted a very long time. And when that response ended, I thought to myself, Ebola was the one thing that we were always afraid of. It was the one thing that was never supposed to happen. And I thought that since I had faced the one thing that was supposed to be my greatest fear and I faced it without too difficult of a challenge, perhaps it was time to find a new challenge. And coincidentally, I received a phone call regarding this role at the Illinois Medical District and decided to explore it as a new challenge and something that would place me outside of my comfort zone. And what I would say looking back is be careful what you ask for. So that’s a little bit about how I arrived at the IMD and if your listeners are just wondering what does it mean to be the CEO at the Illinois Medical District? I would tell them that my role there as the CEO is the perfect storm of public health, healthcare, real estate, finance, big business deals, and politics all rolled into one.

Andrew Dick: It sounds fascinating. Give our audience a little bit of an overview of the IMD. I gave some quick facts when we started, but tell us about the history. How did this come to being? And it’s interesting, it seems like it’s almost like a quasi-governmental district of some kind, talk about it.

Suzet McKinney: Well, you’re right, it is a quasi-governmental district. So as you said in the beginning, the Illinois Medical District is a 560-acre special-use zoning district right in the middle of the city of Chicago. We are about 10 minutes outside of downtown Chicago. The IMD was originally established in 1941 through an Act of the Illinois state legislature. And the district was established for the sole purpose of becoming a hub within the city of Chicago that was dedicated to health care, health education, biotechnology and technology innovation with an overarching goal of fostering economic growth for the city, the county of Cook as well as the state of Illinois. So back in 1941, because we were established through an act of the state legislature, we were a component of state government. We functioned just like any other state agency. But in 2012, the state statute was changed and the Illinois Medical District was made to be its own unit of local government.

Suzet McKinney: My General Council says, we are a unit of local government body politic. So all of the lawyers in the audience will understand what that means, but we are a governmental body, but we are a very unique governmental body because I am not an elected official. I am a CEO that’s hired by our board and I serve in that CEO role. But I have many of the same authorities that many mayors and town officials have, such as zoning authority and building authority. And so we function as a very small governmental entity inside the city of Chicago, which is a home rule government and also inside the county of Cook, another home rule government and within the state of Illinois.

Andrew Dick: Wow. So talk about the board of directors. How are these individuals appointed if you’re a quasi-governmental agency, so to speak?

Suzet McKinney: So as I mentioned before, we have an overarching mission of fostering economic growth for the city, the county, and the state. And because of that, our board members are all politically appointed. We have a seven-member board, four of those members are appointed by the governor of the State of Illinois, two board members are appointed by the mayor of the city of Chicago. And then one board member is appointed by the president of the Cook County Board. So it’s a very interesting mix. But I would say that all of our board members typically are appointed because of their expertise in a particular area that’s related to our work or a long-standing history of civic engagement.

Andrew Dick: Wow. Sounds like a dynamic group. How were the boundaries established? I mean, today it’s 560 acres, give or take. Was it always that big or has it evolved?

Suzet McKinney: Sure. In the beginning, it was not that large although I cannot recall how large it was in the very beginning back in 1941. What I can tell you is that in the beginning, we only had two anchor institutions, the Rush University Medical Center, which at the time was Rush Presbyterian, St Luke’s Medical Center, and then the second one was the Cook County Hospital, John H. Stroger, Hospital of Cook County. In 2006, the medical district purchased additional land and we were able to expand our boundaries through the purchase of that additional land. So we’ve been 560 acres since 2006.

Andrew Dick: Wow, that’s impressive. And today there are multiple anchors, right? Are there four or five that you would consider anchors?

Suzet McKinney: Yes. We have four anchor institutions, all of which are world-class hospitals and healthcare centers. So now joining Rush University Medical Center and the Cook County Health and Hospital System is the Jesse Brown VA Medical Center as well as the University of Illinois Hospital and Health Sciences System. Along with those anchors, Rush and the University of Illinois bring their two medical schools, which are two of the largest and most diverse medical schools in the United States. And then the University of Illinois also has within the medical district, all of its allied health schools, dentistry, nursing, pharmacy, and public health in addition to their medical school.

Andrew Dick: So talk about your current responsibilities. You said you act in many ways like a mayor, or so to speak, over the district. What is your day to day activities? What are you doing day to day?

Suzet McKinney: Well, I would say that my activities vary from day to day, but in general, a lot of those activities include governance of the district. So one of the things that we do in terms of governance is ensuring that all of the organizations, businesses and institutions that are interested in moving into the district, that their work and their mission aligns with the mission of the medical district. So we spend a lot of time, I spend a lot of time meeting with potential new residents, if you will, whether those are new hospitals, new educational institutions or other private sector businesses that may want to establish residency in the medical district. I also do a lot with real estate transactions. One of the interesting things about the medical district is that we were recently designated as a qualified opportunity zone and that brought along with it lots of meetings with investors and real estate developers who are interested in taking advantage of some of the tax incentives associated now with qualified opportunity zones.

Suzet McKinney: I also do a lot of work with our hospitals and other healthcare system partners, really looking at community health issues and some of the things that contribute to increased healthcare disparities in vulnerable communities and lower income communities. The medical district is located on the West side of Chicago, which is historically one of the most disinvested and under-resourced communities within our city. And so we do a lot of work around community health programs and trying to improve the health status of residents on the West side of Chicago. And I could just go on and on and on, but those are some of the activities that I engage in on a day to day basis.

Andrew Dick: So when you assumed the role, Dr. McKinney, talk about some of the challenges you faced stepping into that role. I’ve read a couple of articles, but I want you in your words to talk about what you’re up against and really what you’ve done since you’ve stepped into the role.

Suzet McKinney: Sure. Well, I can tell you one of the things that I always go back to when I think about challenges, when I initially stepped into the role, and I go back to a conversation that I had with our general counsel at the time, and I asked him, “What do you think the largest challenges are that the medical district is facing?” And he said to me, “Two of our largest challenges are anonymity and funding.” And with the first one, anonymity, that challenge was just the simple fact that not a lot of people knew about the medical district. They didn’t know what we were, where we were, or what we did. And so, one of the initiatives that we’ve engaged in since I started my tenure there three and a half years ago, we engaged on an aggressive rebranding campaign and marketing campaign to really raise the profile of the medical district. That included developing or solidifying our mission and vision statements, developing a new logo and marketing campaign that aligned with the mission and the vision.

Suzet McKinney: But then also really just getting out there and being more public facing, talking about the work that we were doing, the work that we want to do and establishing greater partnerships with natural partners as well as with strategic partners. On the issue of funding, we are a government entity, however, we do not obtain government funding from any other government entity. Instead, we generate our revenue through our real estate activity. So we really had to get ourselves out into the forefront of the commercial real estate market. And in order to do that, we partnered with a very large commercial real estate firm. It’s actually the largest commercial real estate firm in the world and engaged in a strategic partnership with them as well as a contractual relationship to assist us in raising our profile in the commercial real estate market. I would also say another area that posed an extreme challenge to us was just in the area of financial stability.

Suzet McKinney: I mentioned previously that we purchased a lot of land in 2006 and expanded our borders, but when that land purchased, the goal was to also develop that land. But shortly thereafter, the real estate market crashed and that new development wasn’t possible and we had borrowed $40 million to purchase new land and expand our borders. And so we were still challenged with a heavy debt load without a revenue source to sort of balance that out. And so I’m very happy to say that we doubled down on developing a strategy for repaying the debt. It took us two years, but we are currently debt-free, which I don’t think many government entities can boast that they are completely debt free. So that was really exciting for us and it represented alleviating one of the largest challenges that the medical district has ever faced. And so I’m very proud that that was accomplished under my leadership.

Andrew Dick: Well, I read a couple articles about that and I was hoping you would talk about it because you received quite a bit of public acclaim because you, I think sold off some assets or some real estate to pay down that debt or pay it off and a number of news stories just said, “Gosh, Dr. McKinney has really turned around this organization and made it so much more prominent.” So that’s just terrific.

Suzet McKinney: Thank you.

Andrew Dick: I want to talk a little bit about generating revenue through real estate. Most of our listeners are attorneys or developers that develop hospitals or healthcare facilities. When you say the medical district generates revenue through real estate, is that through developing a building and being co-owner, ground leasing land, selling land, all the above, what does that mean?

Suzet McKinney: All of the above. So of the 560 acres that make up the medical district, the Illinois Medical District owns roughly 100 of those acres and most of our anchor institutions own the land that they occupy, but they also lease additional land or building space from us. So we engage, we being the Illinois Medical District, we engage in ground leases, both short term ground leases as well as longterm ground leases. We also lease building space to entities and organizations that are interested in moving into the medical district. And now we are engaged in an aggressive plan to develop the remainder of the over 30 acres of vacant land that we still have in the medical district. And one of the things that we’ve done now that we have a level of financial stability and quite frankly liquidity that we haven’t had in the past, we’re also able to engage in some more alternative real estate transactions. So that would include things like public-private partnerships or joint ventures. And so we are exploring a number of options with a few developers currently that would get us engaged in some of those more alternative structures.

