Health Care Real Estate Sector Faces Uncertainty

Regulatory uncertainty is the biggest challenge facing the health care real estate sector, according to Jeffrey Cooper, executive manager, Savills U.S., a global real estate services provider.

Cooper spearheads the firm's health care real estate practice. In a video interview with REIT.com at the Akerman U.S. Real Estate Summit this month in Miami, Cooper said the sector is in limbo until the Supreme Court rules later this year on the health care bill signed into law by President Barack Obama in 2010.

"It has created a tremendous amount of uncertainty, not only with respect to economics and how I use my real estate, but with what health care delivery looks like," he said.

In terms of the best investment opportunities within the health care sector, Cooper said ambulatory facilities that offer outpatient care are showing the most promise. As more baby boomers begin to utilize medical facilities, service providers' reimbursement amounts are decreasing, according to Cooper. Meanwhile, an increase in "bundling" of health care services is occurring.

As a result, Cooper said there will be a need for more outpatient services.

"If reimbursements are coming down, then we have to deliver medical services in the most cost-efficient way," said Cooper, adding that this will push more services to an outpatient setting.

The Great Recession has put pressure on the health care sector in the capital markets, Cooper said. Capitalization rates started climbing when the financial crisis hit. In the last 18 months, however, these rates dropped to a level roughly on par with the market in 2007, prior to the economic slowdown.

Uncertainty has also played a large role in preventing new construction, Cooper explained, though development activity in the health care market is slowly coming back. However, until firms have a clearer picture on new regulations, building will likely be limited to areas in which it is necessary.

"Development activity is coming back, but it's at a much lower level than before the recession," he said.