'Nothing Short Of Incredible': Investors Look To Form REIT To Buy Real Estate For Psychedelic Therapy

The medical treatment Cody Shandraw and Ty Zakovich want to build a property empire around isn’t even legal in the United States yet, but they’re not waiting around to stake a claim on what they think is the future of healthcare real estate.

Zakovich and Shandraw are the co-founders of Healing REIT, a real estate investment firm with a focus on buying and renovating clinical space for practitioners looking to dive into the world of MDMA psychological treatments. Their plan is to seek approval from the New York Stock Exchange to be traded as a real estate investment trust by later this year.

Their bet is a bold one, particularly because treatment with MDMA — the pure version of the drug commonly referred to as ecstasy or Molly — is still illegal in the United States. But approval for its use treating mental health conditions, which could happen as soon as next year, is working its way through the Food and Drug Administration. Zakovich, Healing REIT's CEO, and Shandraw, its president, say as soon as the treatment gets approved, they have a list of clients ready to sign up to lease clinical space from Healing REIT.

“Everybody is talking about the drug, but no one is talking about where the drug is going to be delivered,” Shandraw told Bisnow during a recent interview. 

Zakovich is also a principal of California-based CRE asset management and debt firm TGP Ventures, and Shandraw, who describes himself as a “serial entrepreneur,” invests in the medical psychedelic space through Ambria Capital and the venture fund Phyto Partners. The duo has a third partner, Chief Operating Officer Daniel Carcillo, a former National Hockey League professional and two-time Stanley Cup winner who played with the Chicago Blackhawks and the New York Rangers.

Since his retirement at age 30, Carcillo had become an advocate for those with traumatic brain injuries and the use of psilocybin in their treatment for the symptoms of brain injuries. Carcillo also is CEO of Wesana Health, a firm focused on creating treatments for TBI and other mental health disorders.

Shandraw said his Phyto fund gave Healing REIT an initial $250K in capital this year, and Zakovich said the firm raised an additional $1M in seed money from outside investors this month. They told Bisnow they are in negotiations to buy their first building, a clinic in Brooklyn, New York. 

Shandraw said they have identified a pipeline of $47M in real estate acquisitions throughout the country that would make up Healing REIT’s initial portfolio. The buildings are largely existing single-story office buildings or condominiums between 2K and 5K SF.

Zakovich said Healing is targeting properties within 5 miles of the nation’s top U.S. Department of Veterans Affairs hospitals, including in Palo Alto, Los Angeles and San Diego, California, Ann Arbor, Michigan, Boston, Northern Florida and Southern Georgia, where medical practices already exist to help veterans suffering from post-traumatic stress disorder.

“These are single buildings or single office condos that typically already had a medical use before,” Shandraw said. 

MDMA is a psychedelic that is increasingly being studied and used to treat psychological disorders as a more effective alternative to already-approved therapies. The drug works by increasing the output of seratonin and dopamine, which can elevate mood, behavior, thoughts and energy, according to Healthline. The drug was actually legal in the U.S. until 1984, when the Drug Enforcement Agency declared it a Schedule 1 substance, which made it illegal to take, despite some psychologists finding benefits for its use for mental health disorders in the years prior.

Along with MDMA, psilocybin — the active ingredient in what are commonly known as "magic mushrooms" — is under final safety evaluations with the FDA, and could get a green light for medical use by next year, The Intercept reported.

“One big reason that we’re looking at psychedelics is because our traditional treatments don’t work,” said Amy Morin, a licensed psychotherapist, author and editor-in-chief of Verywell Mind. “People are making new connections with the synapses in the brain. And when they come out of their trip, those things are permanent.”

The use of psychedelics for medical therapies is already impacting the healthcare real estate market. 

The psychedelic drug market is in a major growth spurt as more research links better outcomes when treating depression, PTSD and other psychological disorders. In 2021, the global psychedelic market his $2.3B, according to Data Bridge Market Research, with major players like Janssen Pharmaceuticals, Pfizer, Verrrian, Celon Pharma and ATAI Life Sciences involved in the development of MDMA and other psychedelics. By 2029, that market is expected to balloon to $6.4B.

After the FDA approved a nasal spray version of ketamine for the treatment of depression and chronic pain in 2019, hundreds of clinics sprouted up for its their distribution and administration. Experts estimate that there are currently between 500 and 750 ketamine clinics throughout the U.S., Medscape reported.

These clinics are mainly run by mom-and-pop operations, allowing patients to come in for treatment sessions that typically last 30 minutes to an hour, experts say. But since the FDA approval, many clinics are being rolled into larger chains. Irwin Naturals purchased 10 clinics in the U.S. this year and Revivalist is expanding beyond its Tennessee borders to North Carolina, Michigan and Washington, D.C., Mind Site News reported.

“The amount of capital that has been injected is nothing short of incredible,” Shandraw said.

The type of treatment rooms needed for MDMA therapies differ from the clinics currently used for ketamine. MDMA treatments can last hours, and need to be in rooms large enough not only for the patient but an administering therapist or doctor to talk the patient through the experience, Morin said, adding that spaces need to be akin to a modern-day health spa.

“Basically, you want a really calming space. You want something that looks like a living room rather than a doctor’s office,” she said.

While there are many clinical spaces available, including for ketamine, few are designed to administer MDMA, Shandraw said. Especially given the length of time for an MDMA therapy session, Shandraw said Healing would provide private bathrooms in each treatment room.

“It became really apparent that the existing infrastructure in place today for ketamine therapy is not going to work for MDMA therapy,” he said. “Because this is experiential medicine, this medicine needs to be done inside of a brick-and-mortar clinic. So that created a kind of giant vacuum for what’s needed.”

Working with the law firm Greenberg Traurig, Shandraw said Healing REIT is scheduled to file a prospectus with the Securities and Exchange Commission to go public by September. The firm already has a list of medical practices that are ready to sign triple-net leases in the facilities that Healing REIT would own, Zakovich told Bisnow.

“We’re working with chiropractors [and] ketamine medical companies,” Zakovich said. “All the practices that we’re purchasing the real estate for are existing profitable practices that want to add MDMA therapy to.”

The duo declined to identify their potential tenants. But even if FDA approval remains elusive, Shandraw said the spaces can easily be used for other therapies, including ketamine and other, more traditional clinics, such as detox centers or chiropractic facilities.

“I’m hoping that by the time this company goes public, you’re going to see $100M to $150M market cap, and hopefully half a billion over the next 36 months,” Shandraw said.