Andrew Dick: Yeah. It sounds like a pretty dynamic role that you’re in working with the developers and different healthcare providers. What I often get asked is, well, if I’m interested in developing a project at the IMD, well, how would someone do that, Dr. McKinney? If they say, “Hey, I’ve got this vision,” is it developers coming to you or are you really seeking the resident first, some academic institution or a healthcare provider or a life sciences company, is that first the most important piece, who’s going to be the resident? Or how does it work?

Suzet McKinney: Well, it works primarily the same, whether it’s the resident or the developer. And typically what happens, let’s just take the case of the resident. The potential resident may call the office or send us an email and indicate their interest in having a development in the medical district or occupying space in the medical district. And once we receive that communication, however, it comes in, we schedule a time for the resident to come in and present their project or their idea to us. One of the things that we’re very proud of is that as a unit of local government that is not a component of another unit of government, we’re able to have a little more flexibility and a more nimble structure in terms of how we engage in procurement activity and contracting activities. And so that really helps us when we are entertaining a new project.

Suzet McKinney: So once that resident comes in and presents their project to, not just me, but my senior management team as well, we have an internal discussion regarding what we’ve seen in the proposal and we make a decision as to whether or not we feel that it’s a project that would not only benefit the medical district but would also benefit that potential resident. And if our determination is positive, then we will put that resident in front of our board and we’ll bring them back and give them the opportunity to present their project to our board. Now one of the things that my board is well aware of is that I will never put a project in front of them that I don’t believe is a viable project for the medical district. Whether the viability is programmatic, financial, or any other lens that you may examine the project through.

Suzet McKinney: And once the resident presents their project to the board, the board decides whether or not to advance them forward. And if so, there is a brief review of the financials of the project and then the board authorizes me and my team to engage in the contract negotiations. So the entire process takes about three to four months, which is very fast.

Andrew Dick: I would say it’s very fast given my experience on these type of deals. So are there any projects you’re excited about that you can actually talk about at this point?

Suzet McKinney: Yes, I am very excited, one of the things that we are endeavoring to do, we’ve done a lot of work studying other innovation districts from across the country. We take our cues from a lot of work that the Brookings Institution has done around innovation districts and we’ve really tried to hone in or what factors make these districts successful because after all we’ve achieved a level of success but we want to continue that trend in the Illinois Medical District. So the vast majority of the vacant land that we have in the district currently, I would say about 35 acres is contiguous land. And so we are endeavoring to create a life sciences innovation park within the medical district that can be home to research entities, start-up companies, expanding our biotech incubator as well as infusing some residential and some retail and amenity space in the district as well.

Suzet McKinney: And so we are currently engaged in discussions with three to four developers that have well-defined projects that they’re interested in developing in that area, and we’re being very clear about this goal for life sciences. It is an area where Chicago is really lagging behind other cities. And I will tell you, I am a true Chicago in at heart and I cannot bear to see my city lagging behind others. And so we know this is an important initiative for the city, but it’s also, it’s an important economic driver as well. And we’ve seen evidence of that across the United States and we think that we can replicate it in Chicago and have a similar level of success. And so that’s what we’re doing.

Andrew Dick: So life sciences is hot right now?

Suzet McKinney: Yes.

Andrew Dick: So is it, not only because it’s used to talk about the economic drivers, is it that it’s bringing in high paying jobs? What is it that you like about the life sciences sector right now?

Suzet McKinney: Well, I like that it brings in high paying jobs, but I also like that it attracts young, new talent coming out of our country’s largest universities. And it also engages researchers. And I see that our health care partners, particularly our anchor institutions, are increasing their research efforts. There is a lot of momentum around translational research, really taking the research and translating that into clinical practice as well as engagement, greater levels of engagement with the patient. And so I think that life sciences is a great fit for those types of initiatives. And our university, the University of Illinois at Chicago also has a keen interest, not only in research and biotechnology, but attracting the best and the brightest talent both in terms of students and graduates, but also professors. And so I think you’re right, life sciences is hot and those are some of the things that I think align very well with our mission, but also with the mission of our anchor institutions and some of our other partners.

Andrew Dick: So you touched on maybe bringing in some multifamily into the mix. Talk about that a little bit. So it’s not just going to be office space or healthcare clinical space or research space, but you’re going to try to infuse maybe some more mixed use. Is that what I’m hearing?

Suzet McKinney: Absolutely. Our goal is to create and foster a vibrant ecosystem, a place within the city of Chicago where people want to be. And we see a place where people can live, work, learn and play. And so in order to foster that type of environment, we have to ensure that we are doing multiuse developments. So again, the office space, the laboratory space, but also the residential, some recreational. If your listeners go to our website, under the real estate tab there’s a great video that really shows the vision and what we foresee for the medical district. So we want to bring in some entertainment as well to really make the district a place that can be a place for everyone, whether you are traveling to the district to work, to go to school, to receive your healthcare or if you’re living there. So we’re very excited about that.

Andrew Dick: Well, one of the other topics I wanted to talk about was the strategic partnership that the IMD entered into with IGNITE Cities.

Suzet McKinney: Yes.

Andrew Dick: Talk about that just a little bit and what that means for the district.

Suzet McKinney: Sure. So IGNITE Cities came to our attention several months ago. And in our discussions with the firm, we learned that they are working with mayors from all across the country to help cities develop into smart cities. And so we started thinking what would it be like if we entered into a strategic partnership with IGNITE to create or foster the medical district into a smart district? What would that look like for us? And one of the things that we knew was that place-making and way-finding were challenges within the district. We see about 80000 people a day in the medical district, that includes 30000 employees, and 50000 patients, students, and visitors. But a lot of those visitors oftentimes and patients as well, oftentimes have difficulty figuring out where they need to go within the district, how to get there. And so this strategic partnership with IGNITE will not only incorporate some infrastructure improvements in the district, things like way-finding, whether those are kiosks or large touch screen panels that are installed at street level that will aid in that way-finding. But it will also include some fiber optic infrastructure.

Suzet McKinney: We will be able to provide free public Wifi for visitors and others who are in the district for whatever reason they might be there. But it will also enable us to connect with city services in a way that we haven’t been able to do in the district and help improve safety within the district. And also transportation, helping people understand when and where they can access the transportation assets that are in the district. So we’re really excited about it. This is an initiative that we see big cities doing. And so we think that being a small district within a big city, this is our opportunity to show that this is something that can work for other campuses, whether they are innovation districts, college and university campuses, or other large healthcare and research clusters. So we’re all about being a leader but also being a model and showing what can be done in other areas by using ourselves as a pilot.

Andrew Dick: Well, it’s fascinating. I think what you’re doing at the IMD is really interesting and as we wrap up here, talk just a few minutes about where you see the IMD going over the next five years. If you could have it your way, how do you think things will unfold over time?

Suzet McKinney: Well, if I have it my way, in five years we will no longer have the abundance of vacant land that we currently have. We are really dedicated to creating this vibrant and thriving ecosystem that I spoke about. And so what I see for the medical district is a fully developed district that is full of healthcare, science, and technology-based businesses, but businesses that also have a caring heart and a sense of social responsibility. In the private sector, the term that’s always used is corporate social responsibility. But as I mentioned earlier in our discussion, we are situated on the West side of Chicago and that’s an area of the city where we see a lot of disparity in terms of healthcare outcomes, healthcare access, but also educational access and just economic opportunity.

Suzet McKinney: And so as we attract private sector businesses to the district, we are being honest and forthcoming about some of those social challenges that we see in the area of the city that we occupy. And we are asking the new residents of the district to partner with us to really help us make a difference in the lives of others. And so I see that in the district’s future, but I also see the district as a place where the businesses and the organizations that reside in the district having understanding that while we all want to be successful individually, the real key to our individual success is our collective success. And so we are endeavoring to create a district where our partners collaborate with one another and we are all improved in our work, our businesses, and even our bottom lines are improved because of this incredible collaboration that we foster in the medical district. So we’re very excited about the work. We have achieved some success. And if I can just take a moment, I’d like to give you an example of one of our partners who is relatively new to the medical district.

Suzet McKinney: It’s a company called Superior Ambulance Company, and they are the largest private EMS provider in the Midwest. They’re headquartered just outside of the city in the western suburbs, but they were interested in establishing a presence in the district and when they came to us and we started working to negotiate a building lease for them, I spoke to the CEO about some of the challenges that we’re seeing on the Westside, and I said, “I’m trying to do everything that I can to help get people into educational programs that will put them on a pathway to employment or funnel them right into the workforce. Is there anything that you can do to help me?” And he said, “Here’s what I can do.” He said, “In my first year in the medical district, I will train 100 community residents to be emergency medical technicians or medical billing and coding specialists. And for every single one who completes their training, I will hire them to work from my company.” He’s been in the district, his company has been in the district now for eight months. They have trained and hired 103 community residents.

