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Why Healthcare May Be a Real Estate Investor's Best Bet


Apr 26, 2021 by Marc Rapport
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Among life's essentials are food, shelter, clothing, and healthcare. And the latter seems particularly recession-proof, including in the eyes of big investors who have poured money into healthcare properties even as the pandemic kept people at home.

A recent article in The Wall Street Journal titled "Real Estate Investors Bet on Patients' Return to the Doctor's Office" [subscription required] recounts how sales in that sector not only held their own but accelerated as 2020 wore on, defying the decimation seen among other office, retail, and restaurant spaces.

A big reason for that smart-money confidence is that the medical industry for the most part pays its rent.

"Landlords have collected more than 95% of what they are owed, according to data firm Revista LLC," the WSJ piece says. "Some office landlords with mediocre property, by comparison, had rent collections lower than 85%, according to market participants."

The country's ultimate growth industry

The medical industry in all its iterations -- from private practices to urgent care clinics to vast hospital systems -- also are serving a growth industry. It's not just an aging population that's growing, it's what people pay for medical care.

According to the most recent figures from the federal Centers for Medicare & Medicaid Services (CMS), national health expenditures were $11,582 per person in 2019 -- totaling a cool $3.8 trillion -- and are expected to grow at an annual rate of 5.4% to $6.2 trillion through 2028.

That's nearly 20% of gross domestic product, CMS says, and per-person spending for people 65-plus has consistently been more than five times that spent per child and three times the spending per working-age person.

Being the landlord: just what the doctor ordered

Individual real estate investors, of course, can capitalize on that reality by serving as landlords to medical practices. You also can invest in -- or lease to -- something like those "doc-in-a-box" urgent care businesses or remote delivery providers like Teladoc Health (NYSE: TDOC).

While remote healthcare delivery is a small but growing factor, there are some things that just can't be done remotely -- there's no DIY heart surgery at home yet -- and there's also a comfort level of being seen in person that will be hard to replace in the years ahead.

So, let's consider real estate investment trusts (REITs) that specialize in medical care in all its variations. Here's a Millionacres article that highlights some opportunities: "3 Healthcare REITs to Buy Now."

In that piece Kevin Vandenboss takes a look at Medical Properties Trust (NYSE: MPW), Omega Healthcare Investors (NYSE: OHI) and Sabra Health Care REIT (NASDAQ: SBRA). Check out Kevin's article for the details, but suffice it to say that collecting the rent is not typically a problem here. Omega, for instance, in its most recent quarterly report says it collected more than 99%, and that's while yielding a healthy 7.07% as of April 23.

Broaden that perspective to the work that goes on before the front-line docs and nurses get a hold of you. That would be the big business of life sciences. One of the most successful REITs there is Alexandria Real Estate Equities (NYSE: ARE), which develops and manages entire campuses of companies, colleges, and other institutions working alone and together to develop solutions -- and products -- that take on today's and tomorrow's personal and global health challenges (including pandemics).

The Millionacres bottom line

The WSJ article pointed out that not all medical properties are immune from the plague of vacancies that has struck other commercial real estate spaces.

Causes for that include major healthcare systems swallowing up private practices, introducing new efficiencies and less space demand. Plus, there's telehealth and the increasing acceptance of work that can be done online. Many practitioners that would have eschewed doing it by Zoom (NASDAQ: ZM) are now doing just that routinely, and that may well continue.

"If you have a building full of psychiatrists, you should worry," Hilda Martin, co-founder of the Revista data firm told the WSJ.

But if you have a portfolio of well-selected REITs and/or individual properties with established practices and related businesses that cater to these demographic realities, you should be just fine.

Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

To get started, we’ve assembled a comprehensive guide that outlines everything you need to know about investing in real estate - and have made it available for FREE today. Simply click here to learn more and access your complimentary copy.

Marc Rapport owns shares of Teladoc Health. The Motley Fool owns shares of and recommends Teladoc Health and Zoom Video Communications. The Motley Fool recommends Alexandria Real Estate Equities. The Motley Fool has a disclosure policy.