I hope you all enjoyed the holiday season and want to wish everyone a healthy, happy and prosperous New Year!! My last correspondence mentioned that this month’s topic would cover Investing in Medical Office Buildings. Let me begin by telling you that I strongly believe in this segment of the marketplace will deliver strong growth going forward though the next decade!

There has been continuous growth for medical office product in recent years for a number of reasons such as the migration from traditional hospital procedures to out-patient facilities. To understand why, think about the cost incurred by your insurance company for having a procedure performed at a hospital; did you know that the fee paid for the doctor is most likely the smallest portion of your entire bill? By having a procedure performed in what may be a newer, cleaner and more sanitized facility, not only do you, the patient, receive better care, but your insurance company is saving money and it is possible your doctor is getting paid more than if the procedure was performed in the hospital.

The information I have provided may not be news to you because this has been going on for some time now. Hospitals are lobbying to try and put a stop to this growing trend because it obviously hurts their business. In northern NJ, there are other barriers to entry other than simply political reasons such as a shortage of land available to develop as well as the costs associated with constructing these facilities.

What does all this mean for investing in Medical Office Buildings?

What a great question; I am glad “you” asked! The truth is that as our economy is contracting due to the economic challenges we face today, the age of our population continues to grow. More specifically, Baby-Boomers are reaching the age of 55 or older (approximately 11 million more people than today will fit this category by 2012) that will require additional medical attention. And with advances in the medical field, people are working and living much longer than previous generations. We are also faced with a new, democratic administration that will spend government money in different ways than in recent years by the outgoing presidential administration. I believe this will add up to increase demand for medical space in coming years and therefore, coupled with limitations on delivering new inventory to the marketplace, pricing will be driven upwards in this market segment.

The good thing is that because there are many obstacles to overcome with developing and delivering new medical product to the marketplace, I am hopeful that demand will increase at a higher rate than supply of this product type and basic economics will tell you that price is simply driven by the balance between supply and demand. Statistics show that the population reaching 55 over the next four years will equate to approximately a 14.3 percent increase for this age bracket! This growth exceeds the next fastest growing age group more than fourfold. And although the overall unemployment rate seems to be at the highest level we have seen in several years, it appears the healthcare industry as a whole will continue to prosper.

According to a recent CoStar forecast report for 2009, out of all property types, Health Care (followed by self-storage) have the fewest delinquent loans outstanding and both property types had been listed as having virtually no potential problems in 2009. And on the other end of the spectrum, multi-family, retail and office respectively have the largest number of delinquent loans.

My Forecast

Based upon the information I have been seeing with respect to the healthcare industry coupled with my daily involvement with Medical Office Buildings, I remain optimistic in 2009 for investment in this product type. Furthermore, I am learning that more and more medical practitioners would like to own their own facility because it enables them to have more control of their own destiny. I predict there is going to be more movement towards adaptive and repositioning of buildings to medical condominiums. Capital is still readily available for medical practitioners despite the recent credit crunch and therefore, savvy real estate professionals are going to tap into this marketplace in the foreseeable future to capitalize on this unique opportunity.

If you would like to discuss this in more detail, please feel free to contact me at your convenience at dlizzack@naihanson.com . I would also be happy to share with you the CoStar report “The State of Commercial Real Estate Industry: 2008 Review/2009 Outlook” if you have further interest. Lastly, I would like to provide you with a link to my current availabilities, many of which are Medical Office Buildings that I am currently representing!  Simply email me and I will have the link sent to you upon my receipt of your request.

I look forward to sharing more of my ideas and thoughts next month. Stay tuned…