Suzet McKinney: So that’s a huge success. Now we are under no illusion that the next company or firm will have a hundred spaces to give us, but my outlook is if they have one or two, that’s one or two more than what we had and that’s a difference in one or two additional lives. And so that’s the type of impact that we’re looking to make. And we think and we hope that we can do it.
Andrew Dick: Well, it’s exciting. I’m grateful that you were willing to do this interview, really looking forward to your speech this afternoon.

Suzet McKinney: Thank you.

Andrew Dick: Where can our listeners find more about the IMD? More about you?

Suzet McKinney: Sure. So the listeners can always go to our website, which is spelled just the way it sounds,, and they can also access any of our social media platforms. We are on Facebook and LinkedIn @Illinoismedicaldistrict. Our Instagram handle is @IMDmedia, and we can also be found on Twitter @IL_MED_district.

Andrew Dick: Well, thank you again, Dr. McKinney and thanks to our listeners. 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 that newsletter, please email me at

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Credit Tenant Lease (CTL) Financing with Andrew Minkus

Credit Tenant Lease (“CTL”) Financing with Andrew Minkus

An interview with Andrew Minkus from Mesirow Financial: In this episode, Andrew Dick interviews Andrew Minkus, a Managing Director with Mesirow Financial. Mesirow Financial is one of the leading investment banks in the country with deep expertise placing debt for CTL transactions.

Host: Andrew Dick
Guest: Andrew Minkus

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities. 

Andrew Minkus

Andrew Minkus is a managing director in Mesirow Financial’s Credit Tenant Lease and Structured Debt Products group. He is responsible for originating and structuring senior and mezzanine debt capital primarily for clients that own commercial real estate involving strong underlying credits. Andrew also specializes in structuring public private partnership “P3” transactions along with other public sector related CTL’s.

Andrew Dick: Hello and welcome to the Healthcare Real Estate Adviser podcast. I’m Andrew Dick an attorney with Hall Render, the largest healthcare-focused law firm in the country. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Today we will be talking about a unique way for healthcare providers to finance sale leaseback transactions, and build the suit facilities using credit tenant leases or CTLs for short. CTLS have been around for a while, but are becoming more popular in the healthcare industry. Typically, health care providers seeking CTL financing will hire an investment bank to assist with the structuring and placement of the CTL bonds. Mesirow financial is one of the leading investment banks in the country with deep expertise placing debt for CTL transactions. Today we will be talking with Andrew Minkus, a managing director with Mesirow financial.

Andrew, thanks for joining me.

Andrew Minkus: Yeah, thanks for having me. Glad to have the opportunity to participate.

Andrew Dick: Andrew, before we talk about CTL transactions and Mesirow financial, let’s talk a little bit about your background. You’re a Midwest guy with an undergraduate and graduate degree in finance. Early in your career, you worked for Newmark Realty Capital. Tell us a little bit about what you were doing there.

Andrew Minkus: Yeah, sure. So Newmark is, I guess we would call it a full service commercial mortgage banking firm. I spent about five years there. My primary responsibility was originating conventional commercial real estate debt associated with a wide range of commercial real estate projects, but I would say primarily four food groups, retail office, multifamily, industrial. I would say much of that debt work was placed with the company’s life insurance company correspondence. But we also originated a lot of CMBS and bank executed product as well as a little bit of hard money in bridge. So that’s what I did at Newmark.

Andrew Dick: So after Newmark you made the move to Lake Shore Management and tell us a little bit about your role there.

Andrew Minkus: Yeah, so upon relocating back to Chicago in roughly 2010 I was introduced to a local Chicago private equity shop called Lake Shore Management. Lake Shore Management is in the manufactured home community business, which is a fancy term for mobile home parks. That’s their asset of choice. They own and operate a significant portfolio of said manufactured homes. And my job there was primarily to … responsible for structuring, sourcing and doing a variety of ad hoc due diligence associated with new acquisitions. And then in addition to that, I was also responsible for a variety of just general asset management responsibilities that go along with just managing the overall performance of the portfolio.

Andrew Dick: And Andrew, after you worked at Lake Shore for awhile, you made the move to Mesirow financial where you’re currently at in Chicago. Talk a little bit about that transition and how you were introduced to Mesirow.

Andrew Minkus: So the gig at Lake Shore was actually an interim role. I was plugging a hole due to some abundance of work at the time. And I could see that role was quickly becoming a permanent role. And it was at that same time that actually the gentleman that I worked for in San Francisco at Newmark had introduced me to my current division head. They had met at a conference and we hit it off and he had just started up the group here at Mesirow. I was quickly fascinated with the opportunity. I could tell that this opportunity at Mesirow was an opportunity to just touch so many different segments of the market. This job here is really a job in real estate. It’s a job and structured finance. It’s a job in public finance. It’s a job in corporate finance. So it really has just many interesting tenants to it. Yeah, that’s why I made the leap over to Mesirow. So that was back in July of 2010.

Andrew Dick: And tell us a little bit about Mesirow, its history and the scope of services offered by the company.

Andrew Minkus: So Mesirow is a diversified financial services firm. We’re segmented into two main divisions. We’re an investment management, asset management house on one side and a capital markets investment banking on the other side. We’ve been around since 1937. We’re headquartered here in Chicago. We’ve got about 20 offices scattered across the country. A couple of international offices as well. Culturally we operate like a family office. We’re private. We’re 100% employee owned. We always have been.

Andrew Minkus: I think currently we’ve got about 16 sleeves of business, many of which are highly complementary to one another. I’ve been at Mesirow for coming up about nine years. I work in the credit tenant lease and structured debt products group. As part of the leadership team here my role is origination, structuring, debt placement, bond debt placement. We originate and structure a lot of conventional CTL debt and we also spend a lot of time with a variety of other structured products such as CTLB notes and rated bifurcated ground lease financings, and ad hoc project finance situations. We securitize special tax district work. We’ve done a little bit of asset-backed securities work. And a couple of years ago we also started a little side initiative which we generically refer to as our P3 initiative. It’s actually refer to as our infrastructure and project finance group. I’m part of the committee there. And as a result, I guess I pay a particular focus to transactions, CTL transactions and the like that have an element or touch the municipal space, the higher education space, the healthcare space and that sort of thing.

Andrew Dick: And one of the reasons we wanted to talk with you today is because of your deep expertise in CTL transactions and Mesirow’s reputation in the industry as being one of the leaders in terms of facilitating CTL transactions. Tell us a little bit about Mesirow’s CTL expertise and how many people are in the group and give us a little bit more detail on, on that.

Andrew Minkus: The CTL product has been around for probably 30 to 40 years, but I will say the business has evolved tremendously over that period of time. Back in the day we invite, we, not necessarily me, but some of the older generation, spent a lot of their time doing a lot of retail transactions. Walgreens and CVSs, and bank branches and things of that nature. It was a fairly commoditized asset class and not very unique in terms of structure and I think that’s how the business picked along for probably 20, 25 years. But over the last 10 years it’s evolved really away from retail for a lot of obvious reasons and more into dealing with government credits and project finance and corporate office facilities and facilities leased to municipalities and P3-type project.

Andrew Minkus: And the other thing that’s been interesting just from a development perspective is the asset class has largely ignored real estate. Going back 30 40 years, I would say over the last 10 years, we’ve started to ignore that fact and we’ve started to pay quite a bit of attention to real estate when and where applicable. And we started to do some really unique things and solve some really unique problems that historically nobody really had a solution for. So it’s been a fun and interesting evolution.

Andrew Minkus: But when we started the group, there were three of us originally. We’ve got about 10 now. We did a little over two billion dollars in production last year, which is a number we’re pretty proud of. I guess by way of production volume that does put us as the largest CTL group in the space. And I think I would attribute a lot of that success to the fact that we run a different business model here.

Andrew Minkus: Just being a full service investment bank we have some really unique and complimentary capabilities at Mesirow. We’re known on the street for being a bond house. Fixed income is one of the big drivers of our firm and we’ve spent a lot of time and resources to build up our distribution platform, what we would call our sales and trading force. And we’ve developed unbelievably deep relationships within the QUID marketplace. QUID was an acronym that stands for qualified institutional buyer. So we just have access to a lot more capital. We’re closer to the money than any of our competitors. And we also do a lot of regular way fixed income business that we really have our hand on the pulse of the market far more so than a lot of our competition. We’re also very creative, structurally speaking.

Andrew Minkus: We talked a little bit about the various internal resources here. We’re all so very big in public finance and there are a lot of synergies and correlations between what they do in that department and what we do in our department. And in many instances we’re melding our capabilities personnel to pursue transactions.

