Exclusive Q&A: Why IRA Realty Capital Is Increasing Medical Office Acquisitions Nationwide
All roads are leading to healthcare assets, according to IRA Realty Capital principal Samir Patel. Samir (below in London) is one of the panelists scheduled to speak at Bisnow's Annual Healthcare Expansion Forum event at 7:30am May 19 at the LA Athletic Club.
Bisnow recently caught up with Samir to talk about healthcare expansion and what the future holds.
Bisnow: What has been the strategy for your company?
Samir Patel: Our strategy has been to acquire cash-flowing assets that provide solid back-end returns. This strategy has shifted across various product types over the past few years, depending on where we saw the most opportunity at that point in time. In 2010 to 2012, we built our portfolio around single-tenant net leased assets with longer-term leases and strong credit-rated tenants. Coming out of the downturn, we recognized there was a major inefficiency in the comparison of yields for investment-grade corporate bonds, and yields for investment grade NNN real estate (a spread of 500 bps-plus). Accordingly, we launched a single-tenant net lease fund and purchased retail, office, as well as some medical office. As cap rates compressed in the NNN space, we shifted focus to student housing assets as we were able to acquire these assets at 100 to 200 bps over where they traded historically. When capital started flowing from multifamily assets into the student space, causing additional compression, we began focusing more on traditional retail and office with a greater concentration on medical. Our company has made a strategic decision to increase our portfolio allocation in medical office throughout the country as a result of the macro and micro environment heavily pointing to increased demand for medical services.
Bisnow: Do you see that strategy changing in the next year?
Samir Patel: Because we are a private company and how we are capitalized, we have the flexibility to shift strategy very quickly. We believe we will continue to make a greater push into both retail and medical assets. Our existing medical portfolio consists of both single and multi-tenant medical office, surgery centers, LTACs, FSEDs, etc. We are exploring acquiring other types of medical uses, including traditional hospitals and skilled nursing/assisted living as certain opportunities arise. A larger part of our business has focused on joint-venturing in a lot more developments compared to buying existing stabilized assets.
Bisnow: What do you think the future of healthcare real estate looks like in LA?
Samir Patel: I think healthcare in LA is experiencing similar trends being seen across the industry nationally. (Samir is pictured above with his brother, Dr. Sejal Patel, and his father, Barin Chaudhuri, on the Amalfi Coast in Italy.) After the passing of the Affordable Care Act, we have seen the continued consolidation and a push from larger health systems to acquire smaller healthcare tenants (groups) and/or joint-venturing amongst these larger systems. We think this trend will continue as the smaller groups will need to scale to be competitive. Though we don’t fully understand the impact of Section 603 of the Bipartisan Budget Act of 2015, I believe we will continue to see expansion of the “hub-and-spoke” model. LA has some of the largest health systems in the country, and I believe they will continue to increase their footprint across the area.
Bisnow: What unique challenges does healthcare real estate have compared to other real estate when it comes to meeting demands?
Samir Patel: One of the biggest challenges we have in the healthcare real estate space is the constant regulatory changes and understanding the impact these changes will have to our tenants' insurance/Medicare/Medicaid reimbursements. This will directly impact the viability and bottom line of our tenants and the amount of rent landlords will be able to charge.
Bisnow: Please tell us about some of your company's latest projects.
Samir Patel: We recently acquired multiple medical assets in Texas and Pennsylvania. The story was very similar across the board: the assets were approximately 75% to 85% leased; properties were mismanaged and needed capital improvements. As a result of our efficient access to capital and understanding of the specialized product type, we are able to bring the properties up to a level where we can quickly lease out the vacancy and extend the existing leases. We strive to form strong relationships with our tenants and understand their needs.
Bisnow: What do you enjoy doing outside of work?
Samir Patel: I love to travel. (Samir is pictured above with his fiancee.) I’m actually visiting 11 different countries this year alone and take any chance I have to go somewhere new. I love learning about new cultures and eating their local cuisines.
Hear more from Samir and our other all-star panelists at Bisnow's Annual Healthcare Expansion Forum event at 7:30am May 19 at the LA Athletic Club. Sign up here!
