As hospitals and health systems consider strategic shifts in response to COVID-19—such as building out telehealth offerings to meet demands for virtual care and seeking ways to increase liquidity to manage the financial stress associated with the pandemic—many should contemplate the trapped value in their owned real estate portfolios.

 

In the three months prior to the pandemic, Hammond Hanlon Camp LLC (“H2C”) initiated several healthcare real estate monetization processes for health systems. In the middle of a robust marketing effort, the COVID-19 pandemic caused extreme volatility in global equity and debt markets that gave many health systems and investors pause. But while market turbulence prompted publicly traded real estate investment trusts (“REITs”) to pull back, private real estate equity funds responded with fresh enthusiasm to real estate acquisitions as an opportunity to be more competitive and to place the large amounts of capital that they had recently raised for healthcare real estate investment. The message to healthcare providers is clear: The healthcare real estate capital markets are open for business.

 

Consider the following examples:

 

• In late March, H2C collected more than half a dozen bids from nationally recognized healthcare investors that generated nine-figure proceeds for a health system in the BBB-rated category at a below-average cap rate. Further, many of the bids did not have a financing contingency and committed to close in cash on an expedited timeframe. This transaction is now closed.
   

• During another process in April, H2C generated over a dozen offers from investors to acquire a 14-property portfolio consisting of a diverse collection of assets located in a single, tertiary market sponsored by an A-rated system. This transaction is scheduled to close at the end of the month.

 

Both processes created a positive result for the health systems and generated liquidity in the short term that better prepares these organizations to respond to financial challenges associated with the current crisis while maintaining critical control over the properties’ use for the long term.

 

These health systems’ processes began with H2C conducting its proprietary Real Estate Transaction Alternatives Study (“RETAS”) to analyze the value of the real estate and the options available to the health systems to monetize their assets in the current environment.

 

Exploring Your Options? H2C Can Help

 

If your health system owns real estate that you believe may have value that could be unlocked through a monetization strategy, H2C may be able to help with transactions that allow you to maximize cash proceeds while maintaining control and minimizing any balance sheet impact. Please contact any H2C professional or the following H2C Real Estate Group members for further information.