Andrew Minkus: And then the other thing that’s nice and unique about Mesirow is we have a balance sheet and we’ve got a lot of great support from the firm and we have access to firm capital to help support some of these CTL situation. So that’s a rather unique element just looking back at the business model.

Andrew Dick: Well Andrew, what I’ve learned over the years is that the CTL space is very … it’s a small group of of folks that work on these transactions and there isn’t a lot of information out there if you search the web. And so for our listeners, talk a little bit about what is a credit tenant lease and what makes it unique when you compare it to a traditional mortgage loan, for example,

Andrew Minkus: Unlike a traditional mortgage loan the primary underwriting consideration for a CTL is that of the underlying credit quality of the tenant or the underlying user, as opposed to with a traditional mortgage loan the primary underwriting consideration or the real estate fundamentals and the local real estate metric. CTLs, holistically, are priced and treated and structured more akin to that of an investment-grade rated corporate bond or an investment-grade rated municipal bond as opposed to, say, a mortgage investment.

Andrew Minkus: There’s a unique set of guidelines and principles that govern what we do and how we structure these bond transactions and some of those parameters are fairly unique. Again, compared with that of a traditional mortgage. So for example, some of these unique parameters would include things such as, we can underwrite down to a one-owed debt service coverage. We can underwrite up to a 100% of value. If it’s a construction project, we have no loan to cost basis constraints per se. These instruments are typically fixed-rate. They’re long-dated. I mean, we could go out 40, 50 years if we like the asset enough. So for these types of reasons, it allows us to produce some really efficient results, some really unique results compared with a traditional mortgage loan for the various transaction participants. But really the conversation centers wholly around, at least it starts and predominantly centers around underlying credit quality rather than the real estate. The real estate of the secondary consideration.

Andrew Dick: And you talked a little bit about some of the loan to value considerations that that would be involved in a mortgage loan transaction, but on a CTL there are scenarios where you could loan more than 100% of of the project costs, for example, in a new construction project. Right? I mean is is there a limit on how much these a CTL lenders will actually loan on a particular transaction?

Andrew Minkus: I would say the outside constraint is really on value much more so than loan to project costs. So the answer is really no when it comes to loan to project costs. We don’t have sensitivities about cash out financing and or how that capital is going to be applied to the operation, as opposed to a mortgage investor that’s going to probably be highly sensitive to those types of parameters. So if the economics are such that it produces a result that is equal 150% of project costs, let’s say for example, we will lend 150% of project cost so long as it meets the rest of the guidelines and principles that we have to meet.

Andrew Dick: What are some of the other benefits, Andrew, to the CTL structure? For example, is it possible to get a fixed rate lease rate for the 20 years, for example, which is almost unheard of in the traditional financing market and it seems like you can lock in a really attractive interest rate for a long period of time. Am I thinking about this correctly?

Andrew Minkus: Yeah, I couldn’t have said it any better. I think that’s one of the primary benefits to the key transaction participants. It’s really an exercise to come up with the most favorable constant, whether it’s a lease constant or a debt constant. Even if we’re backing into a rent constant that highly exceeds that of, quote unquote, market rent, given the local real estate parameters, that’s not something we’re going to be particularly sensitive to. I would say were largely ambivalent to that. I

Andrew Minkus: If it’s just a means of getting a more attractive attachment point, in other words, producing an unconventional amount of leverage, but the underlying user, then that’s what we’ll do. Or contrary to that, it can work in the opposite way where the goal might be to get the rent constant down as low as possible, and perhaps the underlying user is only looking to raise enough money to build the project, which might be far less than market value. This would be an excellent opportunity to do that. And all of the product is long-dated and it’s all fixed-rate. So really the longer the better in our universe.

Andrew Dick: And when we think of credit tenant leases I almost always think about a tenant that has an investment-grade credit rating. Talk a little bit about the underwriting requirements for a CTL. Do we have to find a tenant that has an investment-grade credit profile or can we go out and get a credit rating? How does that work?

Andrew Minkus: Yeah, a couple of comments. That’s a really good question actually. I would say that’s one common misconception in the space, but let me start by saying a common misconception in the space. But let me start by saying the typical credit profile, yes, it’s of investment-grade quality, although there are a handful of exceptions to that. So exception number one, we’ve done a handful of what we would call high yield CTLs or NEIC-3, NEIC-4 type CTL products. Now the appetite for that paper is entirely different. It speaks to a completely different audience and those deals take on a completely different shape and color, but it’s not necessarily threshold in nature if you have a slightly weaker credit.

Andrew Minkus: But even stepping aside from that, and not a lot of people realize, there’s a lot of great public and private credits out there that aren’t rated. And just because of these credits or these entities or these municipalities or healthcare systems don’t carry a credit rating, that doesn’t mean they don’t have good credit considerations.

Andrew Minkus: So in many instances, we’re able to involve a rating agency in the process and we’re able to rate the CTL transaction itself, not to be confused with the underlying credit. Yes, that’s the primary criteria for coming up with a result, but it’s the transaction itself that’s getting rated and in doing so, sometimes we can even generate a rating elevation above and beyond the underlying credit of the underlying user. Because the transaction rating takes into account two things. Number one, the credit support for the transaction as well as the real estate support, which is a naked CTL. We’re not really taking into account the real estate, at least from an NEIC perspective.

Andrew Dick: Andrew, talk a little bit about NEIC and what that means. So, it’s my understanding that those are guidelines used by the insurance industry. So for example, if a life insurance company wanted to make a CTL loan, they would be subject to those guidelines. Is that right?

Andrew Minkus: Yeah, it’s the risk capital charge designation that that’s referring to. So there’s a scale between one and six, one being the lowest designation, which carries the lowest risk capital charge, six being the highest designation, which carries the highest risk capital charge. The NEIC concept really only applies to US-based Life Insurance Companies, which happen to be the primary audience for this asset class. But yeah, when a US Life Insurance Company purchases a CTL asset or any fixed income asset, it does receive NEIC designation treatment. So the lower the risk capital designation, the more attractive the asset is to the investor. In other words, the more competitive the interest rate’s going to be.

Andrew Minkus: Because it dictates how much capital they either have to, or don’t have to, keep dry on the balance sheet. And the idea is to not keep dry powder on the balance sheet because that money just sits there and it doesn’t get deployed. So typically NEIC-1 and NEIC-2 are the two characterizations that refer to an investment-grade rated asset. So anything in the A category… A, double-A, Triple-A… would typically fall into the NEIC-1 bucket and anything in the triple-B category would fall into the NEIC-2 buckets.

Andrew Dick: So we’ve talked about life insurance companies making CTL loans or purchasing the loans. Talk a little bit about the other types of companies that would make a CTL loan or buy a CTL loan beyond a life insurance company.

Andrew Minkus: So in addition to LifeCo, Pension Money finds this asset class pretty attractive. We’ve sold and distributed a handful of product to various bond funds and mutual funds, alternative asset managers. There’s a good bit of religious money out there that finds these assets pretty attractive. And then some of the structured product vehicles that might be situated next to a conventional CTL or maybe underneath in a subordinate capacity, those types of instruments have broad appeal within the hedge fund community as well. So yeah, it’s not just the life insurance companies that are taking this product down and parking it in their portfolio.

Andrew Dick: And on the other side of the table, who are the typical tenants? We’ve talked about municipalities, non-profits. Most of our audience, they’re going to be healthcare providers or folks who develop healthcare facilities. Talk a little bit about who the borrower or the tenant could be in a CTL transaction.

Andrew Minkus: Yeah. In terms of the underlying users, like I was saying, this business has evolved quite a bit over the years, but I would say the lion’s share of the product that we see and that we’re involved with today, is going to involve of course healthcare systems. I would absolutely put that sector at the top of the list, just given a lot of the trends in that space right now. Any number of good corporate credits, whether it’s a tech, a Pharma, you know, we do quite a bit with the auto sector in Michigan for example. We financed a lot of headquarters assets for a couple of insurance companies, a couple of healthcare credits, Unilever, Verizon, companies like that.

Andrew Minkus: Higher education is another sector that’s picking up quite a bit of steam and starting to generate an appreciation for what we do in the financing space, whether it’s a student housing facility or a classroom or administrative facility. Non-profits are potential good candidates. Research institutions. Cultural institutions. Governmental entities, of course. Local governments, regional governments, state governments, and really anything that takes on that P3 profile. P3 meaning Public, Private, Partnership.

Andrew Dick: And talk a little bit about how a healthcare provider could use the CTL structure. When I’ve worked on these transactions, we’ve primarily use the CTL structure for build-to-suit medical office buildings, for example. A $30 million medical office building that will be a master leased to a non-profit healthcare system that has a double-A credit rating for example. But a CTL transaction could also be used for a sale lease-back. I mean, talk a little bit about the scope of transaction structures that you’re seeing in the market.

