ASCs and Surgical Hospitals are Positioned for Growth
COVID-19 and its impact on healthcare real estate
Letter from our Founder
May 19, 2020
We hope you and your family are healthy and doing well during these challenging times. Despite the recent disruption to independent practice groups and elective-based care during the COVID-19 pandemic, the real estate investment appetite for ASCs, Specialty Hospitals, Surgical Hospitals, and Medical Office Buildings overall continues to be strong as these investments are viewed as a defensive strategy by many institutional and private equity investors. In terms of valuations, we continue to see and achieve strong pricing support at multiples of 14x to 17x EBITDA.
In the presence of the worldwide economic and social disruption caused by COVID-19, we are witnessing structural shifts that will ultimately influence the delivery of care, including the continued adoption of telemedicine and a broader awareness of the different types of care settings. In the short-term, this has had an immediate impact on ASCs and Surgical Hospitals since most of them depend on routine visits, ancillary services, and elective-based procedures. However, in the long-term, we have a very positive outlook in that we expect to continue to see an increasing share of elective procedures moved to an ASC or Surgical Hospital setting to support high quality of care and reduce costs.
Although the current pandemic is proving challenging for all types of providers, we have known that the risk of facility-borne infections in an ASC and Surgical Hospital is much lower than in a traditional hospital setting. As a result, we anticipate a continued shift and acceleration in the migration of care from hospitals to elective-based settings. This will result in a disproportionate amount of investment capital targeting more need-based mission-critical healthcare real estate opportunities versus more volatile and recession-correlated investments, such as hospitality and retail.
As we all continue to work together towards improving the lives of others, we wanted to share this information and be available as an educational resource for you when considering a potential real estate strategy. Currently, HREA is pleased to be working with a number of groups in advising on sale-leaseback transactions to free up capital for reinvestment or distributions, as well as sourcing capital for expansion and de novo facilities. Please feel free to contact any one of our experienced professionals to learn more about our capabilities and how we can help you thrive.
We wish you and your family good health and good spirits.
Best wishes,
Christopher L. Stai, CPA
Managing Director
Current Trends in the Market
Medical office investments present the lowest level of risk in a COVID-19 recession, according to Green Street Advisors LLC, a national real estate research and advisory firm.
Healthcare Real Estate has consistently demonstrated recession-resilient qualities providing strong pricing support with asset valuations ranging from 14x to 17x EBITDA.
Given the current market environment, investors are looking to invest more in defensive industries such as healthcare and medical office facilities.
Migration of care to elective-based settings is the beginning of a movement that will change ASCs and Surgical Hospitals forever.
There has been a radical transformation of the healthcare customer with the patients and the payers directing their care to the ambulatory environment.
Low overhead and high level of patient care quality will continue to see the majority of elective procedures shifted to ASCs and Surgical Hospitals to keep patients out of hospitals.
Effective March 30th, CMS issued its “hospitals without walls” initiative allowing hospitals to expand treatment capacity outside their hospital walls, opening up new opportunities for ASCs to play an important role in combating the crisis.
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