Newmark’s Garth Hogan on Healthcare Real Estate Priorities

At Connect Healthcare Real Estate 2023, scheduled for Sept. 27-28 at VEA | Newport Beach Marriott, you’ll hear from a variety of expert viewpoints during the “State of the Market & The Future of Healthcare Real Estate” panel. To help set the stage, we sounded out Garth Hogan, executive managing director, healthcare at Newmark. Here’s what he told us:

Q: Operating costs are increasing for healthcare systems. How does this affect their real estate use?

A: It has had an impact on real estate. During financial duress, health systems will prioritize capital and direct it to their core business lines and maintaining their facilities. Growth and new development have had to take a temporary “back seat.” Consolidation can aid in lowering costs and assist in freeing up capital to start building strategic projects again. Understanding how space is being utilized will become very important in cutting out excess costs.

Q: With the pandemic now largely (but not entirely) behind us, what conclusions can we draw about its impact on how healthcare is provided?

A: We learned a lot during the pandemic. The healthcare ecosystem and consumers are facing an unfamiliar world of remote working and virtual doctor visits as their behavior is changing as a result of grief, uncertainty and fear of how and where they are comfortable being treated. We’re currently involved in a number of projects where these changes are creating demand for new hospitals, ASC’s and medical office buildings which will also incorporate design and construction in response to a new type of healthcare delivery. In Northern California, our Folsom Ranch project includes UC Davis and Dignity Health. They have acquired nearly 60 acres of land and have started construction on future MOB’s and hospitals. In the Stockton/Lodi area, our team just launched a fully entitled hospital development opportunity as rooftops are in high demand.

Q: Are we seeing more healthcare systems consolidate? If so, what are the implications for the real estate, e.g., will some of it become redundant?

A: Yes. We’ve seen consolidation increase year over year, during and post pandemic. Deal size was a big adjustment in late 2022, which is trending to mega-mergers. Much of this is a result of cutting costs, strengthening negotiating power with the payors and supply chain contracts. It’s been our experience that this type of M&A always creates redundancy in the real estate footprint. Most of our new business is coming from new demand in rural markets near large cities as a result of the trends of more people working from home. We’ve been very active in assisting health systems give back space to Landlords and sell vacant space. Much of my team has focused on selling assets that are no longer strategic and usually as a result of consolidation, prior to the pandemic.

Q: Venture capital investment in healthcare appears to be on the rise again. What are some areas where VC is turning its attention?

A: We’re seeing venture capital fundraising continue to rise.  Much of it has accelerated, due to what we learned during the pandemic. Traditionally, life-sciences, biotech received the most capital, followed by technology and AI. Investors have slowed down on start-ups but there’s plenty of dry powder on the sidelines looking for opportunities. It looks like technology is becoming attractive as it develops cutting edge data and algorithms to improve patient outcomes.  We’ve also noticed that private equity firms have taken an interest in assisting with funding some of the hospital consolidations and see it as a good opportunity for large returns in the future.

Connect Orange County will take place Sept. 27, 2023 at VEA | Newport Beach Marriott in Newport Beach, concurrently with Connect Healthcare Real Estate on Sept. 27 and 28. Click here to register for Connect Orange County, and here to register for Connect Healthcare Real Estate.