Andrew Minkus: Yeah. So there really are no limitations to your point in terms of transaction structure as well as product-type. So we’re involved in many transactions that involve the sale and lease-back of an asset. We do a lot of build-to-suit work. We finance a lot of facilities that are just getting renewed. So a straight recapitalization we would call that. Also a lot of just organic acquisition work and again, the instrument can be applied to any product-type. A headquarters, an auxiliary medical office building, a hospital, a central plant, a utility plant that’s servicing a healthcare campus, a data center. We don’t even necessarily need hard collateral per se. So for example, we finance tenant-improvement leases, with essentially no real property, for example. A licensing agreement, things of that nature. So again, the scope is fairly broad in terms of just the application of the product.

Andrew Dick: Andrew, when I think of CTLs, I think of a larger transaction, 30 million plus. Is that a misconception or when does it make sense to use a CTL? What is the smallest CTL you’ve worked on, to the largest, for example?

Andrew Minkus: Yeah, good question. I think I’d relegate that into the misconception category as well. So I mean, look, I don’t run around the country mentioning this… although maybe I do now that I’m on the podcast… but the smallest transaction we’ve ever done has been south of 2 million bucks. So I would say our sweet spot is probably in the $25 to $300 million range. The largest transaction that we’ve put together is a little bit north of $650 million. We have two 10-figure assignments that we’ve recently been mandated on. So there’s really no limitation. We try not to let our egos get in the way if it’s a nice clean piece of business. We’re happy to have it, even if it’s a small transaction. But also if it’s a substantial transaction, we certainly have the capabilities to handle that as well.

Andrew Dick: Great. And talk a little bit about how some of the CTLs are structured in terms of the amortization schedule. I’ve seen CTLs where the lease is fully amortizing, meaning that at the end of the 25-year lease-term, the asset is effectively owned by the tenant. But I know that there are ways to structure CTLs where they may not be fully amortizing. So talk about that structure in general.

Andrew Minkus: Yeah, so I touched a little bit in the beginning just about the general evolution of the space and the business. And the direct answer to the question, which we get quite often, is “Do CTL loans need to be fully amortizing?” The answer is a resounding, “No.” Now having said that, the conventional guidelines, that guide what we do and how we do it, technically require a conventional CTL to self-liquidate. Or have a balloon not to exceed an amount equal to 5% of initial par. However, there are many ways to extend the amortization now. So historically that didn’t really happen very often. There’s a synthetic insurance product called Residual Value Insurance and/or Balloon No Guaranteed Program that’s been around for some time, but never really utilized in a very meaningful way.

Andrew Minkus: But in addition to that, that’s really why we started this Structure Products Initiative about four years ago and we’ve underwritten a little over 4 billion within that initiative and the best way to think about it as a basket of solutions that allows us to provide for extended amortization. And we do this by way of structuring Pari Passu A2 notes and Zero Coupon B notes and Pick Bonds and Residual Certificates and all sorts of more esoteric, creative structuring work. They’re really hybrid securities that are supported with both good credit during the lease term as well as some real estate.

Andrew Minkus: I talked a little bit in the beginning about how the industry largely ignored real estate for many, many years. We’re no longer ignoring real estate, when and where applicable, and these types of structures can serve a variety of different benefits really. They can of course be used to produce more leverage. They can be used to produce more cash-flow. They can be used to ratchet-down a rent constant. They can be used to produce, in some cases, a more favorable tax outcome. So and/or any permutation of those potential benefits. So it’s been just a really interesting trend and development in this space. As I say, when and where applicable.

Andrew Dick: Andrew, over the years when I’ve worked on CTLs, some of the healthcare providers that I represent will insist upon a purchase option at some point during the term of the lease. Maybe it’s in year 10 or 15 if it’s a 25-year CTL. I know that sometimes those can be challenging to structure. Talk about purchase options in CTL transactions. How are those viewed in the market and how do you set those up from your perspective?

Andrew Minkus: So I think you’re right to suggest that purchase options can introduce some challenges. They’re not easy to structure around. I guess the best thing I would say is they need to be thought through carefully up-front. And there are different ways to structure around a purchase option. I think a lot of it hinges on the relationship between landlord and tenant, assuming they’re unaffiliated. That’s not always the case, right? Perfectly fine if they’re affiliated entities. That’s more of a synthetic arrangement, but I think we need to just appreciate perpetual ownership versus tenant reversion. What happens to the asset at the end of the term? Who is the beneficial user?

Andrew Minkus: I think the cleanest way to deal with purchase options, at least when you have two unaffiliated parties on each side of a lease, is if the purchase option carries an obligation by which the buyer or tenant is obligated to assume the existing debt, if they can’t come to an agreement on the purchase price economics that allowed the debt to be satisfied, paid off, albeit with [inaudible 00:12:28], then they get the right to assume the existing debt package. Which is not necessarily a bad outcome because we’re putting together some pretty efficient and pretty attractive financing, at least we would humbly think. That’s probably the easiest and cleanest way to deal with a purchase option.

Andrew Minkus: Now that introduces all sorts of privity into the loan documents. Again, that’s why you really have to appreciate the relationship up-front. How open-book is the relationship… which I realize is a topic maybe we’ll touch on a little bit later… but absent the ability to do that, what we would be forced to do is structure call optionality into the debt instrument to mirror that of the purchase optionality under the lease.

Andrew Minkus: That’s not an insurmountable hurdle. It’s a more challenging hurdle. It’s a less efficient hurdle. Call optionality can be very expensive. Which kind of ripples through the entire structure and it’s going to impact the landlord’s economics and of course it’s going to impact the tenants economics. So I think some of the considerations there are, you got to think about how we’re going to structure the call option. At what point in the structure does that call option and corresponding purchase option come into play? Is it a one-time right? Is it an ongoing right? Of course, the further down the road you introduce that purchase option, the more favorable the economics of that purchase option are going to be. If you’re looking at a 25-year term and there’s purchase option risk within five years, somewhere close to par, that’s going to be a very, very expensive endeavor.

Andrew Minkus: So economics is one consideration. There’s also a consideration of familiarity. So CTLs are primarily structured on a taxable basis. Not always. They can be structured on a taxable basis, not always. They can be structured on a tax exempt basis at times as well. It depends on where we’re distributing this debt instruments. So if we’re distributing the debt into the taxable corporate muni market, I would say generally there’s less resilience to absorb call option risk in a transaction. Whereas the tax exempt, like the classic muni market, they’re probably a little bit more resilient to call optionality at various points in the structure. So I think how the deal is structured, what the plan of finance is, where we’re planning to distribute the instrument all comes into play. It’s really just a long way of saying, “It’s absolutely not a threshold issue, but it’s a significant consideration and it can introduce some challenges.” But usually it’s just a challenge that can be overcome with economics. That makes sense?

Andrew Dick: It does. It does. That’s helpful. One of the questions I get from my clients is, let’s say it’s a larger health system with multiple hospitals, they’re working on a medical office building transaction, build to suit. One of the questions I would get is, “Well, why wouldn’t the health system just issue bonds and then take the capital and use it to build the medical office building?” It seems to me, Andrew, that that the CTL is designed so that the health system, for example in my world, wouldn’t have to go through a bond issue. It’s a simpler approach for one-off transactions, for example. Am I thinking about that the right way?

Andrew Minkus: Yeah, I would fundamentally agree with that. Potentially there are a few different reasons. At least we conduct a lot of surveys to generate this type of feedback of course. Some of the reasons that we find that the health care system, for example, that would endeavor to do something like this rather than issue with direct bond is, yeah. I mean, it’s a quicker process. So sometimes it’s just a function of speed of execution, right? To do something direct, the structure of public offering probably takes a little bit longer. It’s going to make a little bit more noise. It’s probably going to involve more transaction costs, more layers of legal costs, a little bit more diligence. Rating agency involvement is something that you probably aren’t going to avoid if you do a public offering or a direct deal. Whereas on a CTL, if the underlying credit already carries an independent rating, we can sort of lean on that. So it’s faster, it’s a little cleaner.

Andrew Minkus: Typically size of the deals is sometimes a big factor too, right? I mean, let’s say it’s only a $20 million assignment, not that there’s anything wrong with a $20 million assignment. But to go through the rigamarole of structuring a public offering, it might not be worth it. So I think for some of those reasons, sometimes there are internal accounting considerations or sensitivities that might trigger one structure over another.

Andrew Minkus: The other thing that comes up, this isn’t necessarily about direct or indirect, but more of a taxable versus tax exempt. But when you finance a CTL on a taxable basis, there are no use restrictions with respect to the asset. That’s something that comes into play on healthcare assets quite a bit, right? So if it doesn’t meet the private activity test or if you just want general flexibility with the asset, the CTL is a much friendlier format for that.

