Future of Real Estate
Hey everyone, I’m interested in real estate acquisitions and development within the healthcare / medical office niche.
It seems that with the current market environment everyone on this site is very pessimistic about the outlook on real estate. As someone not in the industry, can anyone shed light on whether this pessimism is focused on real estate as a whole or is exclusive to specific niches? How is the outlook on the healthcare real estate space?
Would you recommend pursuing healthcare PE or healthcare RE considering tailwinds and market trends?
It's focused on real estate as a whole. That doesn't mean you shouldn't pursue it though.
Real estate is an incredibly cyclical industry and we're currently in the down part of that cycle. For almost everyone on this website, including old heads like me who were in college during the Great Recession, it is quite literally the first major slump in our professional careers, and it also hurts a whole lot more since the highs many of us experienced were arguably one of, if not the highest highs in history.
It'll come back. When? Your guess is as good as mine. I wouldn't pick a career based on current trends either way. If healthcare PE and healthcare RE are what you're interested in, apply to both and see what happens. The job market may make the decision for you.
Theres one area of RE that is actually doing extremely well and is advancing at a fast pace. Now, its far from the usual REPE and REIB, but Corporate Real Estate/Occupier Services is currently doing great and there is quite a bit of development happening in the sector. Serviced and managed office solutions are booming and there is a lot of development in the quality of service, how operators operate, and how the market works in general.
Its a tremendously exciting time to be in the sector and I am looking to launch something in the area this year to supplement the increasing needs of occupiers.
In general the sector pays less than your typical RE jobs, and there is no profit sharing currently, but I am sure that will change in the coming years when the sector starts consolidating. Its a field that is still mainly ruled by facilities managers , so the "quality" isn't there yet. And sI am saying this with nothing against FM people.
Eh I don't know if it is real estate as a whole. Affordable housing is going gangbusters.
Firms that have a moat in terms of knowledge or skills are still doing fine. The part of real estate that seems to be doing poorly is the "we need low interest rates" set of firms.
You seem young, so there is plenty of time for more cycles to do its thing. It's good you are witnessing one right now as it's necessary for the industry and its professionals. More specifically, healthcare and healthcare assets are not going anywhere. There is the continued aging of boomers and during your professional career, you will see many millennials trending that way as well.
I’m bullish and financially invested in the growth of MRI diagnostic centers (private pay and geared towards people 40+ years old - too many younger people getting cancer these days; AI advancements) and luxury senior living (K-shaped economy, the tripling of 80 year olds population growth from 2025-2050).
And, I see the desire for people to create their digital twin as they get older as a family wealth resource.
The advice I’m giving works not just for health care but for other industries that are asset intensive.
RE vs PE background.
I’ve never worked in corporate PE so I can’t totally vouch in favor of either, but I know the RE skill set has been very valuable for growing early stage companies in the health care sector.
RE development, particularly, is unique in finance because you are creating something (a product, a box that makes money). It is totally a skillset. But knowing development also means understanding capital markets, legal, design, construction (to some extent) and marketing and start-up of operations.
Then you start looking at RE properties not just as stand alone properties, but as part of an operational portfolio.
An interesting and underrated way to grow a HC startup, and scale is via NNN leases using corporate guaranties and strategic JV’s to enhance credit. I learned a lot about structuring from working at institutional CRE firms.
I think CRE is a great background.
Ultimately, you want to get good enough that you’re the only finance/legally-minded (with ops experience) person in the room. You’ll be better rewarded. You will also learn a lot about people (good, bad, and ugly), which later as an old man/woman you’ll attribute to being your greatest, hard earned life lessons.
We did our first healthcare RE deal several years back and continues to run beautifully. Largely because the stickiness of the tenants. I always see these retail centers with suites that are a rotating carousel of restaurants or some vape shop. I start to feel like these places would make great healthcare service businesses such as MRI centers or doctors offices. Sure we might get a little but less PSF at start of lease but the stability is where its at. But Im sure its extremely difficult to navigate MRI centers and the billing.
If you want to do real estate - do real estate. The outlook is positive negative whatever. My point seriously being - it’s a highly cyclical industry. We are in a downturn right now. It could continue for 1 more year or 5. I don’t know. But don’t stay away just because of the downturn.
Im incredibly bullish on the industry as a whole long term. There’s not even a real downturn right now people just can’t do easy deals anymore and it’s washing out the pretenders.
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