Andrew Minkus: So those would be a few reasons, at least that we hear from some of the health care clients why they decided to go with the CTL. It’s becoming really in vogue because there are all these auxiliary MOB facilities, you know, 20,000 feet here, 30,000 feet here. They’re smaller assignments, 15 million, 25 million. So it’s just a little bit cleaner. It’s just a little bit faster, probably a little bit smoother.

Andrew Dick: That’s helpful. When we think about build-to-suit transactions and using a CTL, it seems like there are a couple of approaches that I’m seeing in the market, Andrew. I want to get your thoughts. Sometimes the health system will have a new facility in mind. It will engage a developer on a fee for service basis and the health system may call you at Mesirow, and say, “Help me find the capital for the CTL transaction.” Another approach that’s becoming common is that some of the healthcare real estate developers will call upon a health system and say, “Hey, I know you have this new project in mind. Let me bring the CTL financing along and package all this up for you.”

Andrew Dick: What are you seeing in the market and what are the pros and cons there? It seems like if the health system went directly to you, that may be a more transparent process, potentially. Or if they use the developer model and the developer brings you along, I guess the health system would need to just make sure they fully understand how the CTL’s being set up. Am I thinking about this the right way?

Andrew Minkus: Yeah, I think you are. I think there’s really two general approaches to this when there’s a private sector developer involved. It really centers around whether the private sector is going to host more of an open-book process or whether they’re going to host more of a closed-book process. There’s nothing wrong with either process. Let me just start by saying that we probably do as much on an open-book basis as we are involved in transactions that are put forward in a closed-book basis. So no allegiance. I can’t say one’s better than the other. It really depends again on the commercial relationship between the landlord and the tenant, right? Between the private sector and the tenant, and I think a lot of it hinges on eventual benefit of beneficial ownership as well.

Andrew Minkus: But when you have a private sector developer that’s building a facility for a system and there’s really no plan on behalf of the private sector to own the asset beyond the lease term, this is what I would call more of just a pure structured-finance deal. The private sector developer, although they may technically be the landlord for 15 or 20 or 25 years, they’re really more of a straw landlord and acting in a fee-development capacity.

Andrew Minkus: This is probably a good scenario that would give rise to an open book process, right? Everybody kind of sitting around the table, negotiating all the docs in concert, the lease document, the loan documents, the developers really just working for a fee at that point. Because 100% of the rental income is probably being zapped into that CTL instrument anyway. So I would say it’s probably more common that we see that open book process and there’s complete clarity and transparency from all sides into the total economic arrangement. Everybody’s completely incentivized to come to the right place. Whether it’s enhancing a certain lease provision, everybody can see that it’s not just benefiting the landlord, it’s benefiting the tenant as well.

Andrew Minkus: Now we could have a scenario, we’ll call it scenario two, where the other private sector developer, there was an RFP that was disseminated and four different developers responded to the RFP, each with their own tract of land, that’s been in the family for 20 years. There happens to be one piece of land that’s highly desirable for the underlying healthcare system. It’s right next to their main hospital or whatever. This private sector developer has no interest in giving up the ownership to the underlying health care system. They want to keep it in the estate and keep it for the family.

Andrew Minkus: That’s probably more of an arm’s length, traditional closed-book type process, right? The landlord has its deal and the tenant has to negotiate its deal. Everybody is going to be focused on quote unquote market terms, both of which can be perfectly fair, but that would be a process that perhaps there would be less transparency. The developer may not feel obligated to disclose all of its economics.

Andrew Minkus: Now where that gets a little tricky is in that scenario, the developer might see how beneficial it may be to utilize CTL financing to finance this type of project and in doing so might ask the tenant for a few things to make the lease hyper efficient for purposes of fetching the most efficient financing. That’s where the tenant might say, “Well, you’re asking for a little bit of an off market provision here. What are you going to do for me?” Or, “Why do you need that?”

Andrew Minkus: I’ve been a tenant on a variety of medical office facilities. I haven’t had to sign a lease with provisions X, Y and Z. So it doesn’t produce the smoothest negotiation, but again, there’s nothing wrong with the closed-book process. We probably see half and half. Again, it really just hinges on the relationship between landlord and tenant and really what’s happening at the end of that lease term.

Andrew Dick: No, that, that was helpful. If it’s a closed-book process, maybe the tenant is comfortable with the economics and feels like it’s still getting a good deal so to speak.

Andrew Minkus: Yeah, exactly.

Andrew Dick: So Andrew, as we wrap up here, talk a little bit about the future of the CTL market. It seems like there’s been an upward trend and it’s becoming more popular. Where do you see the CTL market over the next three to five years?

Andrew Minkus: Yeah, that’s a great question. We get asked a lot what we think the size of our market is. Most of the transactions are structured on a private placement basis so nobody really has access to that data or at least the real data. I think right now, folks are led to believe that it’s a four to six billion dollar kind of market. I think it’s safe to say that if you asked us that question 15 years ago it probably would have been half of that. So I think a lot of that is due to some of the creativity and some of the evolution that we talked about in this space. I think to a large extent we might be responsible for a lot of that. So I think where there are creative minds and well-structured product, I think this is a segment of the market that’s going to continue to grow.

Andrew Minkus: Then I can tell you historically speaking, from a performance perspective, this is one of the best asset classes in history, because you’ve got great credit support, you’ve got good liquidation features, in many cases, self-liquidating features, but not always, and good real estate support and a lot of asset essentiality, too. So I think the trend lines look good. They look positive. We’re constantly coming up with innovative and imaginative new structures to implement CTLs and attach to CTLs, like a lot of these B notes that we underwrite. I mean, I can tell you a lot of the conventional CTL products wouldn’t have existed if not for some of those unique esoteric structures that we’ve put into the market.

Andrew Minkus: So I think it’s going to be an in vogue asset class for some time. In many cases, it’s the only way to finance these types of assets because a lot of these assets are what I would call non-commodity in nature. It’s really hard to finance non-commodity real estate assets. What I mean by non commodity is specialty real estate, like hospitals and data centers and central plants and funky things like that. The mortgage markets, the conventional mortgage, traditional mortgage loan markets, they really choke on product like that. So for that reason, this will always be around in my humble opinion. But I really think it’s going to continue to grow. At what clip? I’m not sure. That’s my two cents on the market.

Andrew Dick: Andrew, this has been a great conversation. Really appreciate your insights here. Where can our audience learn more about you and Mesirow Financial?

Andrew Minkus: Yeah, so you’re certainly free to visit the website. Our department has a page there, Andrew Minkus at Mesirow Financial. My email address is And of course my direct line 312-595-7922, be delighted to speak with anyone at any time. I really appreciate you having me.

Andrew Dick: Well, thanks again Andrew. And 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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Real Estate Valuation Trends with Victor McConnell

Real Estate Valuation Trends with Victor McConnell

An interview with Victor McConnell from VMG Health. In this episode, Andrew Dick interviews Victor McConnell, a Director of Real Estate Services with VMG Health. VMG Health is a health care valuation firm.

Host: Andrew Dick 
Guest: Victor McConnel

On-Campus Medical Office Buildings: Is a Premium Warranted? If So, When and Why?

Financial Feasibility & Speculative Medical Office Building Construction

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities.

Victor McConnell

Victor H. McConnell, MAI, ASA, CRE is a director in VMG Health’s Real Estate Services division and is based in the Denver office. He has real property valuation & consulting experience in 42 of the United States, including extensive experience with the valuation of healthcare related properties.

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. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Today we’ll be talking about valuation trends in the healthcare real estate industry. Hospitals, healthcare providers, and investors are always looking at different ways to value healthcare real estate assets. Typically, a real estate appraiser with deep healthcare real estate experiences needed to competently complete a healthcare real estate valuation assignment. VMG health is one of the leading healthcare valuation firms in the country. Today we’ll be talking with Victor McConnell, a director of real estate services with VMG Health. Victor, thanks for joining me.

Victor McConnell: Thanks for having me Andrew.

Andrew Dick: Victor, before we jump in to some of your valuation work, tell us a little bit about yourself, where you’re from and your educational background.

Victor McConnell: Yeah. I grew up in a small town in Texas about an hour east of Dallas, Greenville. I went to Undergrad at Dartmouth College in New Hampshire, was a English creative writing major, the classic trajectory from Small Town Texas to Dartmouth to healthcare evaluation.

Andrew Dick: Earlier in your career you started working a night shift at a hotel and in Telluride. What was that like? How did you end up there? Tell us about that.

Victor McConnell: Again, that’s the classic… that’s a classic pathway to get into a career in healthcare real estate valuation. After college, I was bouncing around. I got into climbing a lot of rock, climbing and ice climbing and such. I was living in Telluride working odd jobs and eventually had a bad skiing accident and broke both legs in ’05 and needed a desk job. That slowly led to me getting an internship with a commercial real estate appraisal firm that happened to be doing a lot of work for CVS drug stores. Over the years I got further into commercial real estate and did more and more work in the healthcare sector and joined VMG as a consultant initially in about 2012, and then a full time as VMG was building out their real estate practice in 2013.

Andrew Dick: Victor, tell us a little bit about VMG health. I mean, I’m familiar with the company. It’s one of the leading valuation firms in the healthcare space, but talk a little bit about the scope of services offered by VMG.

Victor McConnell: We were founded in 1995 by some ex Ernst & Young partners doing healthcare business valuation and originally valuing everything from the physician practices up to entire health systems. Over the years VMG grew and added service lines, added what we call PSA, the valuation of Physician Compensation Arrangements, other contractual agreements, added capital assets in real estate in the 2000s. Now we’re one of the… if not the largest multi discipline healthcare evaluation firms, so a kind of a middle of the road transaction that engages all of the VMG service lines or core service lines as; hospitals acquiring a physician group, physicians who are going to become employees post transaction, what’s the fair market value of the business and the intangible assets, what’s fair market compensation post transaction and what’s fair market value on either lease or purchase basis for the real estate and the equipment. Then we ensure that all those pieces and the various assumptions fit together in the evaluation.

Andrew Dick: Victor, I’ve worked with you over the years and then I know you have a lot of experience in the real estate space. Tell us about VMG’s real estate practice. Who are you working for? When I worked with you, you were typically working with a hospital or healthcare system, but I know that you’re doing a lot more than working with healthcare providers.

Victor McConnell: Yup. Our core clients tend to be hospital systems but over the years we’ve grown our presence and have worked with a lot of REITs and real estate… healthcare real estate focused private equity firms, lenders, assisting them with their underwriting, trying to get their arms around risk on a particular deal. Sometimes a typical appraisal for a loan or a market rent study. Then we’ll work on litigation related assignments where there’s a dispute that involves value and then the compliance driven work for health systems or on the operational side, private equity buyers that are acquiring healthcare businesses, which is anybody in healthcare right now is very aware of that trend. There’s an increased need for quality of earnings, which has been a growing area of practice for us as a firm. That type of work is driven primarily by the activity in the PE market.

Andrew Dick: So when you’re on those type of projects Victor, you’re testing the income assumptions on the business that will be in the space.

Victor McConnell: Yeah, pressure testing the EBITDA as it were going through, and there’s varying levels of scope. On a real estate focus, we wouldn’t really call that a quality of earnings. Typically that’s more of a… maybe it kind of QOV light or where we’re benchmarking some key risk factors. A true business QOV is a pretty in depth time consuming process where you’re going line by line through a businesses projected revenue and expenses.

Andrew Dick: Victor, valuation, opinions really run the gamut in my world. Some are really light in terms of supporting information. Some have a lot of data. What I found over the years is that healthcare real estate valuation data is closely held. Typically, you can’t hire a local appraiser in a certain market who’s a generalist to value a hospital a or an LTAC or behavioral health care center, just because they don’t have access to that kind of data. That’s always been my assumption based on some of the work product I’ve gotten back from a generalist. Is that true? Talk a little bit about how just the data that VMG has is really what makes it a powerful partner for powerful resource for folks looking for valuation information.

Victor McConnell: Yeah. I’m obviously biased here, but our core compliance driven valuation work across service lines allows us to build up a pretty robust internal benchmarking data set. W annually publish a free study called the Intellimarker that’s a benchmarking study focused on the ambulatory surgery center industry that anybody can download. That study is made possible by our core valuation work. Similarly, on the real estate side, all of the work that we do in our other service lines allows us to get information about transactions and about real estate prices and rents that may not be available from subscription databases like Costar, Inner Vista or other public record sources.

Andrew Dick: Well, Victor, let’s talk about some trends in the industry. Recently you wrote an article about micro hospitals that was published by Becker’s hospital review. Tell us a little bit about your experience working with the micro hospitals, the valuation trends. What’s going on in that kind of sub sector of healthcare real estate?

Victor McConnell: We’ve seen a lot of activity there. Part of this continued move away from the large hospital campuses and the fragmented delivery system that’s a recurring theme. If you listen in on any healthcare real estate conference panel or all of your competitive podcasts, I’m sure Andrew, the… So I think micro hospitals are a manifestation of that. They’re relatively new delivery type that there’s not necessarily even a clear definition of what a micro hospital is. There’s a pretty wide range in terms of size and in terms of services being offered and the cost, the per unit cost per bed or per foot cost can be quite high. When we’ve done work on the behalf of investors who are looking at them, they really wanted to get comfortable from a due diligence perspective because the… on the real estate side, the downside, the dark value on those can be pretty significant.

Andrew Dick: Victor, talk a little bit about how investors look at the micro hospitals. Are these considered a riskier investment in terms of how they’re priced? I think recently there had been some CMS regulations that are focused on micro hospitals and length of stay and-

Victor McConnell: I know Hall Render put out a news blast about that. Do you want to give our listeners a quick overview of the length of stay?

Andrew Dick: Well, I think just briefly. I think CMS has said that you actually have to have in patients with an average length of stay of a couple of days. If you don’t that could potentially jeopardize your hospital status. But victor, how do the investors look at this?

Victor McConnell: Well, I think if you don’t have an ADC and if you don’t have a census of two at the time of the survey, then yeah, you can lose that hospital licensure. In my experience, the way that investors have looked at them is really relying on their operator partner. Given the potential riskiness of the asset, they may be do more due diligence around what the operator is projecting than they would on an asset that’s been around longer, like a surgery center. So, what does that look like? It might mean that you’re doing a deeper dive around the payer mix, and the capture rate and the various volumes that are being projected in the market position of the facility to see if what’s being projected is accurate and realistic because the rental rate that they’re going to be paying the real estate investor can be again quite high. So, they want to know… they want to have comfort that they have a healthy rent coverage ratio.

Victor McConnell: Then in addition to that, I mean, a lot of them are done with credit rated entities. In those cases, the investor is going to look at it maybe a little bit less facility specific if they’re getting a good credit rating behind the lease.

Andrew Dick: When you talk about partnerships or the credit rating of the tenant, it’s been my experience a lot of these micro hospitals are joint ventures between maybe a national for-profit, micro hospital company and a local healthcare system that agrees to brand it with their name. Is that what you’re seeing as well?

Victor McConnell: Yeah. I’ve seen that structure probably I guess most commonly. Although, I think there is some variation there. But without actually being involved in really in the weeds, it’s hard to know sometimes if you haven’t… on some of them that we didn’t work on directly, I only know what’s available in a transaction overview that’s published by some real estate publication. But I’d say my general experience is lined up with yours.

Andrew Dick: Victor, moving away from the micro hospitals, you and I wrote an article a number of years ago for the American Health Lawyers Association that was called, on-campus medical office buildings is a premium warranted. We thought the article was timely because, one, from a valuation perspective over the years, investors in the healthcare real estate space tend to distinguish between on-campus versus off-campus. We also thought it was timely because from a regulatory perspective, if stark or anti kickback applies, there’s some guidance that suggests that proximity maybe shouldn’t be taken into account in terms of setting the rental rate if two providers are entering into a lease, for example. Talk a little bit about the evolution of on-campus versus off-campus from evaluation perspective. It seems like there used to be a widespread in terms of valuation for an on-campus asset versus off-campus, but that may not be true today.

Victor McConnell: Yeah. A big part of the impetus was as you said, a reaction to I think… I think you and I had both seen other attorneys and appraisers who had said, “You can’t charge a different rate because something is on-campus, because of the language around proximity to a referral source.” When I looked into the issue, ultimately I disagreed with that contention for reasons that are laid out in detail in the article. You can observe in the data some of the differences in how the market prices on-campus versus off-campus assets historically. Then you can also walk through some of the physical differences with an on versus off-campus building that you have a amenities often with on-campus buildings, that if you build up a return on cost model would be accounted for, things like a sky bridge or parking deck or access to hospital cafeterias or common space that an off-campus building might not have. Then you have the… sometimes elevated construction costs or higher land value.

Victor McConnell: Again, that will show up if you do a return on cost analysis and then a supply constraint in a lot of cases around a hospital campuses. That now that being said, I have seen cases where the rents on a hospital campus were actually lower than the average off-campus in rates in a given. That was because it was a hospital that had an oversupply of medical office space and it was a… had poor financial performance. So physicians didn’t want to be located on that hospital campus. The larger trend over time has been that the spread and cap rates or the pricing difference between on and off-campus has shrunk over the course of the last decade or so, and more health systems have strategic off-campus assets that are larger, have a wider array of services, that had some specialty build-out or space that’s located in high visibility retail settings.
Victor McConnell: As the real estate investment community sees those trends, they say, “Well, maybe actually the risk associated with this off-campus asset is lower than the one that’s on an aging hospital campus that we’re not sure what’s going to happen too.” That’s a long rambling answer that can be followed up by a review of our HLA article.

Andrew Dick: Now that’s a good summary though Victor. I think in short from the healthcare lawyers that are listening, the bottom line is that in some cases there may be a premium that is warranted for on-campus that can be justified for legitimate reasons outside of proximity to referral sources.

Victor McConnell: Yeah. It’s not a unilateral adjustment that, okay, every on-campus buildings should be X% of an off-campus building. No, that’s not correct. But it is a case by case basis and sometimes the premium is warranted. So ultimately be the answer that I give is the classic answer of the appraiser or the analyst is, it depends.

Andrew Dick: Well, that’s an interesting discussion and if our listeners want to learn more, feel free to go to the show notes and we’ll post a link to the article. Victor, moving on to other unique characteristics of healthcare real estate, we often see ground leases involved, for example, when a hospital wants to develop a medical office building on their campus, hospital may say, “I want to retain fee title or ground lease the land to a developer or physician group who develops the MOB.” What are you seeing in terms of trends? I mean, are hospitals still… do they still like the ground lease model? I think they do. If so, what are you seeing in terms of valuation trends?

Victor McConnell: Well. Ground leases are interesting in that in a lot of cases the dollars associated with the ground lease can be relatively small compared to the total dollars in a deal when you have 50, 100 million dollar construction projects and the annual ground lease payment may be fairly small. But there’s still a significant consideration in it is a 50 to 75 year term. In a lot of cases, ground leases will cover a long list of property rights that can affect what a health system can do with a real estate asset down the road. Sometimes they have put options or purchase options or use restrictions. Those things sometimes have a value impact and sometimes they don’t. I think that health systems who choose to own their own real estate will often still pursue a ground lease structure.

Victor McConnell: I know we’ve seen credit tenant lease agreements and some health systems buying back real estate in kind of a reverse monetization. But generally speaking, I think that the ground leases is still just as prevalent as it was five or six years ago when you’re looking at new on-campus development. The way that I think about ground leases in the context of a new development is always what are the various parties, if you have physician investors, if you have a developer, if you have a hospital and they’re all contributing various things to a development. They may be contributing land or capital or site improvements for the host campus or a portion of a parking garage. You have to look at the development holistically as a valuation professional and determine that all of the various parties are getting a fair market value return on the assets that they’re contributing to the development.

Andrew Dick: Yeah, that’s a good summary. I mean, Victor, over the years when I’ve worked with appraisers that don’t do a lot of work in this space in terms of valuing ground leases, I’ve had… it seems like a wide range of opinion. Some appraisers have said, “Well, under a ground lease, you have most of the tenants. So the owner of the improvements, it’s unlikely that the ground lessee will ever default, because if they do, they could lose the improvements in some scenarios or they know the ground owner knows that the ground lessees lender might step in to ensure that there’s no loss of improvements.” As a result, some of the appraisers have said, “Well, we tend to believe that it’s such a low risk investment proposition that it should be valued differently than a traditional lease. How would you respond to that?

Victor McConnell: Well, a ground lease does have a different risk profile than a building lease. If you look at returns, ground lease rates of return are going to be below a improvement. Part of that has risk, and part of that is that improvements depreciate and land does not. So if you acquire a ground lease, it is an asset that continues into perpetuity. I would say that there is a lower risk profile but it shouldn’t be zero or it shouldn’t be a number close to zero. It should be commensurate with what we see ground leases trading for in the market. There is market data available in the ground lease sector. Actually, a year or two ago there was a wreath that was launched that focuses on ground leases as well.

Andrew Dick: I think you’re right. I was going to ask you about that. I think the ticker symbol was SAFE, S-A-F-E, and they focus on assets that… ground lease assets. I’m not sure how many health care properties they have, but-

Victor McConnell: I personally haven’t seen. I don’t know if they own any or not. I haven’t gone through their 10 k’s or… and I haven’t anecdotally run across any on-campus assets that… or anything like that they’ve acquired.

Andrew Dick: Okay. Victor, as we wrap up here, talk about the future of healthcare real estate and valuation trends. What do you predict in the future? It seems like valuations, for example, MOB assets right now seem to be at an all time high for products that have credit tenants. But what do you predict over the next few years?

Victor McConnell: Well, I’m a skeptic, personally and professionally. Humans in general are not great at predicting the future. In early 2008, I think the global survey of economists forecasted global GDP to grow 2%, and we had the worst recession in 75 years. So anything I predict, I don’t… I wouldn’t put a lot of stock in it. But I think that all of that said, with that significant caveat, I think seeing healthcare real estate continue to become a more recognized asset class, having a larger buyer pool, foreign capital that’s investing in impatient assets and large portfolios, institutional funds, sovereign wealth funds, all of these things have… that didn’t exist in healthcare real Estate 10, 15, 20 years ago are growing. They’re going to continue to grow. I think the cap rate as compared to other core property sectors to apartment, retail, office, industrial, those will continue to compress.

Victor McConnell: I think some select surveys had showed core medical office properties trading at very close to office. It depends on what segment of the market you look at. Simultaneously, healthcare will just… healthcare real estate and… will continue to get more complex, more fragmented, more different types of properties. If you think back 50 years we had a nursing home, a hospital and a doctor’s office. Now we have EL Tags, ASCs, ALFs, Sniffs, SELFs, MOBs, on-campus, off-campus,-behavioral health.

Victor McConnell: Behavioral health, cancer centers, proton centers. Even if you bring up behavioral health, which is one we get a lot of inquiries around, that alone is a very broad term, running the gamut from quasi residential houses up to full scale steel frame psychiatric hospitals. It’s all behavioral health, but very, very different real estate assets, different reimbursement models, different business models. I think that, that again speaks to the complexity of the healthcare real estate market. One of the things that makes it unique relative to some of the other property markets is the… how the business and the real estate are inextricably intertwined. If you’re an investor, you have to understand the business on some level to invest in it. Part of that business is the regulatory risk, which is a lot of what drives your work and my work. Certainly, I’m sure you saw the DOJs 2 billion in recoveries for last year for the ninth straight year. I think that’s the other trend that looking forward is not going to change, the continued regulatory scrutiny.

Andrew Dick: Victor, you recently published an article called Financial Feasibility and Speculative Medical Office Building Construction, where you talk about some trends in the industry where we’re starting to see more specs space being built. Tell us a little bit about your article and some of the work you’re doing around the speculative MOB space.

Victor McConnell: Yes. Financial Feasibility and Speculative Medical Office Building Construction, not exactly a war and peace of titles. It doesn’t really roll off the tongue there. But, yeah, I think part of the… some of the other trends we’ve talked about, the growth of the sector, growth of the buyer and investor pool has led some developers to say, “Well, maybe we can build space at a given location on a spec or speculative basis where we don’t necessarily have tenants pre committed and we’ll lease it up just like we would with office or retail.” That’s something I don’t think happened very often 10 or 15 or 20 years ago because the perceived risk was higher, TIs, the build-out cost for medical office space was higher and so people just stayed away unless you had a tenant who came to you and said they wanted a certain space.

Victor McConnell: But now, we’ve been involved in some projects that were mixed use developments or other off-campus developments where someone thought that medical space would be viable. So then you have to figure it out if it is viable or not by doing some market analysis and some feasibility analysis. That was the purpose of my article.

Andrew Dick: Victor, I mean we’re… some folks say we’re nearing the end of a real estate cycle. How much spec space is really being built? I don’t see a lot of it, but are these developers that have a lot of experience or are they folks that maybe don’t have a lot of experience that are taking a flyer on this?

Victor McConnell: I think that the medical sector is a little bit different. Well, obviously healthcare real estate is affected by the larger kind of real estate macroeconomic forces, and is certainly affected by the real estate cycle. There are also these other factors that are unique to healthcare real estate that the hospitals and patient care, that continues to grow unabated, accompanying population growth and an aging demographic. So the need for space to treat people, even if you have a real estate market that’s declining, that still exists and there’s only so much shelf space that could be converted to medical from something else. I think that the range of people building it, some are more sophisticated than others, but I think that they are responding to a real need in the market, a need for off-campus space and in areas where there’s demand for certain outpatient care.

Andrew Dick: Victor, thank you for being on our podcast today. How can folks connect with you, reach out to you?

Victor McConnell: Our website is My email is But I’m not a hard man to find. If anyone wishes to get in touch, they can find me via VMG’s website.

Andrew Dick: 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 that list, please email me at

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Capital Markets Update with Chris Bodnar

Capital Markets Update

An interview with Chris Bodnar from CBRE. In this episode, Andrew Dick interviews Chris Bodnar, the Vice Chairman of CBRE and co-head of CBRE’s Health Care Capital Markets Group. Chris talks about his career in the health care real estate industry along with various trends in the industry. 

Podcast Participants

Andrew Dick

Attorney with Hall Render

Chris Bodnar

Vice Chairman of CBRE

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

Chris Bodnar: Thanks for having me.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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